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

HC ruled that blocking Input Tax Credit (ITC) without providing reasons to the petitioner violated principles of natural justice. The court declared the WBGST Authority's action illegal and directed them to furnish recorded reasons to the petitioner, who would have seven days to file objections. The authority must consider these objections, provide a hearing, and pass a reasoned order within seven days. For future ITC blocking cases, the court mandated that authorities must communicate both the blocking order and its reasons to the assessee.

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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.

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