Page 31 - GSTL_23rd April 2020_Vol 35_Part 4

2020 ] BLOCKING OF ITC UNDER RULE 86A — A NEW CHALLENGE FOR THE TRADE J59

BLOCKING OF ITC UNDER RULE 86A — A
NEW CHALLENGE FOR THE TRADE
By
Debasish Bandyopadhyay, B.Com., LL.B., PGDFM

In a major deterrent initiative, the C.B.I. & C. in-
serted Rule 86A in Central Goods and Services Tax Rules,
2017 vide Notification No. 75/2019 w.e.f. 26-12-2019 in order
to curb the menace of alleged fraud perpetrated by certain
entities across the country. In terms of the said new provi-
sion, power to block input credit is given to the competent
authority on the suspicion of input tax available in the electronic credit ledger
that has been fraudulently availed or is ineligible. The relevant portion of the
rule is extracted below;
“Rule 86A. Conditions of use of amount available in electronic credit
ledger. -
(1) The Commissioner or an officer authorised by him in this behalf, not be-
low the rank of an Assistant Commissioner, having reasons to believe that
credit of input tax available in the electronic credit ledger has been fraudu-
lently availed or is ineligible inasmuch as - ……………………
……………………
……………………
…………………..
may, for reasons to be recorded in writing, not allow debit of an amount equiva-
lent to such credit in electronic credit ledger for discharge of any liability un-
der section 49 or for claim of any refund of any unutilised amount.”
It is abundantly clear from the above that the said restriction has been brought in
to nullify the effect of the Gujarat High Court decision (Valerius Industries v. Union
of India, Civil Application No. 13132 of 2019) which had held that in absence of any
power in law, blocking of credit is absolutely illegal. In the aforesaid matter the
writ applicant seeks to challenge the action against the blockage of the input tax
credit whereby the input tax credit of the writ applicant is blocked under the pro-
visions of the GST Act, 2017 and also the said applicant seeks to challenge the or-
der of provisional attachment of the stock of goods valued at ` 1,60,00,000/-.
The relevant parts of observation made by the Hon’ble Gujarat High Court
is summarized hereinbelow;
“The power conferred upon the authority under Section 83 of the Act for pro-
visional attachment could be termed as a very drastic and far reaching power. Such
power should be used sparingly and only on substantive weighty grounds and
reasons.
The power of provisional attachment under Section 83 of the Act should be
exercised by the authority only if there is a reasonable apprehension that the as-
sessee may default the ultimate collection of the demand that is likely to be raised on
completion of the assessment. It should, therefore, be exercised with extreme
care and caution…………………….

GST LAW TIMES  23rd April 2020  151