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IN THE HIGH COURT OF DELHI AT NEW DELHI
Vibhu Bakhru, Amit Mahajan, JJ.
M/s Parity Infotech Solutions Pvt. Ltd. – Appellant
Versus
Government of National Capital Territory of Delhi & Ors. – Respondents
W.P.(C) 7017 of 2022 & CM No. 21510 of 2022
Decided On : 07-03-2023
ITC - Blocking of ITC under Rule 86A of the CGST Rules - Summary of Rule 86A and its interpretation by the court - The court held that the ITC can be blocked only if the conditions specified in Rule 86A are satisfied and the concerned officer must have tangible material to form a belief that the conditions are met. The court also highlighted the need for recording reasons for blocking the ITC and emphasized that blocking ITC is a drastic step requiring legislative checks and balances. The court referred to various legal provisions and their interpretations to establish that the impugned actions were without authority of law.
Fact of the Case:
The petitioner's ITC was blocked under Rule 86A of the CGST Rules, and a demand was raised under Section 74 of the CGST Act. The petitioner challenged the impugned show cause notice, order, and instructions, claiming that the blocking of ITC was done without tangible material or justifiable reasons and that the impugned actions were contrary to law.
Finding of the Court:
The court found that the blocking of the petitioner's ITC and the subsequent appropriation of the amount to satisfy the demand were not in conformity with the provisions of the CGST Act and were without authority of law. The court also held that the impugned show cause notice and order were set aside, and the impugned instructions suggesting continued blocking of ITC beyond one year were also set aside.
Issues: The issues revolved around the legality of blocking the petitioner's ITC, the appropriateness of the impugned show cause notice and order, and the validity of the impugned instructions directing the issuance of show cause notices and creation of demands in disregard of the provisions of the DGST Act, the CGST Act, or the Rules made thereunder.
Ratio Decidendi: The court's decision was based on the interpretation of Rule 86A of the CGST Rules, the provisions of Section 74 of the CGST Act, and the impugned instructions. The court emphasized the need for tangible material and reasons to believe for blocking ITC, and it highlighted that the impugned actions were contrary to law and without authority of law.
Final Decision: The petition was allowed, and the impugned show cause notice and order were set aside. The impugned instructions suggesting continued blocking of ITC beyond one year were also set aside. The respondents were directed to restore the appropriated ITC to the petitioner's ECL, and it was clarified that the respondents were not precluded from ascertaining the petitioner's liability under the DGST Act or the CGST Act in accordance with law.
JUDGMENT
Vibhu Bakhru, J.
Introduction
1. The petitioner has filed the present petition impugning a show cause notice dated 28.02.2022 (hereafter `the impugned show cause notice') and an order dated 30.03.2022 (hereafter `the impugned order') passed under Section 74 of the Central Goods and Services Tax Act, 2017 (hereafter `the CGST Act'), pursuant to the impugned show cause notice. In terms of the impugned order, the Adjudicating Authority had raised a demand of Rs.27,88,200/- for the Financial Year 2020-21 and had called upon the petitioner to pay the same by 30.04.2022. In addition, the petitioner also impugns the instructions dated 08.03.2022 issued by the Department of Trade & Taxes (Policy Branch), Government of NCT of New Delhi (hereafter `the impugned instructions').
2. The Input Tax Credit (hereafter `ITC') available in the petitioner's Electronic Credit Ledger (hereafter `ECL') was blocked on 26.11.2020 under Rule 86A of the Central Goods & Services Tax Rules, 2017 (hereafter `the Rules'). The respondents did not unblock the same immediately on the expiry of the period of one year. The respondents did so on 30.03.2022, but appropriated the blocked ITC against a tax demand created on the same date. The petitioner claims that the said demand was created artificially with the object of denying the ITC, which would be available to the petitioner on the same being unblocked. The petitioner claims that the same was done pursuant to the impugned instructions, which are contrary to law.
3. It is also the petitioner's case that the blocking of the ITC was done without any tangible material or justifiable reasons, and merely on the instruction of another authority, which is impermissible.
Factual Context
4. Briefly stated, the relevant facts necessary to address the controversy in the present petition are as under:
4.1. The petitioner received a summons under Section 70 of the Central Goods & Services Tax Act, 2017, requiring the petitioner to appear before the Principal Commissioner of Central Taxes in connection with a case relating to issuance of fake GST invoices by one, Sh. Aman Handa & others, without actual supply of goods under the CGST Act. The summons indicated that the said case was being inquired into by the Commissioner of Central Taxes, Delhi and that the petitioner was called upon to provide details of the transactions between the petitioner and twenty-three companies as set out in the schedule to the said summons. The petitioner claims that its representative appeared before the concerned officials on the date specified and explained that it had no transactions relating to the purchase of goods with any of the entities as mentioned in the summons dated 17.08.2020.
4.2. On 26.11.2020, the petitioner received an e-mail from the e-mail ID "donotreply@gst.gov.in", inter alia, stating that "Some amount of ITC available in your Electronic Credit Ledger of GSTIN 07AAECP8257F1Z8 has been blocked/unblocked by Shri/Mr/Ms Manoj Dahiya, Sales Tax Officer Class II/AVATO, Ward 76, Admn.: STATE. Please view the details in the said ledger on the portal." The petitioner checked the status on the ECL on the Goods & Services Tax Network Portal (hereafter `the Common Portal') and found that the balance of Rs.27,88,200 available in the petitioner's ECL relating to Integrated Goods and Services Tax (hereafter `the IGST'), was blocked by respondent no.4. However, no reasons for blocking were reflected on the portal.
4.3. The petitioner, on becoming aware that the amount of Rs.27,88,200 IGST has been blocked, sent a letter dated 28.12.2020 requesting for the reasons for blocking the credit. The petitioner also sought information as to how to unblock the same. However, it did not receive any response to its letter.
4.4. The petitioner claims that, thereafter, it sent e-mails dated 04.01.2021, 07.01.2021 and 25.01.2021 seeking information regarding the reasons for blocking of the ITC and further enquiring as to how the same could be u
The main legal point established in the judgment is that the blocking of Input Tax Credit (ITC) under Rule 86A of the CGST Rules must be based on tangible material and reasons to believe that the con....
The show cause notice must specifically state the reasons for proposing a recovery, and a demand cannot be created without the proper officer forming at least a prima facie view that the tax has not ....
Blocking of Input Tax Credit without notice or fraud allegations is impermissible; taxpayers may initially avail ITC without supplier payment but must reverse if unpaid after 180 days.
A show-cause notice is mandatory before blocking Input Tax Credit under Rule 86A pursuant to the provisions of Section 74 in the Odisha Goods and Services Tax Act, 2017.
Point of Law : Post-decisional hearing is required to be given to petitioners by respondent no. 2/competent authority who shall hear petitioners/assessees and pass a reasoned order, thereafter, eithe....
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