Rule 86A provides for Interim restriction of attachment, bi-parte hearing order should be passed to make it permanent

In M/s Sahil Enterprises. v. Union of India. [IA No.1/2021 with WP(C) No.531/2021 dated September 14, 2021],M/s Sahil Enterprises ("the Petitioner") has filed the current application seeking interim relief for removing the provisional attachment which was ordered by the Commissioner of Central Goods and Services Tax, under Rule 86A of Central Goods and Service Tax Rules, 2017 ("CGST Rules") vide Order dated May 21, 2020.

The Petitioner contends that as per Rule 86A of the CGST Rules, attachment of a ledger account can be made only for a period of one year and no more. Such order in the case of Petitioner was ordered on May 21, 2020 which has exceeded the time limit as per the provision.

The Respondent opposing the application contended that the Petitioner claimed tax credit without actually depositing the tax with the Government Revenue. To safeguard the interest of the Revenue, the Commissioner resorted to exercising powers under Rule 86A of the CGST Rules.

The Hon’ble Tripura High Court analyzing Rule 86A observed that the restrictions which can be imposed for use of amount in Electronic Credit ledger can only be by way of temporary measure which should not exceed a period of one year. This decision to impose such restriction is an interim measure and cannot thus take the shape of a permanent arrangement.

Further noted, if the Department wants to permanently disallow credit of accumulated amount in the ledger of a dealer, it must adjudicate the issue and pass an order after bi- parte hearing. There are two things which noteworthy to mention in Rule 86A(3) of the CGST Rules- "first, there is no scope of extension of this time and secondly, upon expiry of a period of one year the effect of the restriction seizing to take effect would be automatic."

Held, the Department cannot continue to subject the Petitioner’s electronic credit ledger to the restrictions which were imposed on May 21, 2020. Further, the same is to be released and it would make the Petitioner to utilize the amount credited in the said ledger for the purpose of payment of its taxes in accordance with law.