Sarvottam Rolling Mills Pvt. Ltd Vs Joint Commissioner State Tax Corporate and others (Allahabad High Court)
Allahabad High Court has referred a significant legal question concerning the blocking of Electronic Credit Ledgers (ECL) under the Goods and Services Tax (GST) regime to a Larger Bench. The issue, which impacts numerous taxpayers, revolves around whether tax authorities can block not only existing credits in an ECL but also future credits, particularly when the initially blocked amount is insufficient to cover the alleged inadmissible input tax credit.
Petitioners argue that ECL blocking should be provisional and subject to final assessment, with recovery processes adhering to the Central Goods and Services Tax Act, 2017. They contend that blocking future credits, especially when existing balances are low, severely hinders business operations by preventing return filings and potentially leading to registration cancellation under Section 29 of the Act, which could infringe upon Article 19(1)(g) of the Constitution.
The court noted conflicting judicial precedents. A Division Bench of the Allahabad High Court, in M. Dairy Products LLP vs. State of U.P. and others (2021) and M/s Samagrah Metal Trading Co. vs. Commissioner State Goods and Service Tax and others (2022), held that future credits could also be blocked to the extent of inadmissible input tax credit if existing balances were inadequate. Conversely, the Gujarat High Court, in Samay Alloys India Pvt. Ltd. vs. State of Gujarat (2022), took the view that only existing credits at the time of blocking could be put under lien, based on Rule 86A of the CGST Rules, 2017.
