Case Law Details
Laxmi Fine Chem Vs Assistant Commissioner (Telangana High Court)
In the case of Laxmi Fine Chem vs. Assistant Commissioner, Telangana High Court, the petitioner contested the action taken by the respondents in blocking input tax credit amounting to Rs. 50,06,000 without issuing a show cause notice. The petitioner argued that this action violated Rule 86(A) of the CGST Rules 2017, as it involved inserting a negative balance in the electronic credit ledger, which the rule does not permit.
During the hearing, the Standing Counsel for the State conceded that the blocking of input tax credit was indeed done without issuing a show cause notice, rendering the action unlawful. Additionally, reference was made to a recent decision by the Division Bench of the Gujarat High Court in the case of Samay Alloys India Pvt. Ltd. vs. State of Gujarat, which addressed the interpretation of Rule 86(A) of the CGST Rules 2017.
The Gujarat High Court’s decision emphasized that Rule 86(A) should only be invoked in limited cases supported by the plain language of the rule. It clarified that the rule empowers the proper officer to disallow debit from the electronic credit ledger for an amount equivalent to fraudulently availed credit, not to block the entire credit. The Court highlighted that Rule 86(A) does not provide for debarring a registered person from using the electronic credit ledger for future debits or credits. Instead, it allows restricting debit from the ledger for an equivalent amount to the fraudulently availed credit.
The Court also addressed concerns about persistent fraudulent credit utilization, stating that Rule 86(A) is not the only measure available to the government. The government can initiate proceedings under Sections 73 or 74 of the CGST Act for recovery of wrongly claimed credit, cancel registration under Section 29, or provisionally attach property, including bank accounts, under Section 83.
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