Whether authorities can block/debit electronic credit ledger (ECL) under rule 86-A when balance is nil

Facts:

• The petitioner, a Pvt. Ltd. Company engaged in manufacture & sale of MS Billets (MS Billets are semi-finished casting product produced in a steel mill that needs to be further processed to transform them into a finished good).

• The petitioner, a Pvt. Ltd. Company engaged in manufacture & sale of MS Billets (MS Billets are semi-finished casting product produced in a steel mill that needs to be further processed to transform them into a finished good).
• Proper officer has made a debit in the appellant’s Electronic Credit Ledger under rule 86-A even when there was no balance in the ECL, which made insertion of negative balance in the ledger.

Legal Precedence: HIGH COURT OF GUJARAT

In M/s Samay Alloys India Pvt. Ltd. Vs State of Gujarat

Points put forth:

• Rule 86-A allows proper officer to disallow/block debit from ECL for limited period of time & not to make any debit entries in the ECL.
• Heading of Rule 86-A says it can be invoked only when amount is available in ECL.
• Rule 86-A is not framed to recover input tax credit fraudulently availed, if ITC is fraudulently availed & utilized appropriate proceeding under Section 73/74 of CGST ACT, 2017 can be initiated but not under Rule 86-A.
• Thus, department has no power under Rule 86-A to negatively block credit in ECL.

Judgement:

It was held that respondents were directed to withdraw negative blockage of ECL. Petitioner was entitled to refund of Rs. 20 lakh which was deposited to file the return for the month of September for paying off the negative ITC which resulted in additional amount of output tax liability.

Hrithik Sachdeva, Audit Associate, SW India