There is marked distinction between the expressions, “entitlement to” claim input tax credit and “entitled to avail” input tax credit.
There is marked distinction between the expressions, “entitlement to” claim input tax credit and “entitled to avail” input tax credit. In a recent judgment, Hon’ble High Court of Orissa declined to interfere with blocking of ITC under Rule 86A holding that petitioner should first approach the authority concerned raising objections against the blocking of the input tax credit and the said authority would be under an obligation to decide the objection within a time bound period.
ABCAUS Case Law Citation:
4689 (2025) (08) abcaus.in HC
Important Case Laws relied upon by Parties:
Chief Commissioner of Central Goods and Services Tax Vrs. Safari Retreats Private Ltd.,
In the instant case, the Petitioner had approached the Hon’ble High Court alleging illegal, arbitrary exercise of power by the Commissioner of State Tax in blocking the input tax credit (ITC) under Rule 86A of the Central Goods and Services Tax Rules, 2017 / the State GST Rules, 2017.
The petitioner was registered taxable person and was engaged in works contract business. The Petitioner received e-mail whereby it was intimated that an amount of Input Tax Credit (ITC) related to a Supplier being non-existent had been blocked against the Electronic Credit Ledger available on GST portal.
The case of the Petitioner was that the said supplier was not a non-existent person. The petitioner stated to have downloaded documents which demonstrate that said supplier had reflected all the transactions effected with the petitioner and discharged its liability fully for the period in question. It was also revealed nonetheless, the documents available in the web-portal of the Department concerned indicate factum of furnishing returns by discharge of full liability with respect to transactions effected during the period.
The Department contended that on the basis of information by Commissioner of CT & GST (Enforcement), Commissionerate of CT & GST, Odisha under Finance Department that certain dealers including the present petitioner having had transactions with nonexisting tax payers of the State GST of West Bengal triggered action of blocking Input Tax Credit to the extent the petitioner effected such transactions with named suppliers.
It was submitted that the statutory authority had invoked powers under Rule 86A of the OGST Rules, 2017 and having found prima facie material from the material available on record received by way of confidential report that the suppliers had been issuing invoices notwithstanding the fact that their registration certificates are shown to have been cancelled. In such view of the matter, the Authority concerned is required to consider the reply as stated to have been submitted by the petitioner and proceed with further enquiry, if necessary and take up the issue with the outside the State Department. He, therefore, submitted that allowing the prayer of the petitioner at this stage would seriously affect the Revenue.
The Hon’ble High Court observed that in order to verify correctness of the claim of input tax credit against receipt of goods/services from the supplier on account of inter-State transactions, the Department on the basis of inputs from Enforcement Agency, enquiry appeared to be in progress and therefore, the reply of the petitioner stated to have been submitted has been kept pending.
The Hon’ble High Court appreciated the arguments of the Standing Counsel that in order to justify availing input tax credit it is necessary that the factfinding statutory authority is required to examine whether by dint of transactions as effected between the alleged suppliers and the petitioner the goods have actually moved from the other State and received at proper destination inside the State.
The Hon’ble High Court further observed that it was undisputed that the factual details were required to be “apprised by the petitioner” and “appraised by the authority concerned” to come to conclusion on appreciating material collected and those brought on record by the recipient-petitioner in rebuttal thereof, if any. This is more so in the presence of provisions of Section 16(2) of the CGST Act.
The Hon’ble High Court further noted that Rule 36 of the CGST Rules, 2017, makes it abundantly clear with respect to documentation and there is marked distinction between the expressions, “entitlement to” claim input tax credit and “entitled to avail” input tax credit.
The Hon’ble High Court further observed that the pivotal point around which the present matter revolves was exercise of power under Rule 86A of the CGST Rules which mandates that the Commissioner, or an officer authorised by him, not below the rank of Assistant Commissioner, must have “reasons to believe‟ that credit of input tax available in the electronic credit ledger is either ineligible or has been fraudulently availed by the registered person, before disallowing the debit of amount from electronic credit ledger of the said registered person under Rule 86A.
The Hon’ble High Court opined that a holistic approach as emanates from Rule 86A leads to that the petitioner should first approach the authority concerned raising objections against the blocking of the input tax credit and the said authority would be under an obligation to decide the objection within a time bound period. Delving into such dispute at this stage when the reply of the petitioner is pending adjudication would be to resolving factual anomaly by the writ Court.
As a result, the Hon’ble High Court refrained from entertaining the writ petition. The concerned authority was directed to consider reply/explanation submitted by the petitioner within a period of four weeks hence by affording opportunity of hearing to the petitioner.
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