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Madras High Court Rules Electronic Credit Ledger Can Be Blocked Despite Utilization of Fraudulent ITC

The Madras High Court has ruled that an Electronic Credit Ledger (ECL) can be blocked under the Goods and Services Tax (GST) framework even if the fraudulently availed Input Tax Credit (ITC) has already been utilized. The judgment strengthens the enforcement measures against tax evasion.

Background:

The case involved allegations of fraudulent availing and utilization of ITC under the GST Act. The petitioner argued that since the fraudulently claimed ITC was already utilized, the authorities could not block the ECL. However, the authorities maintained that such blocking was necessary to prevent future misuse.

Court’s Rationale:

The court held that fraudulent transactions undermine the GST system’s integrity and that the utilization of ITC does not absolve the fraud. It emphasized that blocking the ECL is a preventive measure, permitted under Rule 86A of the CGST Rules, to safeguard revenue and deter future violations.

Existing Measures:

Under Rule 86A, GST authorities have the power to block the ECL if there is evidence of ITC fraud or misuse. This provision is intended to ensure compliance and protect government revenue. However, its application has often led to legal challenges over its scope and procedural safeguards.

Conclusion:

The ruling by the Madras High Court reinforces the government’s authority to take stringent measures against ITC fraud. It underscores the importance of maintaining accountability in the GST system while balancing the rights of taxpayers.

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