Best Crop Science Pvt. Ltd. Vs Principal Commissioner (Delhi High Court)
The Delhi High Court decided a batch of writ petitions challenging orders passed under Rule 86A of the Central Goods and Services Tax Rules, 2017, to the extent they blocked input tax credit (ITC) in taxpayers’ Electronic Credit Ledgers (ECLs) beyond the credit actually available, thereby creating artificial negative balances.
The petitioners, registered taxpayers under the CGST/DGST Acts, contended that Rule 86A permits blocking only of ITC that is available in the ECL at the time of passing the order. According to them, the rule does not authorize insertion of negative balances or blocking of future ITC. The Revenue argued that Rule 86A empowers authorities to block an amount equivalent to ITC believed to be fraudulently availed or ineligible, even if such amount exceeds the balance available in the ECL on the date of the order.
The Court confined itself to the narrow controversy of whether Rule 86A allows blocking of ITC exceeding the available balance in the ECL. After examining the statutory scheme of the CGST Act, the nature of ITC, and principles of statutory interpretation, the Court held that ITC is a valuable statutory right that vests once validly accrued, though subject to statutory conditions. Invocation of Rule 86A is a drastic and temporary measure meant to protect revenue and must therefore be strictly construed.
