ITC Blocked By GST Authorities Cannot Be Treated As Appeal Pre-Deposit: Delhi High Court

The Delhi High Court on 3 September held that input tax credit (ITC) blocked under Rule 86A of the Central Goods and Services Tax (CGST) Rules cannot be treated as payment of the mandatory pre-deposit required for filing a GST appeal.

A Division Bench comprising Justices Anil Khetarpal and Shail Jain dismissed a petition filed by Spherion Solutions Private Limited seeking permission to utilise Rs. 3,33,257 from its blocked Electronic Credit Ledger (ECL) towards the statutory pre-deposit under Section 107(6) of the CGST Act. It held:

"The mere blocking of input tax credit does not amount to its payment or appropriation towards an adjudicated demand. A restriction under Rule 86A only prevents debit of the specified amount from the ECL. Unless the amount is actually debited or appropriated towards the liability, the requirement of pre-deposit cannot be treated as satisfied merely because the credit has been placed beyond the use of the registered person,"

Spherion Solutions had received a show cause notice alleging wrongful availment of ITC of Rs. 33,32,568 without receipt of the corresponding goods or services. The adjudicating authority subsequently confirmed an Integrated Goods and Services Tax (IGST) demand of Rs. 33,32,568 along with an equivalent penalty.

The summary order uploaded in Form GST DRC-07 initially reflected the aggregate tax demand and penalty of Rs. 66,65,136 under the head “penalty”. When Spherion Solutions attempted to file an appeal, the GST portal consequently computed the mandatory pre-deposit at Rs. 6,66,514 instead of Rs. 3,33,257, representing 10% of the disputed tax demand. The authorities subsequently rectified the error.

The remaining dispute before the High Court concerned Spherion Solutions' request to utilise Rs. 3,33,257 from its blocked ITC towards the appeal pre-deposit. It argued that requiring it to make the pre-deposit separately in cash would impose a double burden.

The Revenue opposed the plea, submitting that the credit in question was not ordinarily available ITC but credit whose utilisation had been specifically restricted under Rule 86A. It argued that the blocking was preventive in nature and did not amount to recovery or appropriation of the credit towards the adjudicated demand.

The Court noted that Section 107(6) of the CGST Act requires payment of the prescribed amount for maintaining an appeal, while Section 49(4) permits utilisation of credit available in the ECL subject to statutory restrictions. Rule 86A empowers the competent officer to restrict debit of ITC where there are recorded reasons to believe that the credit has been fraudulently availed or is otherwise ineligible.

The Bench held that where a restriction under Rule 86A is operating, the corresponding amount cannot be debited from the ECL unless the restriction is removed or modified by the competent authority.

It also distinguished the decisions relied upon by Spherion Solutions, observing that those cases concerned utilisation of credit ordinarily available in the ECL and did not deal with credit whose utilisation had been restricted under Rule 86A.

Accordingly, the High Court refused to permit appropriation of Rs. 3,33,257 from Spherion Solutions' blocked ITC towards the mandatory pre-deposit.

For Petitioner: Mr. Abhishek Garg, Mr. Ranesh Singh and Ms. Mankotia, Advs.

For Respondents: Mr. Akash Verma, SSC along with Ms Aanchal Uppal and Ms. Teevra Mishra, Advs. Mr. Harpreet Singh, SSC