# M/s RM Dairy Products LLP, Sultanganj, Agra v. State of U.P. & Ors

- **Citation:** (2021) 9 ILRA 1151
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2021-07-15
- **Case number:** Writ Tax No. 434 of 2021
- **Bench:** Naheed Ara Moonis, Saumitra Dayal Singh
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/m-s-rm-dairy-products-llp-sultanganj-agra-v-state-of-u-p-ors-47358
- **Pages:** 6

## Headnote

A. Tax Law - Input Tax Credit - UP GST
Act, 2017 - Sections 74, 78 & 79 - State
GST Rules, 2017 - Rules 142 & 161 -
State/Central Goods and Services Tax
Rules, 2017: Rule 86A(1) - The Rule does
not contemplate any recovery of tax due
from an assessee. It only provides, in certain
situations and upon certain conditions being
fulfilled, specified amount may be held back and
be not allowed to be utilized by the assessee
towards discharge of its liabilities on the
outward tax or towards refund. It creates a
lien without actual recovery being made
or attempted. (Para 12)

B. Words & Phrases - 'input tax available'
- The words 'input tax available' used in the first
part of sub-rule (1) of Rule 86-A have to be
read only in the context of the infringement
being alleged by the revenue, i.e. fraudulent
availment or availment dehors eligibility to the
same. They cannot be read as actual input tax
available on the date of the order passed under
that Rule. (Para 13, 14)

'available', 'has been' - The word 'available'
used in the first part of sub-Rules of Rule 86-A
would always relate back in time when the
assessee allegedly availed input tax credit either
fraudulently or which he was not eligible to
avail. It does not refer to and, therefore, it does
not relate to the input tax credit available on the
1152 INDIAN LAW REPORTS ALLAHABAD SERIES
date of Rule 86-A being invoked. The phrase
"has been" used in Rule 86-A(1) leaves no
manner of doubt in that regard. (Para 15)

'ineligible' - The word 'ineligible' has been
clarified by means of Rule 86-A(1)(a)(i) to
include
a
transaction
performed
with
a
registered dealer who may be found to be nonexistent or to have not conducted any business
etc. (Para 16)

Plain reading of the impugned order reveals that
it is the revenue's allegation that M/s. Darsh
Dairy & Food Products, Agra products was found
to be non-existent at the disclosed place of
business. (Para 16)

C. 'Reason to believe' - For a valid exercise
of power, the authorized officer must have
'reasons to believe' that any credit of 'input
tax available' (i.e. that was available in the
electronic credit ledger of an assessee) had
either been fraudulently availed or the
assessee was not eligible to avail the same.
(Para 13)

The
correctness
or
otherwise
or
the
sufficiency of the 'reason to believe' is not
subject-matter of dispute in the instant
proceedings. It is the relevancy of that
reason to believe. Thus, at present, the 'reason
to believe' is based on material with the competent
authority indicating non-existence of the selling
dealer. It is thus alleged the petitioner was not
eligible to avail input tax credit as the seller M/s.
Darsh Dairy & Food Products, Agra was a nonexistent dealer. (Para 17, 18)

D. 'Not allow debit' - To 'not allow debit' and
to appropriate the same are two different
things in the context of the Statute. They
lead to different consequences. While

## Text

9 All M/s RM Dairy Products LLP, Sultanganj, Agra Vs. State of U.P. & Ors.
1151
arbitration clause successfully and the same
procedure may fail at the time of the
appointment of substitute arbitrator. Even
in such a situation, the jurisdiction under
Section 11 of the Act, nevertheless,
remains open. The failure of parties to
constitute the Tribunal once experienced
would extinguish the right embodied in the
agreement
and
confer
an
exclusive
jurisdiction upon the court to appoint
substitute arbitrator as and when the
situation arises.

22. In view of what has been
recorded above, the present application is
allowed and the Court proposes Hon'ble
Mr. Justice V.K. Gupta (Retired CJ)
resident of E-31, Jangpura Extension,
New Delhi-110014 to be the sole
arbitrator in the present case, subject to
his consent in terms of Section 11(6) read
with Section 12(1) of the Act on the
terms and conditions of fee as per
schedule. The Senior Registrar of this
Court is directed to retrieve the record of
the arbitration proceedings for being sent
to the substitute arbitrator expeditiously
and preferably within one month. The
record already made available, if any,
may
be
retained
by
the
proposed
arbitrator and apprised to the Court
alongwith the consent letter. The order
passed by this Court alone shall bind the
parties to subscribe to the further arbitral
proceedings
in
continuity
of
the
arbitration commenced in furtherance of
the order dated 12.7.2002 passed earlier.

23. List this case on 6.10.2021 for
further orders.
----------
(2021)09ILR A1151
ORIGINAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 15.07.2021

BEFORE

THE HON'BLE NAHEED ARA MOONIS, J.
THE HON'BLE SAUMITRA DAYAL SINGH, J.

Writ Tax No. 434 of 2021

M/s RM Dairy Products LLP, Sultanganj,
Agra ...Petitioner
Versus
State of U.P. & Ors. ...Respondents

Counsel for the Petitioner:
Sri Nishant Mishra, Ms. Yashonidhi Shukla

Counsel for the Respondents:
C.S.C., A.S.G.I., Sri Manu Ghildyal, Sri
Ashok Singh

A. Tax Law - Input Tax Credit - UP GST
Act, 2017 - Sections 74, 78 & 79 - State
GST Rules, 2017 - Rules 142 & 161 -
State/Central Goods and Services Tax
Rules, 2017: Rule 86A(1) - The Rule does
not contemplate any recovery of tax due
from an assessee. It only provides, in certain
situations and upon certain conditions being
fulfilled, specified amount may be held back and
be not allowed to be utilized by the assessee
towards discharge of its liabilities on the
outward tax or towards refund. It creates a
lien without actual recovery being made
or attempted. (Para 12)

B. Words & Phrases - 'input tax available'
- The words 'input tax available' used in the first
part of sub-rule (1) of Rule 86-A have to be
read only in the context of the infringement
being alleged by the revenue, i.e. fraudulent
availment or availment dehors eligibility to the
same. They cannot be read as actual input tax
available on the date of the order passed under
that Rule. (Para 13, 14)

'available', 'has been' - The word 'available'
used in the first part of sub-Rules of Rule 86-A
would always relate back in time when the
assessee allegedly availed input tax credit either
fraudulently or which he was not eligible to
avail. It does not refer to and, therefore, it does
not relate to the input tax credit available on the
1152 INDIAN LAW REPORTS ALLAHABAD SERIES
date of Rule 86-A being invoked. The phrase
"has been" used in Rule 86-A(1) leaves no
manner of doubt in that regard. (Para 15)

'ineligible' - The word 'ineligible' has been
clarified by means of Rule 86-A(1)(a)(i) to
include
a
transaction
performed
with
a
registered dealer who may be found to be nonexistent or to have not conducted any business
etc. (Para 16)

Plain reading of the impugned order reveals that
it is the revenue's allegation that M/s. Darsh
Dairy & Food Products, Agra products was found
to be non-existent at the disclosed place of
business. (Para 16)

C. 'Reason to believe' - For a valid exercise
of power, the authorized officer must have
'reasons to believe' that any credit of 'input
tax available' (i.e. that was available in the
electronic credit ledger of an assessee) had
either been fraudulently availed or the
assessee was not eligible to avail the same.
(Para 13)

The
correctness
or
otherwise
or
the
sufficiency of the 'reason to believe' is not
subject-matter of dispute in the instant
proceedings. It is the relevancy of that
reason to believe. Thus, at present, the 'reason
to believe' is based on material with the competent
authority indicating non-existence of the selling
dealer. It is thus alleged the petitioner was not
eligible to avail input tax credit as the seller M/s.
Darsh Dairy & Food Products, Agra was a nonexistent dealer. (Para 17, 18)

D. 'Not allow debit' - To 'not allow debit' and
to appropriate the same are two different
things in the context of the Statute. They
lead to different consequences. While the first only
creates a lien in favour of the revenue by blocking
utilization of that amount, appropriation of an
amount would necessarily involve transfer of title
over the money with the revenue. Plainly, the Rule
does not contemplate or speak of such a
consequence. (Para 19, 22)

Adjustment or appropriation may arise only upon
an adjudication order attaining finality or after
lapse of three months from the date of it being
passed if there is no stay granted in appeal etc.
that too as a consequence of the recovery
provisions but not under Rule 86-A of the Rules.
(Para 23)

E. The provision of Rule 86-A is not a
recovery provision but only a provision to
secure the interest of revenue, to be
exercised upon the fulfillment of the
conditions. (Para 24)

Words 'such credit' do not refer only to any
existing amount of positive credit in the
electronic credit ledger or that it must be
credit arising from the same seller. (Para 20)

If there is no positive credit standing in the
electronic credit ledger on the date of the order
passed u/Rule 86-A, that order would be read to
create a lien upto limit specified in the order
passed as per Rule 86-A of the Rules. As and when
the credit entries arise, the lien would attach to
those credit entries upto the limit set by the order
passed u/Rule 86-A of the Rules. The debit entry
recorded in the electronic credit ledger would be
read accordingly. However, the same shall not be
adjusted in favour of the revenue except in
accordance with law. Any further credit that may
arise over and above that amount would be
allowed to be utilized without objection by the
revenue. (Para 21, 25, 26)

Writ petition dismissed. (E-4)

Present
petition
assails
order
dated
25.06.2021.

(Delivered by Hon'ble Naheed Ara Moonis, J.
&
Hon'ble Saumitra Dayal Singh, J. )

1. Heard Mr. Nishant Mishra along
with Ms. Yashonidhi Shukla, learned
counsel for the petitioner, Mr. Manu
Ghildyal, learned counsel representing
respondent nos. 1 to 3 and Mr. Ashok
Singh, learned counsel for respondent no.4.

2. The present writ petition has been
filed against the order dated 25.06.2021
passed by respondent no.3 under Rule
9 All M/s RM Dairy Products LLP, Sultanganj, Agra Vs. State of U.P. & Ors.
1153
86A(1)(a)(i) of the State/Central Goods and
Services Tax Rules, 2017 (hereinafter
referred as the "Rules").

3. Four fold submissions have been
advanced by learned counsel for the
petitioner. First, relying on Rule 86A (1) of
the Rules, it has been submitted that the
respondents had no jurisdiction or authority
to block any input tax credit over and
above any amount that may have been
actually available on the date of the order
(in this case 25.6.2021).

4. Second, it has been submitted that
Rule 86A of the Rules obliges the
respondents to record a positive 'reason to
believe' that credit of input tax had been
fraudulently availed by the petitioner or the
petitioner was wholly ineligible to avail the
same. Inasmuch as the petitioner had not
committed any fraud and it was otherwise
eligible to avail the input tax credit, the
action taken by the respondents is wholly
without jurisdiction.

5. Third, it has been submitted that
the input tax credit in dispute arose on
account of the purchases made by the
petitioner from M/s Darsh Dairy & Food
Products, Agra with respect to which,
adjudication proceedings are underway
against the petitioner in accordance with
Section 74 of the UP GST Act, 2017
(hereinafter referred to as the Act). Till
those proceedings are concluded, no
amount would become recoverable from
the petitioner and, therefore, the impugned
order passed by respondent no.3 under Rule
86A is wholly premature. In that context, it
has also been submitted that Section 78 of
the Act provides the manner and mode of
recovery. An amount may be recovered
only after lapse of three months time from
the date of service of the adjudication
order. Since the adjudication proceedings
are still pending, it has been submitted, the
impugned order is wholly premature and
without basis.

6. Last, it has been submitted the Act
clearly provides for the manner in which an
amount may be determined to be due and
recoverable from the petitioner. No other
procedure may be adopted, as it would
violate the settled principle of law, if the
legislature requires an act to be done in a
particular manner, it must be done in that
manner or not at all.

7. The writ petition has been
vehemently opposed by learned counsel for
the revenue.

8. Having heard the learned counsel
for the parties and having perused the
record, plainly, there can be no dispute that
the
Act
prescribes
the
manner
for
determination of any tax not paid or short
paid. Section 74 of the Act provides for
determination of input tax credit wrongly
availed or utilized by reason of fraudetc
through
the
process
of
adjudication.
Section 78 of the Act further mandates that
any amount that may be determined under
Section 74 of the Act may not be recovered
for a period of three months from the date
of service of the adjudication order.

9. Here, it may be seen that the
recovery provision are contained in Section
79 and the enabling Rules. The recovery
Rules fall under Chapter XVIII of the State
GST Rules 2017 being Rules 142 to 161.
On the other hand, Rule 86-A falls under
the Chapter heading IX of the Rules
regarding payment of tax.

10. Besides the Chapter heading being
different, we may record that it is not that
1154 INDIAN LAW REPORTS ALLAHABAD SERIES
difference that prevails in our mind. It is
the ambit and purpose of the Rule 86A that
appears to be inherently different and
independent of the recovery provisions. For
that reason we are not inclined to accept the
contentions advanced by the learned
counsel for the petitioner.

11. Rule 86-A of the Rules reads as
below:

"86A. (1) The Commissioner or
an officer authorised by him in this behalf,
not below the rank of an Assistant
Commissioner, having reasons to believe
that credit of input tax available in the
electronic
credit
ledger
has
been
fraudulently availed or is ineligible in as
much as-

a) the credit of input tax has been
availed on the strength of tax invoices or
debit notes or any other document
prescribed under rule 36-

(i) issued by a registered person
who has been found non-existent or not to
be conducting any business from any place
for which registration has been obtained;
or

(ii) without receipt of goods or
services or both; or

b) the credit of input tax has been
availed on the strength of tax invoices or
debit notes or any other document
prescribed under rule 36 in respect of any
supply, the tax charged in respect of which
has not been paid to the Government; or

c) the registered person availing
the credit of input tax has been found nonexistent or not to be conducting any
business from any place for which
registration has been obtained; or

d) the registered person availing
any credit of input tax is not in possession
of a tax invoice or debit note or any other
document prescribed under rule 36,

may, for reasons to be recorded in
writing, not allow debit of an amount
equivalent to such credit in electronic
credit ledger for discharge of any liability
under section 49 or for claim of any refund
of any unutilised amount.

(2) The Commissioner, or the
officer authorised by him under sub-rule
(1)
may,
upon
being
satisfied
that
conditions
for
disallowing
debit
of
electronic credit ledger as above, no longer
exist, allow such debit.

(3) Such restriction shall cease to
have effect after the expiry of a period of
one year from the date of imposing such
restriction."

12. Plainly, the Rule does not
contemplate any recovery of tax due from an
assessee. It only provides, in certain
situations and upon certain conditions being
fulfilled, specified amount may be held back
and be not allowed to be utilized by the
assessee towards discharge of its liabilities on
the outward tax or towards refund. It creates a
lien without actual recovery being made or
attempted.

13. The words 'input tax available' used
in the first part of sub-rule (1) of Rule 86-A
cannot be read as actual input tax available on
the date of the order passed under that
Rule.Those words are relevant for the
purpose of laying down the first condition for
the exercise of power by the Commissioner
or the authorized officer. Thus, for a valid
exercise of power, the authorized officer must
have 'reasons to believe' that any credit of
'input tax available' (i.e. that was available in
the electronic credit ledger of an assessee)
had either been fraudulently availed or the
assessee was not eligible to avail the same.

14. The words 'input tax available'
have to be read only in the context of the
9 All M/s RM Dairy Products LLP, Sultanganj, Agra Vs. State of U.P. & Ors.
1155
infringement being alleged by the revenue.
i.e. fraudulent availment or availment
dehors
eligibility
to
the
same.
Consequently, if an assessee is found to
have either fraudulently availed or to have
availed such 'input tax credit' that he was
ineligible to avail, he may expose himself
to action under the Rule, in future, when
such an event may come to the knowledge
of the authorized officer, subject of course
to the rule of limitation.

15. Thus the word 'available' used in
the first part of sub-Rules of Rule 86-A
would always relate back in time when the
assessee allegedly availed input tax credit
either fraudulently or which he was not
eligible to avail. It does not refer to and,
therefore, it does not relate to the input tax
credit available on the date of Rule 86-A
being invoked. The word "has been" used
in Rule 86-A (1) leave no manner of doubt
in that regard.

16. Prima facie, in the facts of the
present case, the revenue alleges fraudulent
utilization
of
input
tax
credit.Even
otherwise, what may fall within the ambit
of the word 'ineligible' has been clarified by
means of Rule 86-A (1)(a)(i) to include a
transaction performed with a registered
dealer who may be found to be non-existent
or to have not conducted any business etc.
Plain reading of the impugned order reveals
that it is the revenue's allegation that M/s
Darsh Dairy & Food Products, Agra
products was found to be non-existent at
the disclosed place of business.

17. The recital of that 'reason to
believe', is contained in the impugned
order. The correctness or otherwise or the
sufficiency of the 'reason to believe' is not
subject matter of dispute in the instant
proceedings. It is the relevancy of that
reason to believe with which we are in
agreement with Mr. Ghildiyal. Thus, at
present, the 'reason to believe' is based on
material with the competent authority
indicating non-existence of the selling
dealer. It is thus alleged the petitioner was
not eligible to avail input tax credit as the
seller M/s Darsh Dairy & Food Products,
Agra was a non-existent dealer.

18. In such facts, purely on a prima
facie basis and leaving it open to the
adjudicating authority to draw its own final
conclusion in that regard, for the purpose of
the present writ petition, it cannot be
denied that, at present, their exist 'reason to
believe' with the revenue authorities that
the assessee had fraudulently availed or
was ineligible to avail 'input tax credit' with
respect to which the impugned order has
been passed.

19. As to the third submission
advanced by learned counsel for the
petitioner, the provision of Rule 86-A is not
a recovery provision. In fact, it does not
allow the revenue to reverse or appropriate
any part of the credit existing in the
electronic credit ledger of an assessee or to
adjust that credit againstany outstanding
demand or likely demand. It is at most a
provision to secure the interest of revenue,
to be exercised in the presence of the
relevant 'reasons to believe', as recorded.

20. The Rule only enables the
authorized officer to not allow debit of an
amount equivalent to 'such credit'. The
submission of Shri Mishra that the words
'such credit' refers only to any existing
amount of positive credit in the electronic
credit ledger or that it must be credit arising
from the same seller, cannot be accepted as
that intent is clearly non-existing in the
Rule.
1156 INDIAN LAW REPORTS ALLAHABAD SERIES

21. The operative portion of sub-rule
(1) of Rule 86-A limits the exercise of
power (by the authorized officer), to the
amount that would be sufficient to cover
the input tax that, according to the revenue,
had either been fraudulently availed or to
which the assessee was not eligible. It is an
amount equal to that amount which has to
be kept unutilised.

22. To that effect, the legislature has
chosen the words 'not allow debit'. To not
allow debit and to appropriate the same are
two different things in the context of the
Statute.
They
lead
to
different
consequences. While the first only creates a
lien in favour of the revenue by blocking
utilization of that amount, appropriation of
an amount would necessarily involve
transfer of title over the money with the
revenue. Plainly, the Rule does not
contemplate
or
speak
of
such
a
consequence.

23. Thus, if the petitioner was to earn
any further input tax credit in its electronic
credit
ledger
upto
the
tune
of
Rs.7,06,66,700.00/-, the same would be
retained by way of a lien in favour of the
revenue, so however, that the revenue may
not
appropriate
it
under
that
Rule.
Adjustment or appropriation may arise only
upon an adjudication order attaining
finality or after lapse of three months from
the date of it being passed if there is no stay
granted in appeal etc. that too as a
consequence of the recovery provisions but
not under Rule 86-A of the Rules.

24. Since, according to us, the
provision of Rule 86-A is not a recovery
provision but only a provision to secure the
interest of revenue and not a recovery
provision, to be exercised upon the
fulfillment of the conditions, as we have
discussed above, we are not inclined to
accept the further submission advanced by
the learned counsel for the petitioner that
there is any violation of the principle when
a legislative enactment requires an act to be
performed in a particular way it may be
done in that manner or not at all.

25. It also stands to reason, if there is
no positive credit standing in the electronic
credit ledger on the date of the order,
passed under Rule 86-A, that order would
be read to create a lien upto limit specified
in the order passed as per Rule 86-A of the
Rules. As and when the credit entries arise,
the lien would attach to those credit entries
upto the limit set by the order passed under
Rule 86-A of the Rules. The debit entry
recorded in the electronic credit ledger
would be read accordingly.

26. Therefore should the assessee earn
further credit of 'input tax' the revenue
would be entitled to a lien upto the limit of
Rs.7,06,66,700.00/-. However, the same
shall not be adjusted in favour of the
revenue except in accordance with law, as
discussed above. Any further credit that
may arise over and above that amount
would be allowed to be utilized without
objection by the revenue.

27. Writ petition is dismissed. No
order as to costs.
----------

(2021)09ILR A1156
ORIGINAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 03.08.2021

BEFORE

THE HON'BLE SARAL SRIVASTAVA, J.

WRIT A No. 5668 of 2021