Rule 86A of CGST Rules 2017- Bloking of ITC credit leddger

Nowadays it is very common practice to block the ITC (credit ledger) by department taking the recourse of rule 86A of CGST Rule. In most cases, it is being done even without informing the taxpayer or without giving the opportunity to justify anything wrong which is noticed by the department, it is like openly infringement of the principle of natural justice. This decision to impose such restriction is an interim measure and the department is bound the remove the restriction after one year. But such restrictions are not removed even after one year and the only recourse is left with the taxpayer to file a writ with the Honourable High Court. The point here is what message we want to give to the business community. We only expect taxpayers to follow the law and what about expectations from the authorities?

In M/s Sahil Enterprises. v. Union of India. [IA No.1/2021 with WP(C) No.531/2021 dated September 14, 2021], The Hon’ble Tripura High Court analyzing Rule 86A observed that the restrictions which can be imposed for use of amount in Electronic Credit ledger can only be by way of temporary measure which should not exceed a period of one year. This decision to impose such restriction is an interim measure and cannot thus take the shape of a permanent arrangement. Further noted, if the Department wants to permanently disallow credit of accumulated amount in the ledger of a dealer, it must adjudicate the issue and pass an order after bi- parte hearing. There are two things which noteworthy to mention in Rule 86A(3) of the CGST Rules- “first, there is no scope of extension of this time and secondly, upon expiry of a period of one year the effect of the restriction seizing to take effect would be automatic.”

Held, the Department cannot continue to subject the Petitioner’s electronic credit ledger to the restrictions which were imposed on May 21, 2020. Further, the same is to be released and it would make the Petitioner to utilize the amount credited in the said ledger for the purpose of payment of its taxes in accordance with the law.