Samay Alloys India Pvt. Ltd. Vs State of Gujarat (Gujarat High Court)
HC held that condition precedent for exercise of power under Rule 86A of the GST Rules is the availability of credit in the electronic credit ledger which is alleged to be ineligible. If credit balance is available, then the authority may, for reasons to be recorded in writing, not allow the debit of amount equivalent to such credit. However, there is no power of negative block for credit to be availed in future.
FULL TEXT OF THE ORDER OF GUJARAT HIGH COURT
1. By this writ application under Article 226 of the Constitution of India, the writ applicants have prayed for the following reliefs;
“(A) This Hon’ble Court may be pleased to issue a writ of mandamus or writ in the nature of mandamus or any other appropriate writ or order directing the Respondents to forthwith withdraw the negative block of the electronic credit ledger of the Petitioners as visible from the extract of credit ledger annexed at Annexure-A;
(B) Pending notice, admission and final hearing of this petition, this Hon’ble Court may be pleased to direct the Respondents to forthwith withdraw the negative block of the electronic credit ledger of the Petitioners as visible from the extract of credit ledger annexed at Annexure-A;
(C ) Ex parte ad interim relief in terms of prayer-B may kindly be granted;
(D) Such further relief(s) as deemed fit in the facts and circumstances of the case may kindly be granted in the interest of justice for which act of kindness your petitioners shall forever pray.”
2. The facts, giving rise to this litigation, may be summarized as under;
2.1 The writ applicant No.1 is a private limited company. The writ applicant No.2 is one of the Directors and share holder of the writ applicant No.1-Company. The Company is engaged in the business of manufacture and sale of MS Billets. It is not in dispute that the Company is registered under the GST Act.
2.2 It appears from the materials on record that at the relevant point of time when the writ applicants attempted to file their return for the month of September, 2021, there was no credit balance in the electronic credit ledger. Despite the same, the portal displayed a message that the electronic credit ledger had been blocked by the respondent No.2. It was further noticed by the writ applicants that a negative balance had been entered in their electronic ledger by the respondent No.2. In such circumstances and as a result of such negative balance, if the writ applicants would file return for the month of September, 2021 by claiming input tax credit, the writ applicants would be required to pay an additional amount of output tax under the provisions of the GST Act to the extent of negative balance of the input tax credit in the electronic credit ledger.
2.3 It appears that the writ applicants addressed a letter dated 22nd October, 2021 to the respondent No.2, requesting for reasons to block the input tax credit. The respondent No.2, however, thought fit not to pay any heed to such request.
2.4 In such circumstances, referred to above, the writ applicants are here before this Court with the present application.
3. Mr. Uchit Sheth, the learned counsel appearing for the writ applicants vehemently submitted that his clients were unable to file the return for the month of September, 2021 because of the negative block in the ledger. He would submit that his clients would immediately be liable to additional amount of tax equivalent to the negative block even without any adjudication if they would proceed to file such return.
4. He submitted that the negative block of electronic credit ledger with Nil balance in the credit ledger as on the date of the imposition of the block is wholly without jurisdiction and beyond the scope of Rule 86-A of the GST Rules.
5. Mr. Sheth would submit that the sine-qua-non for the exercise of power under Rule 86A of the GST Rules is that there should be credit available in the electronic credit ledger which is alleged to be ineligible. In other words, the submission of Mr. Sheth is that if any credit balance is available, then the authority may, for reasons to be recorded in writing, not allow the debit of amount equivalent to such credit. However, there is no power of negative blocking for the credit to be availed in future.
6. In such circumstances, referred to above, Mr. Sheth prays that there being merit in his writ application, the same be allowed and the respondent No.2 may be directed to unblock the electronic credit ledger.
7. On the other hand, this writ application has been vehemently opposed by Mr. Utkarsh Sharma, the learned AGP appearing for the respondent No.2. Mr. Sharma would submit that the action of blocking the electronic credit ledger of the writ applicants in exercise of powers under Rule 86-A of the Rules 2017 is in accordance with law and needs no interference.
8. Mr. Sharma, the learned AGP, appearing for the State has filed his written submissions as under;
“The department proposes to file the following written submissions with reference to the controversy and the question of law involved in the present petition. The submissions are restricted to the questions of law.
1. It is submitted that the main controversy involved in the present petition is surrounding the Rule-86A of the GST Rules, 2017, wherein, in the petition the petitioner has prayed that the blocking was not permissible and it amounts to negative block of the ‘Electronic Credit Ledger’ and that the invocation of powers under Rule-86A was not proper and not tenable in the eyes of law.
2. It is respectfully submitted that the petitioner has tried to read into the provision and has also tried to create an artificial interpretation by basically harping upon two points one that the debit can be only restricted if there is balance and second it amounts to recovery, which otherwise, has to be done after issuance of show-cause notice and final orders u/s 73/74 as the case may be.
3. It is submitted that dealing the second point first, it does not amount to recovery as the amount in all cases till the final adjudication remains in the account, only the debits are not permitted and therefore, the said submission is not only deviating from the original controversy but also misapplied.
4. Now dealing with the main issue involved in the petition i.e. permissibility of invocation of powers under Rule-86A and not permitting the debit of an amount equivalent to such credit in electronic credit ledger as seems to be fraudulently availed or ineligible upon recording reasons is concerned, the said powers are not limited to the available balance or the amount in the electronic credit ledger on that day it relates to the amount in general to the said extent.
5. In fact, the rule is very clear and has consciously used ‘equivalent to such credit’ instead of the words ‘equivalent to such ‘available’ credit’ in the second part of the said rule the non-usage of word ‘available’ draws lot of significance. There is one more facet to the issue that is the words ‘equivalent to such credit in electronic credit ledger’ do not speak about balance as on date, it speaks about extent, therefore, the available balance in ledger on the day of recording reasons and passing order may be NIL, however, the same dwells into insignificance, more particularly when maintenance of Electronic Credit Ledger is a continuous exercise.
The emphasis is applied on the following set of words more particularly the bold portion:
‘….may, for reasons to be recorded in writing, not allow debit of an amount equivalent to such credit in electronic credit ledger…’
6. It is submitted that while interpreting any provision of law, the only acceptable method of interpretation is constructive interpretation and not the negative interpretation. It can neither be the statutory intent to protect a wrong doer or someone who has availed a wrongful benefit, which otherwise, was not permissible nor shall it be permitted by hyper-technical attempt to misinterpret the provisions of law. It is undisputed fact that interpretations are of utmost significance as the statutory provisions would not envisage any and every eventuality and therefore, for such eventualities, interpretation is required to meet the ultimate ends of justice.
7. It is submitted that the rule in question i.e. Rule-86A has given broad powers to ensure that the debits are not permitted at a stage before the proceedings attain finality and therefore, it cannot be termed as recovery. In a given case if someone has already availed an alleged wrong claim and utilized the same it would not mean that now the debits to that extent cannot be freezed or restricted by operation of Rule-86A as there were no balances on the day reasons were recorded. In fact, the returns which would be filed may result into accumulation of the amounts in the electronic credit ledger. It is submitted that the ledger accounts are a continuous process, wherein, the amounts get accumulated and are utilized by the registered person and therefore, not permitting debit of a particular amount of particular quantum has nothing to do with the available balance or non-availability of balance.
8. As far as the Rule-86A and its overall operation and exercise of powers are concerned, the same has been comprehensively covered by the judicial dictum of the Hon’ble Court in the Case of ‘M/S S.S. Industries Versus Union Of India’ ‘Special Civil Application No.8841 of 2020’ and ‘Special Civil Application No.8163 of 2020’. The Hon’ble Court, while, adjudicating the said issue has held in favour of revenue, however, the challenge to the Rule being independent issue pending in other cases, the Hon’ble Court has not interfered with.
9. It is further submitted that neither does the exercise of powers make a future recovery nor would it mean that if there is no balance, the resultant effect of the exercise of powers is giving effect to a future eventuality. In fact, the most significant part is that for an act already committed by which wrongful ITC has been availed, to safeguard the same, to that extent debits are not permitted irrespective of the source of such an amount in the electronic credit ledger.
10.The department attempts to cite four different eventualities and exercise of power, to dislodge the illusion created by the petitioner:
i. There is a reason to believe that around Rs.20 lakhs odd amount has been wrongfully availed as ITC and the balance in the said electronic credit ledger is around Rs.1 crore, the department after recording the reasons to believe would nor permit debiting the Rs.20 lakh for any purpose as stipulated under Section-49, however, the remaining amount can always be utilized upon which, the department would not be able to impose any restrictions.
ii. There is a reason to believe that around Rs.20 lakhs odd amount has been wrongfully availed as ITC and the balance in the said electronic credit ledger is around Rs.10 lakhs, in such an eventuality, whether, the petitioner would be in position to say that as Rs.10 lakhs is already utilized out of alleged Rs.20 lakh wrongful availment and therefore, the remaining Rs.10 lakh shall also be permitted to be utilized as there is already a negative balance by way of deficit of Rs.10 lakh in the ledger.
As per the humble submission, the answer would be otherwise, in fact, the department would still be within powers to not permit the debits to the tune of Rs.20 lakhs for any purposes under section-49 and the reason is that the Rule does not identify that very amount as deposited is to be withheld, it uses the word ‘equivalent’, which can be from any deposits before or after such wrongful availment.
There is no usage of words ‘amount as ‘available’ in ledger account ’ etc Certain relevant words are reproduced hereunder:
‘…may, for reasons to be recorded in writing, not allow debit of an amount equivalent to such credit in electronic credit ledger…’
iii. There is a reason to believe that around Rs.20 lakhs odd amount has been wrongfully availed as ITC and the balance in the electronic credit ledger is NIL even in such a scenario, the department would be restricting and not permitting the debits to the tune of Rs.20 lakhs and as cited hereinabove, there is neither a bar in exercising of such powers nor it can be said to be bad.
To further support the said contention the last eventuality is cited as under:
iv. There is a reason to believe that around Rs.20 lakhs odd amount has been wrongfully availed as ITC and the balance in the electronic credit ledger becomes NIL and thereafter, upon filing returns there is again a deposit of around Rs.25 lakhs odd and the department exercises powers under Rule-86A after the deposits of Rs.25 lakhs odd, whether, the petitioner can claim that the balance had gone NIL and the ITC was already utilized and therefore, this particular amount which is of a subsequent transaction cannot be withheld for debits under section-49.
As per the humble submission, the answer would be NO the petitioner would not be in the position to raise such a claim, more particularly in view of usage of words ‘….may, for reasons to be recorded in writing, not allow debit of an amount equivalent to such credit in electronic credit ledger…’ where, again the emphasis is on ‘equivalent’ the amount can be from any deposits/availments previous or prior.
Therefore, if the present submission in scenario (iv) is accepted, the same analogy would apply to scenario (iii), wherein, there was no balance available on that day.
9. Before we proceed to discuss the scope and applicability of Rule 86A, we must give a fair idea as to what is an electronic credit ledger in the GST. One of the benefits under the GST regime is that the payment of tax under the different heads is done online. To make the GST payment process convenient, each registered taxpayer gets two electronic ledgers. These ledgers include; (1) Electronic Liability Register and (2) Electronic Credit ledger. The electronic liability register reflects the cash available to settle the tax liability. Whereas, the Electronic liability ledger showcases the amount of tax payable by the taxpayer. Finally, the electronic credit ledger displays the input tax credit balance available to the registered taxpayer.
10. The taxpayer raises a challan in the form GST PMT – 06 to begin with the GST payment. This challan contains the details of the amount to be deposited towards the tax, interest, penalty, fees or any other amount and it is valid for a period of 15 days. Thus, the taxpayer deposits the tax amount at the common portal after generating the Challan. Once this is done, the collecting bank generates the CIN (Challan Identification Number). This number is indicated on the GST Payment Receipt. Hence, the amount so deposited is credited to the electronic cash ledger of the taxpayer on whose behalf the payment was deposited. This happens only on receipt of the CIN.
11. Both the CGST and SGST are paid in equal proportions for the intra–state supplies. The IGST is paid for the inter – state supplies. The taxpayer’s monthly GST return reflects the amount of tax to be paid as well as the input tax credit (ITC) details. These ITC details are self assessed by the taxpayer via the monthly returns. Furthermore, these details get reflected in the electronic credit ledger. And the amount of ITC in the electronic credit ledger gets utilized as per the rules mentioned in section 49.
ITC Utilization
12. The ITC is utilized in the following sequence to set off the CGST liability:
(1) The ITC standing under the CGST is used to set off the CGST output liability.
(2) Then, the ITC standing under the IGST is used to set off the remaining CGST output liability.
13. Further, the ITC is utilized in the following sequence to set off the SGST liability:
(1) The ITC standing under the SGST is used to set off the SGST output liability
(2) Then, the ITC standing under the IGST is used to set off the remaining SGST output liability
14. Finally, the ITC is utilized in the following sequence to set off the IGST liability:
(1) The ITC standing under the IGST is used to set off the IGST output liability
(2) The ITC standing under the CGST is used to set off the remaining IGST output liability
15. Finally, the ITC standing under the SGST is used to set off the remaining IGST output liability.
16. Furthermore, no set off is available between the CGST and SGST.
17. Hence, from the above, it is clear how the electronic credit ledger is used while making the tax payment.
What is Electronic Credit Ledger in GST?
18. The electronic credit ledger reflects the amount of Input Tax Credit available to the taxpayer. Thus, every claim of input tax credit of the registered taxpayer eligible for claiming such a credit is credited to this ledger. The amount available in the electronic credit ledger is utilized in making payments towards the outward tax liability by the registered taxpayer.
19. The electronic credit ledger shall be maintained in the form GST PMT – 02. This form shall be maintained on the common portal for every registered person eligible to claim input tax credit under GST Act. Every claim of the input tax credit is credited to the electronic credit ledger.
20. The following are the components of Form GST PMT-02:
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