Introduction: In a recent judgment, the Karnataka High Court, in the case of S.P. Metals vs Assistant Commissioner of Central Tax, ruled that the Revenue Department is not authorized to block Input Tax Credit (ITC) for more than one year, as per Rule 86A of the Central Goods and Services Tax Rules, 2017. The court directed the immediate unblocking of ITC for the petitioner, S.P. Metals.
Hon’ble Karnataka High Court allowed the writ petition and held that as per sub-rule (3) of Rule 86A of the Central Goods and Services Tax Rules, 2017 (“the CGST Rules”), the Respondent is not authorized to block the Input Tax Credit of the registered person under GST for a period of more than one year. Therefore, the continuation of blocking of ITC was illegal and arbitrary. Hence, directed to unblock the Input Tax Credit as per the Petitioner’s Electronic Credit Ledger.
Revenue Department (“the Respondent”) blocked Input Tax Credit (“ITC”) of S.P Metals (“the Petitioner”) vide order dated May 11, 2022 (“the Impugned Order”). Thereafter, the Petitioner made a representation dated July 06, 2023, with the Respondent, praying for the unblocking of ITC in the Electronic Credit Ledger on GST online portal. However, the ITC continues to be blocked by the Respondent.
Aggrieved by the Impugned Order, the Petitioner filed a writ petition before the Hon’ble Karnataka High Court directing the Respondent authorities to unblock the ITC accrued in favour of the Petitioner.
Whether the Revenue Department is authorized to block the ITC of the registered person under GST for a period of more than one year?
The Hon’ble Karnataka High Court in the Writ Petition No. 21015 of 2023 held as under:
Conclusion: The Karnataka High Court’s ruling sets a precedent by affirming the limited duration for which the Revenue Department can block Input Tax Credit. This judgment provides clarity on the legal timeframe for such restrictions and emphasizes adherence to the stipulated rules. It serves as a crucial guideline for both taxpayers and tax authorities regarding the blocking and unblocking of ITC under GST regulations.
Rule 86A of the CGST Rules:
“Rule 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;
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 36in 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.
(2) The Commissioner, or the officer authorised by him under sub-rule (1) may, upon being satisfied that conditions for disallowing debit of electronic credit ledger as above, no longer exist, allow such debit.
(3) Such restriction shall cease to have effect after the expiry of a period of one year from the date of imposing such restriction.”
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
In this writ petition, the petitioner has sought for the following relief:
“A. Direct the 1st Respondent to unblock the Input Tax Credit to the tune of Rs.98,68,146/- as per the Petitioner’s Electronic Credit Ledger at Annexure-B by issuance of Writ of Mandamus or any other writ in the nature of a Writ of Mandamus by declaring that the blocking of Credit Ledger is not in accordance with the law and/or
B. To grant any other relief/(s) this Hon’ble Court deems fit and proper in the facts and circumstances of the case.”
2. Heard the learned counsel for the petitioner and the learned counsel for the respondents and perused the materials on record.
3. The material on record discloses that the input tax credit of the petitioner was blocked by respondent No.1 on 11th May, 2022 and immediately after coming to know of the same, the petitioner made a representation dated 6.7.2023 that his ITC to the tune of Rs.98,68,146/- was unilaterally blocked by the 1st respondent.
4. The learned Counsel for the petitioner submits that Sub-rule (3) of Rule 86A of the Central Goods and Services Tax Rules, 2017. (hereinafter referred to as “CGST Rules”) contemplates that any such blocking of ITC would remain valid order for a period of one year from the date of such blocking and the same would cease to subsist any longer beyond the said period.
5. It is the grievance of the petitioner though the prescribed period of one year expired on 11th May, 2023 and the petitioner submitted a representation dated 1.8.2023 calling upon respondent No.1 to unblock the ITC in Electronic Credit Ledger GST Online Portal, the 1st respondent did not take any steps in this regard and has continued to block ITC in favour of the petitioner which has resulted in irreparable injury and hardship to the petitioner, who is before this Court by way of present petition.
6. Per contra, the learned Counsel for the respondents fairly submits that the period of block of ITC would remain valid only for a period of one year as per Rule Sub-rule (3) of Rule 86A of the CGST Rules, 2017.
7. In view of the aforesaid facts and circumstances and the submission made by both sides and in the light of the undisputed fact that one year as stipulated in Sub-rule (3) of Rule 86A CGST Rules, 2017 came to an end on 11.5.2023 in so far as petitioner was concerned, question of respondents continuing to block ITC of the petitioner is clearly illegal and arbitrary and the same deserves to be unblocked by issuing necessary directions in this regard.
8. Under these circumstances, I am of the considered opinion that the 1st respondent is to be directed to unblock the ITC to the tune of Rs.98,68,146/- as per the petitioner’s Electronic Credit Ledger, Annexure-B by issuing writ of mandamus and further directions in this petition.
9. In the result, the following order is passed:
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