Facts of the Case

M/S. M J Gold, holding GSTIN 32AAOFM7935N1ZM, was informed vide communication dated 04.09.2023 that input tax credit of Rs.9,58,000/- in its electronic credit ledger had been blocked with reference to purchases from M/s.Blue Star Trading Co., Delhi, supported by tax invoices, GSTR-2B and GSTR-3B filings placed on record by the petitioner. The Government Pleader, on instructions, confirmed that the petitioner had, in fact, been afforded no opportunity before the communication and the blocking order, both issued on the same date.

Issues Involved

  1. Whether blocking of the electronic credit ledger without any prior opportunity to the taxpayer can be sustained, and what relief follows from such a lapse.

Petitioner's Arguments

  • No opportunity was afforded to the petitioner before issuing the communication and blocking the electronic credit ledger for Rs.9,58,000/- on 04.09.2023, and the petitioner had supporting invoices, GSTR-2B and GSTR-3B records to justify the input tax credit claimed.

Respondent's Arguments

  • The Government Pleader, on instructions, conceded that the petitioner had not, in fact, been afforded any opportunity before the impugned communication and blocking order were issued.

Court Order / Findings

  • On the Revenue's own concession that no opportunity was afforded before blocking the ledger, the Court found it appropriate to direct an immediate fresh hearing rather than simply setting the order aside without a time-bound remedy.
  • Where an electronic credit ledger has been blocked without prior opportunity, the appropriate remedy is a time-bound fresh hearing before the concerned authority, coupled with an automatic unblocking safeguard if the authority fails to take a decision within the time fixed -- ensuring the taxpayer is not left in limbo pending administrative delay.
  • The petitioner was directed to appear before the first respondent the very next day with all relevant documents for a fresh decision; if the decision-making process was delayed or a decision could not be taken that day, the electronic credit ledger was directed to be unblocked to enable the petitioner to file its return.

Important Clarification

  • Blocking of the electronic credit ledger under Rule 86A without affording the taxpayer prior opportunity is impermissible; where such opportunity is later found to have been denied, courts can build in an automatic unblocking safeguard tied to a fixed decision deadline, so that administrative delay does not perpetuate the taxpayer's inability to file returns.

Sections Involved

  • Rule 86A, CGST Rules, 2017 - conditions for restricting use of amount available in the electronic credit ledger, requiring the officer to have reasons to believe credit is ineligible.

Decision – In Favour of

The writ petition was disposed of with directions, procedurally in favour of the Assessee, without any final adjudication on the eligibility of the blocked input tax credit itself.

Case Details

Court: High Court of Kerala at Ernakulam
Case No.: WP(C) No. 30292 of 2023
Coram: Justice Dinesh Kumar Singh
Date of Order: 19.09.2023

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