A J Power Center Vs Deputy Commissioner (ST) (Madras High Court)
Madras High Court has directed the Goods and Services Tax (GST) department to consider a representation filed by M/s. A. J. Power Center regarding the unblocking of its electronic credit ledger (ECL). The ledger was blocked following allegations that the company had availed input tax credit (ITC) from dealers found to be non-existent.
The case, heard by the Madras High Court, arose from a writ petition filed by A. J. Power Center challenging intimations issued by the Deputy Commissioner (ST) that resulted in the blocking of their GST electronic credit ledger. The petitioner, engaged in the wholesale business of batteries and inverters, stated that an inspection was conducted under Section 67 of the Tamil Nadu Goods and Services Act, 2017, by the Intelligence Wing. Subsequently, the first respondent, acting on directions from the second respondent, issued intimations to all dealers, including the petitioner, alleging that their suppliers were “Non-Existent.”
According to the petitioner, a show-cause notice in Form GST DRC – 01 was also issued on February 26, 2025, alleging that they had claimed ITC on purchases from these alleged non-existent entities. A. J. Power Center filed a reply on the same day, asserting that they possessed invoices for the goods received, had paid the purchase price along with tax, and the sellers had reported the corresponding outward supply in their returns. The petitioner contended that they had duly filed their returns and were therefore entitled to claim the input tax credit.
Despite the detailed reply and supporting documents submitted by the petitioner to substantiate the genuineness of the transactions, an assessment order was passed under Section 74 of the Act on March 7, 2025. This order disallowed the input tax credit and raised a demand under Section 74.
However, the electronic credit ledger remained blocked. The petitioner then filed a representation with the first respondent on March 13, 2025, requesting the unblocking of the ECL under Rule 86A of the GST Rules. As this representation was still pending consideration, the petitioner approached the High Court.
During the court proceedings, the learned counsel for the petitioner sought a direction for the first respondent to consider the pending representation dated March 13, 2025. The learned Government Advocate (Taxes) took notice on behalf of the respondents.
The Madras High Court, upon hearing the parties, opted to dispose of the writ petition at the admission stage itself. The court directed the first respondent to consider the representation submitted by A. J. Power Center on March 13, 2025, on its own merits and in accordance with the law. The court stipulated that this consideration should be completed within a period of three weeks from the date of receiving a copy of the court’s order.
This case highlights the issues faced by businesses when their input tax credit is blocked by tax authorities, particularly in situations involving allegations against their suppliers. The blocking of the electronic credit ledger can significantly impact a business’s ability to utilize available credit for discharging tax liabilities, potentially disrupting their operations.
Judicial precedents concerning Rule 86A of the GST Rules have emphasized the conditions and procedures for blocking electronic credit ledgers. Rule 86A allows for the blocking of the electronic credit ledger if the Commissioner or an authorized officer has reasons to believe that the credit has been fraudulently availed or is ineligible. Grounds for such belief include, among others, receiving credit from a registered person found to be non-existent or not conducting business from their registered place.
Courts, including the Madras High Court in various pronouncements, have held that while Rule 86A grants the power to block credit, this power must be exercised based on tangible material and “reasons to believe,” which should ideally be recorded in writing and, in many instances, communicated to the assessee. The blocking under Rule 86A is intended as a temporary measure to protect revenue and has a maximum duration of one year, unless extended under specific conditions.
Previous judgments have also delved into the interpretation of Rule 86A regarding the availability of credit at the time of blocking and whether “negative blocking” (blocking beyond the available balance) is permissible. While the specific judgment in A. J. Power Center’s case, as presented in the provided text, does not extensively cite or discuss prior judicial precedents, the underlying legal framework and the department’s action of blocking the ECL are governed by Rule 86A and related interpretations by the courts.
The court’s direction in this instance to consider the petitioner’s representation underscores the importance of due process and the need for the tax authorities to evaluate the taxpayer’s submissions and supporting evidence before making a final determination. While the department had already issued an assessment order under Section 74, the writ petition specifically sought the unblocking of the ECL, which is a measure taken under Rule 86A. The court’s order ensures that the petitioner’s request for unblocking, based on their claim of genuine transactions and available documentation, is formally considered by the tax authorities.
The outcome of the consideration of the petitioner’s representation will be crucial in determining whether the block on the electronic credit ledger is lifted or maintained, which in turn will impact A. J. Power Center’s ability to utilize its input tax credit. The case serves as a reminder of the procedural aspects involved in tax administration and the recourse available to taxpayers through legal channels when they dispute actions taken by the authorities, such as the blocking of their electronic credit ledger.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
