A taxpayer’s electronic credit ledger cannot be blocked beyond one year: High Court of Uttarakhand

IN THE HIGH COURT OF UTTARAKHAND AT NAINITAL ON THE 24TH DAY OF JUNE 2021 HON’BLE SHRI JUSTICE MANOJ KUMAR TIWARI WRIT PETITIONNo. 11221 M s Vimal Petrothin Private Limited. Commissioner CGST and others. By Mr. Rajat Mittal and Mr. Tarun Pande Advocates) ....Petitioner By Mr. Shobhit Saharia Advocate) ...Respondents Petitioner is a Private Limited Company its manufacturing unit at Haridwar. Petitioner’s input tax credit available in its electronic trading ledger was provisionally blocked on the ground that petitioner had availed input tax credit amounting to `1.5 crores based on fake invoices issued by non existing firms. The said blockage was made on 15.01.2020 under Rule 86(A)(1) of C.G.S.T. Rules 2017. Thus feeling aggrieved petitioner has filed this writ petition seeking the following relief: “a) Issue a writ of mandamus or a writ direction the nature of mandamus or any other order or direction directing the Respondent No. 1 to unblock the input tax credit of Rs. 71 61 296 availed by the petitioner in its electronic credit ledger.” On 22.06.2021 learned counsel appearing for the respondents was asked to get instructions on certain aspects. The legal submission made on behalf of petitioner was also noted in the order dated 22.06.2021. For ready reference order passed by this Court on 22.06.2021 is reproduced below: “Petitioner is aggrieved by provisional input tax credit by the blocking of Commissioner Goods and Services Tax vide order dated 15.01.2020. By means of this writ petition petitioner has sought a direction to respondent no. 1 to unblock the input tax credit of `71 61 296 in its electronic trading ledger. Learned counsel for the petitioner has relied upon Rule 86(A)(3) of Central Goods and Services Tax Rules 2017 which reads as under: available in electronic credit ledger. “86A. Conditions of use of amount 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 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 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 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.” Learned counsel for the petitioner submits that the charge against the petitioner is that he fraudulently availed input tax credit on the basis of fake invoices and proceedings under Rule 86(A)(1) of CGST Rules 2017 were drawn against him. Learned counsel for the petitioner referred to Sub Rule(2) of Rule 86(A) of CGST Rules 2017 in support of his contention Commissioner or the Officer authorised by him under Sub Rule upon being satisfied that condition for disallowing of electronic credit ledger no longer exist allow such credit. He further submits that the outer limit for disallowing debit of electronic credit ledger is one year as has been prescribed in Sub Rule of Rule 86(A) of the CGST Rules which starts running from the date of imposing such restriction. He therefore submits that since the input tax credit ledger of 15.01.2020 therefore in view of Sub Rule 3 of Rule 86(A) of the Rules the 14.01.2021 consequently continuance of blockage of petitioner’s input tax credit ledger after 14.01.2021 is not supported by law. counsel for the respondents was granted time to get instructions on 18.06.2021. According to him he could not get the instructions despite letter issued to the authorities therefore he is granted one more opportunity to get instructions. On next date he will make a statement on the legal aspect namely as to whether blockage of input tax credit petitioner was Saharia ledger of the petitioner can continue after 14.01.2021 if yes then the provision under which it can be continued beyond period of one year. immediately after fresh cases.” List this matter on 24.06.2021 Learned counsel for the respondents on instructions concedes that petitioner’s electronic credit ledger cannot be blocked for any period in excess of one year in view of express provision contained in Sub Rule of Rule 86(A) of C.G.S.T. Rules. Thus he submits that petitioner’s contention to this extent is correct that continuance of blockage of his input credit ledger after 14.01.2021 is not supported by any law. In view of the admission by respondents through their counsel that continuance of blockage of petitioner’s electronic credit ledger cannot continue beyond one year the writ petition stands allowed. Respondent no. 1 is directed to forthwith unblock input tax credit availed by the petitioner in its electronic credit ledger. However this order will not preclude the respondents from taking such action against the petitioner as is permissible under law. 

Summary: The electronic credit ledger maintained by CGST, accumulates credits accrued on account of inward supplies made by a taxpayer within the tax period. The outer limit where the CGST can block an electronic credit ledger is a period of one year as the CGST rules. This was held by a single member bench of the High Court of Uttarakhand consisting of Justice Manoj Kumar Tiwari through the judgement passed in the case of M/s Vimal Petrothin Private Limited v Commissioner, CGST [Writ Petition (M/S) No. 1128 of 2021] pronounced on 24th June 2021. The petitioner, M/s Vimal Petrothin Private Limited is a private limited company which has a manufacturing unit situated in Haridwar. The petitioner’s input credit tax credit available was blocked provisionally by the authorities that the petitioner had allegedly availed input tax credit amounting to Rs. 1.5 crores under fake invoices issues by non-existing firms. The blockage was initiated under Rule 86(A)(1) of C.G.S.T. Rules of 2017 on 15th January 2020. The petitioner filed the immediate writ petition at the High Court of Uttarakhand praying for respondent no. 1 to be directed by the court to unblock the input tax credit of Rs. 71,61,296 which was availed by the petitioner company. The court acknowledged the right of the Commissioner to block the input tax credit of the petitioner in a case where the Commissioner had reasons to believe that there was fraud involved in the input tax credit. However the petitioner contention that the blockage of electronic credit ledger cannot continue beyond one year was also accepted by the court. As the input tax credit ledger of the petitioner had been blocked on 15th January 2020, a period of one year was over which was the outer limit for disallowing debit of electronic credit as per Sub-Rule (3) of the Rule 86(A) of the CGST rules. Ultimately the counsel for the respondents also conceded that that the blockage period cannot exceed one year and that the continuance of blocking the petitioner’s credit ledger after 14th January 2021 was not supported by law.