Kings Security Guard Services Private Limited Vs Deputy Director (Delhi High Court)
Delhi High Court, in the case of Kings Security Guard Services Private Limited vs Deputy Director, has disallowed the practice of “negative blocking” on Electronic Credit Ledgers (ECLs). This decision provides significant relief to taxpayers whose input tax credit (ITC) balances were restricted beyond the available credit.
The case centered on the petitioner’s challenge to the negative blocking of their ECL, a measure that effectively prevented them from utilizing future valid ITC to offset past alleged fraudulent or ineligible claims.
Referring to the precedent set in Best Crop Science Pvt. Ltd. through Authorized Representative vs. Principal Commissioner, CGST Commissionerate, Meerut and Ors (2024 SCC OnLine Del 6714), the Court reiterated that Rule 86A of the CGST Rules, 2017, is an emergent provision intended for the temporary disallowance of debit from an ECL where there are reasons to believe the credit was fraudulently availed or is ineligible.
The Best Crop Science judgment clarified that Rule 86A is not a mechanism for tax recovery but rather a protective measure for revenue. It highlighted that the rule allows for the blocking of available ITC but does not permit an order that would compel a taxpayer to replenish their ECL with valid ITC to compensate for previously utilized amounts deemed fraudulent or ineligible. Such an interpretation, the earlier ruling noted, would effectively transform Rule 86A into a tax recovery tool, which falls outside its intended scope. Recovery of tax dues, if any, must be pursued through the proper channels outlined in Sections 73 or 74 of the CGST Act, which involve assessment and determination of tax, interest, or penalty.
