The Delhi High Court Division Bench of Justices Vibhu Bakhru and Purushaindra Kumar Kaurav directed the department (respondents) to unblock the Input Tax Credit (ITC) of petitioner available in his Electronic Credit Ledger (ECL). Additionally, solely because the supplier has not been paid, it is not possible to restrict the ITC.
Under the name “Mahavir Impex”, the petitioner operates business and supplies of mobiles and mobile parts. The petitioner filed a Writ Petition in opposition to the respondents’ action in blocking the ITC of Rs.1,37,17,022/-, which is credited in the petitioner’s ECL.
On February 11, 2020, the department blocked the ITC without providing any chance to be heard. The petitioner expressed his dissatisfaction that his ITC had been suspended for more than 18 months (more than a year).
He had also brought up the fact that it was illegal to block the ECL for a duration more than one year in accordance with Rule 86A of the Central Goods and Services Tax Rules, 2017 (CGST Rules).
The respondent claims that the petitioner owes interest under Section 16(2)(d) of the Central Goods and Services Tax (CGST) Act and is also subject to Rule 37 of the Central Goods and Services Tax Rules since he failed to pay the consideration for supplies he received from D.G. Impex within 180-days.
The petitioner was subjected to a violation of Rule 86A of the Central Goods and Services Tax Rules. According to the rule itself, it can only be applied in cases where the ITC offered in the ECR has been “fraudulently accessed” or is “ineligible.”
Harpreet Singh, the respondent’s counsel, asserted that the only reason for blocking the ITC in the petitioner’s ECR is that he is ineligible to avail the same in view of Section 16(2) of the Central Goods and Services Tax Act.
The Coram tried to establish the interpretation of the term ‘inasmuch as’ used in Rule 86A(1) of the Central Good and Services Tax Rules. According to the observations, the use of the expression “inasmuch as” restricts the scope of ineligibility to the conditions as set out in sub clauses of Rule 86A(1) of the Central Goods and Services Tax Rules.
Further, It is only if any of these conditions are satisfied that the restriction under Rule 86A(1) of the Central Goods and Service Tax can be imposed in respect of ITC on the ground that the ITC available in the taxpayer’s ECL is ‘ineligible’.
According to the bench, the conjoint reading of Rule 37 of the Central Goods and Services Tax Rules and the proviso to Section 16(2) of the Central Goods and Services Tax Act leaves no room for doubt that a taxpayer is entitled to avail of ITC in the first instance even though he has not paid the supplier for the goods/services.
Additionally, it was noted that restrictions placed on ITC cannot last longer than a year from the day they were put in place. Thus, the petitioner has the right to get the merits of such a long and unauthorised restriction.
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