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

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.

Justice Manoj Kumar Tiwari concluded that “In view of the admission by the 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 that it was also added that this judgement would not prevent the respondents from taking action prescribed by law against the petitioner in case he has committed any offence.

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