GST Update

 Desk of CA. Praveen Sharma – 1041 Series (CAPS) 

Punjab & Haryana High Court IN THE CASE OF M/s K.K. Alloys v. Union of India & Others

Case: M/s K.K. Alloys v. Union of India & Others

The Punjab & Haryana High Court has ruled that GST authorities cannot block more Input Tax Credit (ITC) than what is actually available in the Electronic Credit Ledger (ECL) under Rule 86A of the CGST Rules.

In this case, the GST Department created a negative balance in the taxpayer's Electronic Credit Ledger to block future ITC. The taxpayer challenged this action, arguing that Rule 86A only allows blocking of the ITC that is actually available in the ledger.

The High Court agreed with the taxpayer and held that Rule 86A is only a preventive provision and not a recovery mechanism. It observed that if the Electronic Credit Ledger has a nil balance, there is no ITC available to block. The Court further clarified that any allegedly ineligible ITC must be recovered through the proper adjudication process under the CGST Act and not by creating a negative balance.

Accordingly, the Court set aside the department's action as being without jurisdiction and contrary to law. The Supreme Court also dismissed the Department's SLP, thereby affirming the High Court's view.

Key Takeaway: GST authorities can block only the ITC actually available in the Electronic Credit Ledger. Negative blocking of future ITC is not permitted under Rule 86A.

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CAPS