The Madras High Court in the case of Tvl. Skanthaguru Innovations Private Limited Versus Commercial Tax Officer while upholding the blocking order passed by the state held that State Authorities are empowered to pass blocking orders to the extent of credit, which was fraudulently availed and available in Electronic Credit Ledger (ECL) for discharge of output tax liabilities either at the time of blocking or subsequently, in the event if the same was already utilised.
The bench of Justice Krishnan Ramasamy has observed that the word “credit of ITC available in ECL” referred in Rule 86A(1) of GST Rules, 2017, would mean that after the fraudulent availment of ITC, the same should have been made available in ECL, at any point of time, for debiting the ECL to discharge the output tax liabilities. Thus, the word “available” cannot be interpreted as the ITC should be made available at the time of passing of blocking order. On the other hand, the word “available” shall be interpreted in such a way that the ITC has to be available in the ECL, at any point of time, for the purpose of debiting the ECL.
The petitioner has challenged the notice in the Form ASMT-10 issued by the Commercial Tax Officer. The petitioner sought the direction to the Assistant Commissioner (ST) to unblock the electronic credit ledger/electronic cash ledger of the petitioner.
The petitioner’s ECL has been blocked without the availability of any credit, which is totally contrary to the provisions of Rule 86A of GST Rules, 2017. The intimation for blocking of ECL was issued.
All the blocking orders were issued by the Assistant Commissioner (ST). Subsequent to the blocking orders, the intimation was issued by the Commercial Tax Officer in Form ASMT-10, which is pertaining to the issue of wrongful availment of ITC to the extent of a sum of Rs.13,10,44,864.
The petitioner contended that that the Central Authorities had already conducted the investigation at the petitioner’s premises and found that till March, 2024, the petitioners had wrongfully availed a sum of Rs.6.3 Crores as ITC.
The Central Authorities had issued summons with regard to the wrongful availment of ITC to the extent of Rs.6.3 Crores and subsequently, freezed the bank accounts of the petitioners. Thereafter, the petitioner paid a sum of Rs.1.3 Crores as GST to show their bonafide and as a result, the attachment order passed by the Central Authorities was lifted and the bank accounts of the petitioner were de- freezed. For the very same issue, the State Authority, had also issued the notice under Form GST ASMT-10 pertaining to the period till the month of September for wrongful availment of a sum of Rs.13,10,44,864.
The assessee contended that as far as the initiation of proceedings by the State Authorities is concerned, he would submit that the State Authorities will not have any concurrent jurisdiction since the Central Authorities have already initiated proceedings for the very same issue by conducting the search at the petitioner’s premises. Subsequent to the search, the Central Authorities had also recorded the Statement of one of the Directors and the arrest was also made.
The assessee while referring Rule 86A of GST Rules, 2017, submitted that for the purpose of blocking the ECL, the credit should be available in ECL of the Registered person at the time of blocking. If there is “Nil” balance in the credit ledger, there cannot be any negative blocking of credit since the same is not permissible under the provisions of Rule 86A of the GST Rules.
The court held that at the time of issuance of ASMT-10 by the State Authorities, i.e., 26.09.2024, only the search was conducted by the Central Authorities and no notice was issued by them with regard to the wrongful availment of a sum of Rs.13.10 Crores. Therefore, one cannot assume or presume that the cross empowerment will come into picture against the State Authorities.
However, the court noted that the Form GST DRC-01A was issued by the Central Authorities with regard to the wrongful availment of ITC for a sum of Rs.13.10 Crores up to the month of September, 2024. Due to this development, certainly, the State Authorities cannot proceed based on the Form GST ASMT-10, however, in the absence of any further orders, subsequent to the issuance of ASMT-10 by the State Authorities, it is pre-mature to decide as to whether the State Authorities are barred by cross empowerment or not.
“Even if the State Authorities are barred by cross empowerment for initiation of proceedings against the petitioner, the blocking of ITC will always be the domain of State Authorities, which was also accepted by the Central Authorities, since the petitioners are registered person of the State Authorities,” the court said.
The court held that the negative blocking is well within the scope of provisions of Rule 86A of GST Rules. The blocking of ITC can be made to the extent of wrongful availment of credit, for which Rule 86A empowers State Authority not to allow debit of the amount equivalent to such wrongful availment of credit to the extent of available ECL at any point of time.
The court held that at the time of blocking, the availability of ITC in the ECL is immaterial. The blocking orders would cover both the amount available in the ECL at the time of passing orders and the amount to be accumulated subsequently into the ECL to the extent of the amount mentioned in the blocking order. Thus, the Authorities are empowered to pass the blocking orders, in the present case, up to the maximum extent of a sum of Rs.13.10 Crores towards the wrongful availment of credit.
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Case Details
Case Title: Tvl. Skanthaguru Innovations Private Limited Versus Commercial Tax Officer
Case No.: W.P.No.29872 of 2024 and W.M.P.Nos.32579, 32574 & 32575 of 2024
Date: 28.11.2024
Counsel For Petitioner: Satish Parasaran
Counsel For Respondent: C.Harsha Raj
