• Dated 24th March, 2022
Tax Alert

Interest to be granted to taxpayer if input tax credit blocked for more than 1 year1

Fact: -

In the given case, department had blocked the electronic credit ledger of the petitioner and the same was unblocked after expiry of 2 years. As per Rule 86A of the Central Goods and Services Rules 2017, electronic credit could have been blocked for a period of one year. However, in this case the department had blocked the electronic credit ledger for more than one year.

Being aggrieved by the action of the department, the taxpayer has filed the writ before the Hon'ble Delhi High Court for seeking interest on the input tax credit which was blocked by the department even after the period of one year.

Petitioner Contention: -

The petitioner before the Hon'ble High Court contended that the action of the department for blocking of input tax credit for a period after the expiry of one year from the date of blocking electronic credit ledger is wholly unlawful and unjustified.

Petitioner further explained the relevant provision of blocking of the input tax credit where it is clearly mentioned that the department cannot block the input tax credit of the taxpayer for more than 1 year. The relevant provision of Rule 86A of the CGST Rules is reproduced below:

  1. The Commissioner or an officer authorized by him in this behalf, not below the rank of an Assistant Commissioner, having reasons to believe that credit of input tax available in the electronic credit ledger has been fraudulently availed or is ineligible in as much as-
    1. the credit of input tax has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36-
      1. issued by a registered person who has been found non-existent or not to be conducting any business from any place for which registration has been obtained; or
      2. without receipt of goods or services or both; or
    2. the credit of input tax has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36 in respect of any supply, the tax charged in respect of which has not been paid to the Government; or
    3. the registered person availing the credit of input tax has been found non-existent or not to be conducting any business from any place for which registration has been obtained; or
    4. the registered person availing any credit of input tax is not in possession of a tax invoice or debit note or any other document prescribed under rule 36,
  2. Such restriction shall cease to have effect after the expiry of a period of one year from the date of imposing such restriction

As per the above-mentioned rules it was contended by the petitioner that department has to unblock the input tax credit within 1 year.

Outcome from Court is Pending:-

Hon'ble Delhi High Court admitted this writ and have asked revenue authority to file affidavits before the next hearing. The matter is pending before the court and is listed for next hearing on 14.09.2022.

It will be interesting to see the final decision of the Hon'ble High Court. A favorable judgement will provide a relief to the taxpayer towards the loss actually suffered due to blocked input tax credit.

We shall keep you updated with the final order in the due course of time.

FIDES DISTRIBUTION PVT LTD Vs COMMISSIONER OF CENTRAL GOODS AND SERVICES TAX DELHI SOUTH AND ORS (2022-TIOL-218-HC-DEL-GST)