Summary: Rawman Metal and Alloys challenged a tax order that blocked their input tax credit. The Bombay High Court ruled in their favor, stating the order was invalid since no credit was available at the time.
Rawman Metal and Alloys found themselves in a tough spot when the Deputy Commissioner of State Tax in Thane stopped their Input Tax Credit (ITC) worth ₹12,84,273. The order was made on December 9, 2024, under Rule 86-A of the Central Goods and Services Tax Rules, 2017. But here's the twist: their Electronic Credit Ledger was empty at the time!
"The ITC available in Rawman Metal and Alloys’ Electronic Credit Ledger was 'Nil'."
Rule 86-A lets tax authorities stop ITC if they think it was obtained through fraud. Rawman's lawyer, Mr. Parmeet Singh, argued that since there was no credit in the ledger, the rule couldn't be used.
Ms. Chavan, representing the government, argued that the rule should stop any fraudulently obtained ITC, not just what was available.
Judges M.S. Sonak and Advait M. Sethna had to decide if Rule 86-A could be applied when no credit was available. They agreed with Rawman, emphasizing a strict reading of the rule.
"If no input tax credit was available in the ledger, the blocking...would be wholly without jurisdiction."
The Bombay High Court looked at similar cases from the Gujarat and Delhi High Courts, which also supported a strict interpretation. However, the Calcutta High Court had a different view, focusing on what lawmakers intended rather than the exact words of the rule.
The court canceled the blocking order and gave back Rawman's ITC. This decision reinforces that tax rules must be strictly interpreted, leaving no room for assumptions about what lawmakers intended.
"The Rule is accordingly made absolute...directing the restoration of blocked Input Tax Credit."
In the end, Rawman Metal and Alloys walked away with their ITC intact, and the court's decision clarified how Rule 86-A should be applied in future cases.
