Blocking of ITC when credit not available in ledger is without jurisdiction and illegal: HC

There is an interesting ruling by Gujarat High Court on Blocking of ITC when credit is not available in the ledger. It has held that this is without jurisdiction and illegal

The case was

Samay Alloys India (P.) Ltd.

v.s

State of Gujarat

[2022] 135 taxmann.com 243 (Gujarat)

Let us have the short overview of the case:

The petitioner was filing GST returns and noticed that the portal displayed a message that the electronic credit ledger had been blocked.

Despite the fact that there were no credit balances in the electronic credit ledger, ITC was blocked and a negative balance was entered.

It filed a writ petition challenging the same.

The Honorable High Court observed that Rule 86A allows proper officers to disallow debit from Electronic Credit Ledger (ECL) for a limited period of time and not to make debit entries in ECL.

But the department has no power to negatively block credit to be availed in future. If credit is fraudulently availed and utilised then appropriate proceeding under Section 73 or 74 can be initiated but not under Rule 86A.

Therefore, it was held that blocking of ECL under Rule 86A and insertion of negative balance in ledger when no ITC was available was without jurisdiction and illegal