2023 (12) TMI 66 - HC - GST

Revenue notice blocking Input Tax Credit set aside for failing Section 86A compliance requirements

M/s. A.S.E. India Versus The Union of India and 4 others

The Telangana HC allowed a petition challenging the blocking of Input Tax Credit (ITC) under GST laws. The court found that the revenue department's ... Blocking of ITC - non-compliance with the statutory requirements under the CGST Act, 2017 and rules framed therein so far as steps necessary to be initiated prior to blocking of electronic credit ledger under the Rules - contravention to Rule 86A of CGST Rules, 2017 - non-speaking order - violation of principles of natural justice - HELD THAT:- A plain reading of the said notice dated 02.12.2022 would clearly reveal that, the said notice being a notice so far as blocking of the electronic credit ledger of the petitioner under Section 86A of the CGST Act. There was also no mention of the same being an intimation in respect of proceedings drawn under Section 74 of the Telangana State (TS) GST Act, 2017. From plain reading of the contents of letter dated 04.11.2023, it would make it evident that the notice dated 04.11.2023 or for that matter 02.12.2022 are not under Section 74 of the Act. The fact that the impugned notice (Annexure P2) called upon the petitioner to submit his explanation as would be evident from Annexure P2 would also goes to establish that it was not an order of attachment of ITC account of the petitioner. If the letter dated 02.12.2022 is neither an order under Section 86A, nor an order under Section 74 of the Act, in these factual circumstances, it is difficult to sustain the said letter dated 02.12.2022. If at all the same is the notice or the order of blocking the ITC account of the petitioner, the same is clearly in contravention to the statutory provisions governing the field of blocking of availment of ITC. The impugned notice dated 02.12.2022 therefore being in contravention to the provisions of CGST and TSGST Acts are concerned, the same deserves to be and are accordingly set aside - petition allowed. Issues involved:The issues involved in the judgment are the legality of blocking the account and ITC amount under State Goods and Services Tax (SGST) and Central Goods and Services Tax (CGST) by the respondents without compliance with statutory requirements.Judgment Details:Issue 1: Compliance with CGST Act and RulesThe petitioner argued that blocking the ITC account was in contravention of Rule 86A of CGST Rules, 2017, as the authorities did not follow the necessary steps before blocking the electronic credit ledger. The petitioner submitted relevant documents to prove genuine transactions, but the authorities did not consider them, leading to the blockage of ITC without a show cause notice. The petitioner suffered due to this action.Issue 2: Allegations of Fraudulent ITC AvailmentThe State contended that the petitioner fraudulently availed ITC by using invoices from non-existing entities, leading to large-scale discrepancies in ITC availed by multiple companies. The authorities received information about fraudulent practices, prompting the blockage of the petitioner's ITC account.Issue 3: Legal Compliance of NoticeThe court examined the contents of the notice dated 02.12.2022 and found discrepancies in the communication regarding the blocking of the electronic credit ledger. The notice did not comply with the provisions of Section 86A of the CGST Act, raising questions about the legality of the blockage.Conclusion:The court set aside the impugned notice dated 02.12.2022 as it was found to be in contravention of the statutory provisions of CGST and TSGST Acts. The judgment was based on technical grounds, and the State was given the right to take appropriate legal steps regarding the alleged invalid availment of ITC. The writ petition was allowed with consequential benefits, and no costs were awarded.