GST Credit Ledger of recipient cannot be blocked vide rule 86A on the account of default of a supplier: Gujarat HC

Gujarat High Court has in one of its Orders said that the Blocking of a recipient’s credit ledger on the account of default of a supplier, vide rule 86A, is wanting of statutory authority at present.

As per Court Section, 43A was inserted into the Act vide the CGST (Amendment) Act, 2018. Section 43A(6) provides that the supplier and the recipient of a supply shall be jointly and severally liable to pay tax, or to pay the input tax credit availed, as the case may be, in relation to the outward supplies.

However, section 43A has not been notified yet. Therefore, the same does not apply. In the absence of section 43A being notified, this power has not been contemplated by the Act. Further, the notification of rule 86A prior to section 43A is indicative of the fact that the rule did not intend to draw the validity from section 43A.

On the perusal of the aforesaid provisions, it can be said that there is a specific mechanism for reversing the credit in the case of a discrepancy in the ITC availed by the recipient, against the output liability of the supplier. However, the ITC reversal mechanism, as laid down in section 41 read with Rules, is kept in abeyance. The facility to furnish GSTR – 2 and GSTR – 3 Forms is also not available. Accordingly, there is no system-based matching of the ITC being carried out presently, and till the time such provisions are given effect, the recipients shall be eligible to claim ITC provisionally on the basis of the invoice issued by Customer.

The impugned order of blocking of the Electronic Credit Ledger (ECL) of the writ applicant is hereby quashed and set aside by the Court.