Non-payment to supplier within 180 days cannot restrict ITC entitlement

The Revenue had alleged that the Petitioner had not paid the dues to its suppliers, within 180 days. Thus, contravening the provision of Section 16 of the CGST Act. Basis the said allegation, the Revenue had blocked u/r. 86A of the CGST Rules.

The HC observed that in terms of Rule 86A, ITC can be restricted only where the ITC available in the credit ledger has been ‘fraudulently availed’ or is ‘ineligible.’ It was further observed that invocation of Rule 86A is a drastic measure and therefore, can be taken only when the conditions for taking such measures are met. It is trite law that statutory provisions empowering harsh measures such as freezing the assets of a person, have to be strictly construed.

Basis the above observations, the HC directed the Respondent to unblock the ITC of the Petitioner.

Sunny Jain vs. Union of India [W.P.(C) 6444/2022, CM Nos.19502/2022 and 33763/2022]

GLS Comments:

Last year, the CBIC had issued Guidelines dated 02 November 2021, whereby, it had been clarified the power u/r. 86A can only be exercised upon fulfillment of the conditions. Namely, (i) credit availed without receipt of goods/services, (ii) credit availed on invoices issued by supplier who is non-existent, (iii) credit availed on invoices, in respect of which tax is not paid, (iv) credit availed on invalid documents, and (v) person claiming credit is found to be non-existent.

Given the defined conditions in the rule itself, which has also been clarified vide Guidelines, exists, the Revenue authorities are expected to observe the same in the interest of justice. Such arbitrary actions by the Department cause unnecessary hardships to the taxpayers, which compels them to knock the doors of the judicial forums. This, in-turn adds burden on the already over-burdened judiciary.

Disclaimer:

The information provided in this update is intended for informational purposes only and does not constitute legal opinion or advice. Readers are requested to seek formal legal advice prior to acting upon any of the information provided herein. This update is not intended to address the circumstances of any particular individual or corporate body. There can be no assurance that the judicial/ quasi judicial authorities may not take a position contrary to the views mentioned hereinrra quis.