2023 (11) TMI 957 - HC - GST

Input Tax Credit blocking quashed for violating natural justice principles without proper orders or show cause notice

M/s. Sri Krishna Enterprises Versus The Superintendent of Central Tax

The Telangana HC allowed the writ petition challenging the blocking of Input Tax Credit in the petitioner's electronic cash ledger. The court found the ... Violation of principles of natural justice - Blocking the Input Tax Credit (ITC) of the petitioner in the electronic cash ledger without any reasons - non-service of SCN - HELD THAT:- On looking into the documents produced by the learned counsel for the respondent-Department, it would reveal that there is not much cogent substantial material available to show that the order/decision on the part of the authority concerned in blocking the ITC available in the electronic cash ledger of the petitioner is without primarily issuing an order in this regard or such an official communication being communicated/served upon the petitioner. From the records that have been placed before this Court and also on perusal of the documents would also reflect that the manner in which the authority concerned was required to record the reasons to believe was also lacking except for a vague reference in this regard in the note sheets. In the given factual matrix of the case, this Court is inclined to allow the writ petition and declare the action on the part of the respondent No. 2 in blocking the ITC available to the petitioner in the electronic cash ledger to be arbitrary, bad in law and also in violation of the principles of natural justice. Therefore, the said impugned action is set aside/quashed holding it to be illegal - the matter stands remitted back to the respondent No. 2 for taking a fresh decision so far as the blockage of ITC available to the petitioner in the electronic cash ledger is concerned. Petition allowed. Issues Involved:1. Legality of blocking Input Tax Credit (ITC) without notice or order.2. Compliance with Rule 86A of the Central Goods and Services Tax Rules, 2017.3. Violation of principles of natural justice.4. Requirement for recording reasons in writing.5. Relevance of policy decisions and judicial precedents.Summary:1. Legality of blocking ITC without notice or order:The petitioner challenged the action of the Assistant Commissioner of Income Tax for blocking ITC in the electronic cash ledger without any reasons and without serving any notice or order. The petitioner argued that this action was illegal, arbitrary, and in violation of the principles of natural justice.2. Compliance with Rule 86A of the Central Goods and Services Tax Rules, 2017:The petitioner contended that the authority did not provide any reasons to believe that the invoices were issued by non-existing firms, which is mandatory under Rule 86A. The blocking of ITC was done without a written order or notice served upon the petitioner, making the action per se illegal and arbitrary.3. Violation of principles of natural justice:The petitioner had responded to the notice dated 07.07.2023 and made various representations which were not considered by the authority. The absence of further notices or deliberations amounted to a total denial of the principles of natural justice.4. Requirement for recording reasons in writing:The court noted that Rule 86A requires the Commissioner or an authorized officer to have 'reasons to believe' that the credit of input tax has been fraudulently availed or is ineligible. The documents produced by the respondent-Department did not reflect any specific order or reasons recorded in writing for blocking the ITC, which is a mandatory requirement.5. Relevance of policy decisions and judicial precedents:The court referred to policy decisions of the Central Board of Indirect Taxes and Customs and judicial precedents, including the Gujarat High Court's decision in M/s. New Nalbandh Traders vs. State of Gujarat and the Supreme Court's decision in State of Karnataka vs. M/s Ecom Gill Coffee Trading Private Limited. These decisions emphasized the necessity of following principles of natural justice, recording reasons in writing, and providing post-decisional hearings.Conclusion:The court declared the action of blocking the ITC to be arbitrary, bad in law, and in violation of the principles of natural justice. The impugned action was set aside, and the matter was remitted back to the respondent No. 2 for a fresh decision. The respondent was directed to issue a fresh notice of personal hearing and decide the matter on its merits within three weeks.Order:The writ petition was allowed, and no order as to costs was made. Miscellaneous petitions, if any, were closed.