Communicating reason for blocking of GST ITC to the taxpayer, mandatory by the GST Authority.
M/s. HEC India LLP Vs. Commissioner of GST and Central Excise and Anr.
[Writ Appeal No. 2341 of 2021 decided on September 16, 2021]
The Commissioner of GST and Central Excise by exercising power under Rule 86-A of CGST Rules 2017, blocked Input Tax Credit from Electronic credit ledger of M/s HEC India LLP (“the Appellant”) without Stating any reason for ITC blocking.
The Appellant was prevented from receiving and utilizing its ITC. Thus, the Appellant preferred a writ petition before the Hon’ble Madras High Court and prayed for a relief that it may be allowed to deduct a certain sum from its electronic credit ledger.
Rule 86-A of the CGST Rules
“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.
(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.”
Order
The Hon’ble Madras High Court held that power under Rule 86-A of the CGST Rules cannot be exercised without recording the reasons for invoking the power in writing and communicating the same to the taxpayer. Hence, if the ITC of a taxpayer is blocked by the GST Authority by invoking power under Rule 86-A of the CGST Rules, the reasons for doing so shall need to be recorded and communicated to the taxpayer.