Summary: Rawman Metal & Alloys challenged a tax order blocking their Input Tax Credit (ITC), claiming it was issued unlawfully since there was no credit in their ledger at the time. The Bombay High Court sided with Rawman, ruling the block invalid.
Rawman Metal & Alloys, owned by Pravin Mohanlalji Mehta, found themselves in a legal fight with the Deputy Commissioner of State Tax, Thane. The problem? A tax block on their ITC worth ₹12,84,273, imposed on December 9, 2024, which they claimed was unfair because their Electronic Credit Ledger had zero balance at the time.
The main point of the case revolved around Rule 86-A of the Central Goods and Services Tax Rules, 2017. Rawman's lawyer, Mr. Parmeet Singh, argued that the block was invalid since there was no ITC available to block. He mentioned previous cases from the Gujarat, Telangana, and Delhi High Courts supporting this view.
"The blocking of ITC without available credit is beyond legal power," argued Mr. Singh.
On the other hand, Ms. Chavan, representing the government, insisted that Rule 86-A allows blocking of ITC even if the ledger is empty, to prevent fake claims. She referenced a Calcutta High Court decision that interpreted the rule in favor of blocking.
The judges, M.S. Sonak and Advait M. Sethna, looked at the rule closely. They emphasized that the rule permits blocking only if there is existing credit. They noted that if the lawmakers intended to block future credits, the rule would have been written differently.
"The rule should be interpreted strictly, as it deals with taxes," the court noted.
The court ruled in favor of Rawman Metal & Alloys, stating that without available credit, the block was unlawful. They ordered the restoration of the blocked ITC within 15 days.
