2022 (7) TMI 227 - HC - GST

Input Tax Credit Cannot Be Blocked Without Providing Reasons to Taxpayer, Violates Natural Justice Principles

Kinaram Vintrade Private Limited Versus State of West Bengal & Ors.

HC ruled that blocking Input Tax Credit (ITC) without providing reasons to the petitioner violated principles of natural justice. The court declared the ... Blocking the Input Tax Credit (ITC) - recorded reasons for taking such adverse action were not presented - violation of principles of natural justice - HELD THAT:- The action of the respondent, WBGST Authority in blocking the Input Tax Credit (ITC) of the petitioner without intimating the recorded reasons for the same to the petitioner is arbitrary, illegal and in violation of principles of natural justice since it deprives the right of the petitioner to effectively defend or oppose such action of the respondent authority. Petition is disposed of by holding that the impugned action of the respondent WBGST Authority taking impugned coercive action of blocking of the petitioner’s Input Tax Credit (ITC) without intimating to the petitioner the recorded reasons for such action is illegal and not sustainable in law and is in violation of the principles of natural justice. Issues:Petitioner aggrieved by blocking of Input Tax Credit (ITC) without reasons. Violation of principles of natural justice.Analysis:The petitioner filed a writ petition challenging the respondent, WBGST Authority's action of blocking the Input Tax Credit (ITC) without providing any reasons beforehand. The petitioner argued that it is a well-settled principle of law that any adverse action taken against a person must be accompanied by the recorded reasons to allow the affected party to understand the basis for such action. The petitioner cited various decisions from different High Courts to support this argument. The High Court considered the submissions and judgments relied upon by the petitioner and concluded that the respondent's action of blocking the Input Tax Credit (ITC) without informing the reasons to the petitioner was arbitrary, illegal, and violated the principles of natural justice. The Court emphasized that this approach deprived the petitioner of the opportunity to effectively defend or oppose the action taken by the authority.The learned Additional Government Pleader for the respondents claimed that recorded reasons existed for the impugned action but failed to demonstrate that these reasons were communicated to the petitioner. In light of the arguments presented and the judgments referenced, the High Court disposed of the writ petition by declaring the respondent's action as illegal and unsustainable in law. The Court highlighted that not intimating the recorded reasons for blocking the Input Tax Credit (ITC) to the petitioner was a violation of natural justice. Consequently, the Court directed the respondent to provide a copy of the recorded reasons to the petitioner, allowing the petitioner to file objections within seven days. The WBGST Authority was instructed to consider the objections, provide a hearing opportunity, and pass a reasoned order within seven days. If the petitioner established a case for revocation of the blocking order during the hearing, the respondent was directed to immediately revoke the same.Furthermore, the High Court issued a directive for all future cases involving the blocking of Input Tax Credit (ITC), mandating that the WBGST authority must communicate the order of blocking along with the recorded reasons to the assessee. The Writ Petition, numbered WPA No. 11122 of 2022, was disposed of in accordance with the Court's directions, ensuring compliance with the principles of natural justice and procedural fairness.