While hearing a petition under Article 226, the Gujarat High Court ruled that the power provided under GST Rule 86A (2017) to block an electronic credit ledger can be used only if such ledger, which is considered ineligible, have some credit.
Justice JB Pardiwala and Justice Nisha M. Thakore observed that “A condition for the exercise of power under Rule 86A of the GST Rules is the availability of credit in the electronic ledger which is considered ineligible. If the credit balance is available, the Authority may, for reasons to be recorded in writing, not allow a debit of an amount equal to such credit. However, there is no power of negative block for credit to be availed in future.”
This came out in a matter where a petition related to Article 226 of a writ of mandamus seeking the Respondent-Authority to roll back the negative block of the petitioner’s electronic ledger. In this case, the petitioner is a private limited company engaged in the sale and manufacturing of MS Billets.
The petitioner contended that in September 2021, when an attempt was made to file the tax return, the credit balance was not available in the electronic credit ledger. Additionally, the portal showed that the electronic credit ledger was blocked by respondent no 2.
It also showed a negative balance entered by the same in the said ledger. Due to this negative balance, applicants will file returns for the month of September by claiming ITC (Input Tax Credit) and will be required to spend an extra amount of output Tax beneath the provisions of the GST Act related to the negative balance of Input Tax Credit in the credit ledger.
The applicant submitted that this negative balance is outside the jurisdiction and measure of Rule 86-A of the GST Rules.
On the contrary, Respondent No. 2 argued that the blocking of the Electronic Credit Ledger was according to the powers provided under Rule 86-A as the powers are not limited to the balance available on that day but it is related to the amount in the Electronic Credit Ledger to the said extent. Respondent No. 2 also referred to other precedents such as M/s SS Industries v Union of India, SCA No. 8841 of 2020, and some others. There was also a claim that about Rs 20 lakh was erroneously availed as ITC and the balance of the ledger was ₹ 1 crore. And the department after recording certain reasons, will not allow debit of ₹20 lakh for any purpose prescribed under section 49.
In this case, the Gujarat High Court directed the authorities to refund ₹ 20 lakh and also ruled that the electronic credit ledger can be blocked under the GST Rules 2017, only if the credit balance is available in it.
