2021 (2) TMI 685 - HC - GST

Court Orders Detailed Reasoning for GST Credit Ledger Blockage, Emphasizes Procedural Compliance

The Court directed the Assistant Commissioner to issue a detailed reasoned order as required by Rule 86A, emphasizing procedural regularity and adherence ... Blocking of electronic credit ledger under Rule 86A - Duty to record reasons for administrative blockade - Right of assessee to be informed of authority and grounds for ledger blockage - Operation of Rule 86A(3) - one year cessation and effective date of blockingBlocking of electronic credit ledger under Rule 86A - Duty to record reasons for administrative blockade - Right of assessee to be informed of authority and grounds for ledger blockage - Validity of blocking the petitioner's electronic credit ledger without recording and communicating contemporaneous reasons and without identifying the blocking authority. - HELD THAT: - The Court found that the petitioner's credit ledger was blocked effective 21.01.2020 but the requisite reasons were not recorded and communicated contemporaneously as mandated by Rule 86A; the petitioner was initially unaware which authority had effected the block. The respondent conceded that reasons were not given simultaneously and were supplied only subsequently. In view of the statutory requirement that the authorised officer (not below the rank of Assistant Commissioner) must record reasons when he has cause to believe circumstances under Rule 86A exist, the impugned blockage cannot be sustained without a reasoned order. The matter is remitted to the Assistant Commissioner to pass a detailed reasoned order in accordance with Rule 86A, permitting the concerned officer to consider and record the grounds justifying any continued blockage and to communicate them to the petitioner. [Paras 3, 4, 5]The writ petition is disposed by directing the Assistant Commissioner to pass a detailed reasoned order as required under Rule 86A and to communicate the reasons to the petitioner; the blockage is not upheld without such reasoned order.Operation of Rule 86A(3) - one year cessation and effective date of blocking - Determination of the effective date for computing the one year period under Rule 86A(3). - HELD THAT: - The Court observed that for the purpose of Rule 86A(3), which provides that the blockage shall cease to have effect after the expiry of one year from the date of blocking, the effective date of blocking in this case shall continue to be 21.01.2020. This determination was made while directing a fresh, reasoned order on the legality of the blockage. [Paras 5]For computing the one year period under Rule 86A(3) the effective date is 21.01.2020.Final Conclusion: Writ petition disposed by directing the Assistant Commissioner to pass a detailed reasoned order under Rule 86A (recording and communicating grounds for any ledger blockage); the effective date of blocking for the purpose of Rule 86A(3) is held to be 21.01.2020. Issues:1. Blocking of petitioner's credit ledger without reasons assigned.2. Compliance with Rule 86A of the Central Goods and Services Tax Rules, 2017.3. Justifiability of the impugned order.Blocking of Credit Ledger without Reasons Assigned:The petitioner was aggrieved by the Communication dated 10.6.2020, which informed them that their credit ledger was blocked without providing any reasons. The petitioner, represented by an advocate, was unaware of the authority behind the blockage and corresponded with the concerned office to seek clarification. It was revealed that the credit ledger was blocked based on a request from the Commissioner of North West Commissionerate due to fraudulent activities by one of the petitioner's vendors. The lack of reasons for the blockage raised concerns regarding procedural fairness and transparency.Compliance with Rule 86A of the CGST Rules, 2017:The petitioner's counsel argued that Rule 86A mandates that the blocking of a credit ledger can only be done by an authorized officer not below the rank of Assistant Commissioner, who must have valid reasons to believe that specific circumstances exist. In this case, no reasons were initially provided for the blockage, leading to a lack of procedural compliance. The absence of proper documentation and reasoning behind the blockage undermined the legality and validity of the action taken against the petitioner.Justifiability of the Impugned Order:The respondent's counsel could not dispute the fact that the reasons for blocking the credit ledger were not mentioned promptly but were only provided later in the impugned Communication. The Court, considering the circumstances, directed the Assistant Commissioner to issue a detailed reasoned order as required by Rule 86A. It was held that for the purposes of Rule 86A(3), which states that the blockage ceases after one year from the date of blocking, the effective date remained 21.01.2020. Consequently, the writ petition was disposed of, emphasizing the need for procedural regularity and adherence to statutory provisions in matters concerning the blocking of credit ledgers under the GST regime.