Revenue Department Cannot Block Electronic Credit Ledger by Making Negative Balance

Revenue Department Cannot Block Electronic Credit Ledger by Making Negative Balance

Introduction

In a significant ruling, the Hon’ble Telangana High Court has emphasized the correct legal procedure for handling cases of wrongful or fraudulent input tax credit (ITC) availing. In the case of Laxmi Fine Chem v. Assistant Commissioner, the court addressed the issue of whether the Revenue Department can block the electronic credit ledger by creating a negative balance. This ruling clarifies the proper application of the Central Goods and Services Tax (CGST) Rules and underscores the importance of following due process in tax recovery proceedings.

Facts of the Case

Background

M/s. Laxmi Fine Chem (“the Petitioner”) was informed via an order dated February 06, 2024 (“Impugned Order”) that their electronic credit ledger had been blocked by creating a negative credit amount. This action by the Revenue Department led to significant operational challenges for the Petitioner.

Grounds for Petition

Aggrieved by the Impugned Order, the Petitioner filed a writ petition before the Hon’ble High Court on two primary grounds:

Issue

The core issue before the court was whether the Revenue Department can block the electronic credit ledger by making a negative balance.

Held

Court’s Observations

Final Decision

The court held that the action of the Revenue Department in creating a negative credit balance was contrary to Rule 86(A) of the CGST Rules. Consequently, the court set aside the Impugned Order, providing relief to the Petitioner.

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