Blocking of ITC Cannot Exceed Available Balance, Creation of Negative Credit Ledger Entries Unlawful: Punjab & Haryana HC [Read Order]
The HC held that GST authorities cannot create negative balances in a taxpayer’s Electronic Credit Ledger under Rule 86A, declaring such action beyond their legal authority.
ITC - Blocked - Taxscan
ITC - Blocked - Taxscan
In a recent ruling, the Punjab and Haryana High Court held that Goods and Services Tax (GST) authorities have no power to create a negative balance in a taxpayer’s Electronic Credit Ledger (ECL) under Rule 86A of the CGST Rules, 2017, and that such action is without jurisdiction.
The petitions were filed by Shyam Sunder Strips, Shivam Trading Company, and Kamaldeep Metalics Pvt. Ltd., challenging the blocking of their Input Tax Credit (ITC) and the creation of negative balances in their ECLs. The amounts blocked were Rs. 34,43,946, Rs. 67,82,734, and Rs. 16,49,020, respectively.
The petitioners’ argued that the department exceeded its powers under Rule 86A by not only blocking their ITC but also creating negative entries in their ledgers, which is not permitted under the Central Goods and Services Tax (CGST) Act, 2017.
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
The petitioners’ counsel argued that Rule 86A only allows authorities to restrict the use of existing credit if there is a reason to believe it was fraudulently availed or is ineligible. However, it does not authorize the department to make deductions beyond the available balance or to create a negative entry.
They further argued that such actions violate Section 49 of the CGST Act, which governs the use and maintenance of the ECL and does not permit any debit beyond the amount actually available.
The department’s counsel argued that the blocking of credit was done to protect revenue interests and that the action was based on the officer’s reasonable belief that the ITC was wrongly claimed. They also argued that the restriction under Rule 86A is temporary and can be lifted after one year if the conditions for blocking no longer exist.
The Division Bench of Justice Lisa Gill and Justice Meenakshi I. Mehta observed that Rule 86A allows only for the blocking of credit available in the ledger and not for creating a negative balance.
The court explained that such a step goes beyond the powers granted under the law and violates the statutory framework of Section 49 of the CGST Act. The court pointed out that administrative authorities must act strictly within the limits of the statute and cannot exercise powers not provided by law.
The court held that the creation of negative balances in the Electronic Credit Ledger is unlawful and without authority. The court directed the GST authorities to restore the petitioners’ ledgers to their original state before the blocking orders and declared that such actions cannot be sustained in law.
Support our journalism by subscribing to Taxscanpremium. Follow us on Telegram for quick updates
