In M/s Sahil Enterprises. v. Union of India. [IA No.1/2021 with WP(C) No.531/2021 dated September 14, 2021], M/s Sahil Enterprises (Petitioner) has filed the current application seeking interim relief for removing the provisional attachment which was ordered by the Commissioner of Central Goods and Services Tax, under Rule 86A of Central Goods and Service Tax Rules, 2017 (CGST Rules) vide Order dated May 21, 2020.
The Petitioner contends that as per Rule 86A of the CGST Rules, attachment of a ledger account can be made only for a period of one year and no more. Such order in the case of Petitioner was ordered on May 21, 2020 which has exceeded the time limit as per the provision.
The Respondent opposing the application contended that the Petitioner claimed tax credit without actually depositing the tax with the Government Revenue. To safeguard the interest of the Revenue, the Commissioner resorted to exercising powers under Rule 86A of the CGST Rules.
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 law.
FULL TEXT OF THE JUDGMENT/ORDER OF TRIPURA HIGH COURT
In the writ petition, on 9th August 2021, while issuing notice following order was passed :
“Petitioner has challenged the vires of Section 16(2)(c) of Central Goods and Services Tax Act, 2017 as being violative of Articles 14, 19(1)(g) and 300A of the Constitution of India. This provision provides that a registered dealer would be eligible for claiming input tax credit on the goods purchased on the condition that subject to the provisions of Sections 41 and 43A of the Act, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilization of input tax credit admissible in respect of such supply. The case of the petitioner is that having paid CGST on the purchases made from a registered dealer, the petitioner thereafter has no control over the seller to ensure that such tax is deposited with the Government revenue as is statutorily is his obligation. Denying to the petitioner input tax credit on such purchases on which the petitioner has already paid tax on the ground that the selling dealer did not deposit the tax with the Government revenue would amount to double taxation.
Learned counsel for the petitioner pointed out that this provision has been challenged by different dealers before several High Courts in the country where such challenges are pending after notice or issuance of rule. Counsel also placed for our consideration various judgments of different High Courts pertaining to similar provisions contained in other tax statutes prior to introduction of the GST regime making similar provisions for denial of tax credit when the selling dealer had failed to deposit the tax with the Government revenue. He pointed out that the High Courts either read down the provision as to be applicable only when such non-deposit is with the connivance of the petitioner or the petitioner is found to be lacking in bona fides or struck down the provision as being unconstitutional and arbitrary expecting a dealer to perform an impossible task.
Learned counsel for the petitioner also submitted that according to the department with respect to certain purchases made by the petitioner from another registered dealer after paying full taxes the selling dealer has not deposited the tax with the Government and on account of which the petitioner’s input tax credit account has been put under attachment w.e.f. 21.05.2020. Counsel submitted that as per the provisions of the CGST Act such attachment cannot continue beyond a period of one year. Such period being over, in any case the attachment should have been lifted which so far has not been done.
The issues require consideration. Hence, rule. Since legislation framed by the Parliament is under challenge, let there be notice to the learned Attorney General.
Learned Asstt. Solicitor General Mr. Bidyut Majumder waived notice on behalf of respondent No.1, Union of India, as well as the learned Attorney General. Learned counsel Mr. Paramartha Datta waived notice on behalf of respondents No.2 and 3.
For the limited purpose of considering the petitioner’s request for interim relief for removing attachment of the Tax Credit Account, let notice be returnable on 23.08.2021.”
Today we have heard learned counsel for the parties on interlocutory application (IA No.1/2021) filed by the petitioner for interim relief.
Learned counsel for the petitioner pointed out that as can be seen from demand-cum-show cause notice, dated 7th January 2021, the Commissioner of Central Goods and Services Tax, has invoked the powers under Rule 86A of Central Goods and Service Tax Rules, 2017 (“hereinafter to be referred to as “the said Rules”) by disallowing the debit of an amount equivalent to Rs.1,11,60,830/- from the electronic credit ledger of the petitioner. He submitted that provisional attachment under Rule 86A can be made only for a period of one year and no more. In the present case, the attachment of the petitioner’s ledger account was ordered on 21st May 2020. More than a year has passed since then. Such attachment, therefore, must be lifted.
Counsel submitted that the petitioner is a trader and on the purchases made the petitioner had paid Goods and Services Tax(GST). According to the department, the purchaser in turn has not deposited this tax with the Government revenue. The petitioner cannot be saddled with the liability of paying this tax on account of lapses on part of the purchaser. It is in this context, the petitioner has challenged the vires of Section 16(2)(c) of the Central Goods and Service Tax Act, 2017.
On the other hand, learned Asstt. Solicitor General, Mr. Bidyut Majumder and learned Attorney General Mr. Paramartha Datta appearing for the respondents No.2 and 3, opposed this application on the basis of affidavit-in-reply filed. It is contended that the petitioner has claimed tax credit without the tax being deposited with the Government revenue. In order to safeguard the interest of the revenue, therefore, the Commissioner had exercised powers under Rule 86A of the said rules.
Chapter IX of the said Rules pertains to payment of tax. Rule 86 refers to electronic credit ledger which shall be maintained in relation to the registered dealer where his eligible input tax credit would be accumulated for the purpose of discharging his tax liability to the Government. Rule 86A however provides conditions of use of amount available in such electronic
credit ledger. As per sub-rule (1), the Commissioner or an officer authorized by him in this behalf, having reason to believe that credit of input tax available in electronic credit ledger has been fraudulently availed or is ineligible for the reasons stated in Clauses (a) to (d) contained therein, he may for reasons to be recorded in writing not allow the debit of any amount equivalent to such credit in the ledger account of the person concerned for discharge of the liability under Section 49 or to claim any refund of unused amount. As per sub-rule(2) of 86A, the Commissioner or the authorized person may, upon being satisfied that conditions for disallowing credit of electronic credit ledger no longer exists, allow such credit. Sub-rule (3) of Rule 86A which is of importance provides that such restrictions shall cease to have effect after the expiry of a period of one year from the date of imposing such restrictions.
It can thus be seen that the restrictions that can be imposed on use of amount available in electronic credit ledger of a person can be by way of a temporary measure for a period not exceeding one year. The decision to impose such restriction would be taken by the Commissioner or a person authorised by him upon being satisfied that the input tax credit has been fraudulently availed or is ineligible. In such a case, after recording reasons in writing restriction on use therefore of would be imposed. This is an interim measure and, therefore, cannot take shape of a permanent arrangement. 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. Sub-rule (3) of Rule 86A clearly brings about this legislative intent while it provides that such restrictions shall cease to have effect after the expiry of a period of one year. Two things are significant in this sub-rule; 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.
Under the circumstances, department cannot continue to subject the petitioner’s electronic credit ledger to the restrictions imposed by the Commissioner, on 21st May 2020. The same shall be released. In other words, it would be open for the petitioner to utilise the amount credited in the said ledger for the purpose of payment of its taxes in accordance with law.
At this stage, we are not inclined to grant any further relief of either staying the show cause notice proceedings or any such similar interim arrangement. Let the respondents file full reply to the main petition[WP(C) No.531/2021] after which the petition can be taken up for hearing.
Interlocutory application is disposed of.
Writ petition be listed on 16th November 2021.
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