Telangana HC: GST Authorities Can’t Block Credit Exceeding Negative Balance in ECRL

A Division Bench of the High Court of Telangana has explained that the GST Authority does not have the authority to issue orders for the insertion of a negative balance in the credit ledger of assessees.

A writ petition was filed by Laxmi Fine Chem against the Assistant Commissioner contesting the blocking of input tax credit amounting to Rs. 50.06 lakhs for the period from February 1 to February 13, 2024.

Based on two reasons the applicant challenged the action, the absence of the show cause notice (SCN) before blocking the credit and other for the opinion that the blocking breached Rule 86A of the Central Goods and Services Tax Rules, 2017.

The bench heard S.Dwarkanath, on behalf of Siddharth Gilda Senior Counsel appearing, learned counsel for the applicant, Swaroop Oorilla, Special Government Pleader for respondent Nos.1 and 2 and Rajesh Reddy, representing Gadi Praveen Kumar, Deputy Solicitor General of India for respondent No.3 and perused the material available on record.

The Division Bench of Justices P. Sam Koshy and N. Tukaramji regarded that Rule 86A of the CGST Rules, 2017, prescribes that only the blocking of available ITC in the electronic credit ledger of the applicant is permissible.

The action of the respondents in passing an order of negative credit is contrary to Rule 86(A).

If there was no ITC available in the credit ledger, the rules do not provide for the insertion of a negative balance in the ledger and hence what was permissible was only to block the electronic credit ledger and beneath no possibility can there have been an order for the insertion of a negative balance in the ledger.

If a credit ledger is available, the heads related to the provisions of Rule 86(A) may for reasons to be recorded in writing not permit the credit of the expressed amount available equivalent to such credit. However, there is no authority granted to the authorities for the block of the credit to be claimed via the applicant in the forthcoming time.

Read Also: Telangana High Court Rejects Unsigned GST Order Due to Lack of Justification

For the cause that the blocking of ITC deprived the applicant of his right to release his obligation, the action of the respondent is not sustainable and realizes the value in fiscal terms. Consequently, the impugned order was quashed.