GST DEPARTMENT IS NOT EMPOWERED TO NEGATIVE BLOCK THE ELECTRONIC CREDIT LEDGER UNDER RULE 86A OF THE CGST RULES, 2017.
The officers of the department being statutory authority are bound to work within the four corners of the statute. Needless to say, any act beyond the scope of Statute is nothing but wholly without jurisdiction, bad in law and liable to be discarded.
In a last few months, it is manifested that the Goods and Service Tax Department is blocking the electronic ledger in Negative by relying on Rule 86A of the CGST Rules, 2017. It is being done in the cases where there is a Nil balance in the Credit Ledger for which department is not legally empowered. Under Rule 86A of CGST Rules, the department can block Input Tax Credit available in electronic credit ledger and not otherwise.
This article is a small attempt to examine whether the GST department is empowered to Negative block the electronic Ledger with Nil balance.
At the outset, for better understanding, we have to examine Rule 86A of the CGST Rules, 2017. The same reads as under:
“86A. Conditions of use of amount available in electronic credit ledger.- (1) The Commissioner or an officer authorised by him in this behalf, not below the rank of an Assistant Commissioner, having reasons to believe that credit of input tax available in the electronic credit ledger has been fraudulently availed or is ineligible in as much as-
a) the credit of input tax has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36-
i. issued by a registered person who has been found non-existent or not to be conducting any business from any place for which registration has been obtained; or
ii. without receipt of goods or services or both; or
b) the credit of input tax has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36 in respect of any supply, the tax charged in respect of which has not been paid to the Government; or
c) the registered person availing the credit of input tax has been found non-existent or not to be conducting any business from any place for which registration has been obtained; or
d) the registered person availing any credit of input tax is not in possession of a tax invoice or debit note or any other document prescribed under rule 36,
may, for reasons to be recorded in writing, not allow debit of an amount equivalent to such credit in electronic credit ledger for discharge of any liability under section 49 or for claim of any refund of any unutilised amount”
A bare perusal of the aforesaid rule, it is clear that commissioner or its authorized officer can disallow the registered person debit from the electronic credit ledger for the limited period of time and on a provisional basis. It is germane to mention here that the aforesaid provision meant only for restriction to use “Input Tax Credit available in electronic Credit ledger” not for recovery of the Input tax credit taken.
The consequences of putting the electronic ledger in negative is that if an assessee files return for the next month, he has to pay the entire amount of Negative balance first and only after that the return can be filed. The putting of negative balance in electronic ledger is nothing but a tantamount to permanent recovery of the Input Tax Credit without following due process of Section 73/74 of the CGST Act which is not permissible in law.
It is noticed that due to aforesaid draconian action of department which is without jurisdiction, the company is not able to function further as it is unable to pay the entire amount of Negative balance. This action of department is highly unreasonable, unfair and without authority of law which needs to be deprecated strongly.
The Hon’ble Gujarat High Court in the matter of Samay Alloys India Pvt Ltd Vs State of Gujarat [Special Civil Application No. 18059 of 2021] decided this issue and held that One of the primary conditions in order to invoke Rule 86A is that the Credit of input tax should be available in the electronic credit ledger. That means if the electronic Credit ledger is NIL, Rule 86A cannot be invoked. Some relevant portion of judgment is as under:
“28. Rule 86A of the CGST Rules empowers the Commissioner or his subordinates to freeze the debit in the electronic credit ledger provided he has reasons to believe that the credit of input tax available in the electronic credit ledger has been fraudulently availed or is ineligible. Thus, the condition precedent is that the input tax credit should be available in the electronic credit ledger before the power under Rule 86-A is invoked by the authority. In the case on hand, it is not in dispute that the amount of input tax credit available in the electronic credit ledger as on the date of blocking of ledger was Nil. If no input tax credit was available in the ledger, the blocking of electronic credit ledger under Rule 86-A of the Rules and insertion of negative balance in the ledger would be wholly without jurisdiction and illegal”.
“35. Further, Rule 86A is not the rule which entitled the proper officer to make debit entries in the electronic credit ledger of the registered person. The rule merely allows the proper officer to disallow the registered person debit from the electronic credit ledger for the limited period of time and on a provisional basis. In case debit entries are made by the proper officer, the same will tantamount to permanent recovery of the input tax credit and certainly permanent recovery is governed by the statutory provisions (Section 73 of 74 of CGST Act) and it certainly travels beyond the plain language and underlined intent Rule 86A”.
The Hon’ble Allahabad High Court in the matter of M/s Nanhey Mal Munna Lal Vs State of UP and 4 others [Writ Tax No. 287 of 2012] while relying the Ms/ Samay Alloy case (Supra) granted interim relief and held as under:
“3. Learned counsel for the petitioner submits that even if input tax credit is blocked invoking the provisions of Rules 86A of the Rules, yet a negative Input Tax Credit cannot be shown otherwise it would amount to stopping the dealer from filing his return and depositing tax therewith. In support of his submission, learned counsel for the petitioner has relied upon a decision of Gujrat High Court dated 03.02.2022 in Special Civil Applicatin No.18059 of 2021 (Samay Alloys 2 India Pvt. Ltd vs. State of Gujrat) (para-57), in which the respondents department were directed to withdraw negative blocking of the Electronic Credit Ledger.
…….
“10. Considering the facts and circumstances of the case, as an interim measure, it is provided that the petitioner is permitted to file his return along with proof of deposit of tax for the relevant tax period for which return is being filed”
CONCLUSION:
In view of this, it is very much clear that the very purpose behind enactment of Rule 86A of the CGST Rules, 2017 is to stop the use of Input Tax Credit available in the electronic credit ledger if department has reasons to believe that the input tax credit available in the electronic credit ledger has been fraudulently availed or is ineligible in as much as. The Rule 86A clearly says “available in electronic ledger” not otherwise that means if there is NIL Input Tax Credit, electronic credit ledger cannot be blocked.
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