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Blocking/Unblocking of ITC

Blocking/Unblocking of ITC

The Government of Haryana has issued guidelines regarding circumstances in which input tax credit (ITC) can be blocked/ unblocked from the electronic credit ledger vide Circular Memo No. 3555/GST- 2, dated 30 October, 2018.

GSTN has recently released an application program interface for the functionality of blocking and unblocking of ITC by the authorities on GSTN. The necessary backend application for the aforesaid has been integrated into the systems of the tax office.The guidelines states that jurisdictional officers can block/unblock ITC under the following situations:

1.Full ITC should be blocked instantly in cases, where the registered assessees are found to be bogus or fake as a result of any investigation or intelligence. Such assessees are not entitled for the credit on the grounds that no supply is made and the proper tax has not been deposited in respect of the claimed credit.

2.Full amount of credit should be blocked where the firms are found to be non-functional. Such assessees are not entitled for credit as no supply has been received for the reason that the firms are non-functional.

3.Credit of assessees who have claimed transitional credit through TRAN-1/ TRAN-2, in excess of their lawful entitlement, should be blocked. In such cases, the credit should be blocked only to the extent of excess credit claimed over and above their entitlement as per GST law.

4.Credit of supplies which have not been used in the course of business or furtherance of the business should be blocked. The credit should be blocked to the extent of amount of inadmissible credit, if on examination of returns, such cases are detected.

5.Credit of supplies should be blocked where the credit is inadmissible as per section 17(5) of the CGST Act, 2017. The credit should be blocked to the extent of amount of inadmissible credit, if on examination of returns or otherwise, such cases are detected.

6.Credit of supplies should be blocked in all cases where the assessees are not entitled to the credit in accordance with the law, i.e. if the tax is not paid by the supplier, the recipient is not in possession of the tax invoice, or the supply is outdated or the supplier is composition assessees etc. The credit should be blocked to the extent of amount of inadmissible credit.

The circular issued by the Excise and taxation commissioner of Haryana stated that the blockage is relevant to the fake and bogus taxpayers, excess transitional credit, non-functional firms and highly unlikely credit demand under the GST rules and regulations.

Some tax expert said that “It appears that the circular is vulnerable to legal challenge on account of being arbitrary, as it gives unbridled powers to officers to deny or block credit, without giving any opportunity to the assessee of being heard.”

It all depends on the future possibilities of power which can be exercised to block its ITC. Also, it is to be noticed that whether the blockage would be sorted out at the later stage by any particular process.


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