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

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 notice dated 02.12.2022 failed to comply with statutory requirements under Section 86A of the CGST Act, 2017 and Rule 86A of CGST Rules, 2017. The notice was neither a proper order under Section 86A nor under Section 74 of the Act, lacked clarity on its legal basis, and violated principles of natural justice by being a non-speaking order. The court set aside the impugned notice for non-compliance with mandatory procedural requirements for blocking electronic credit ledger.

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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 Rules
The 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 Availment
The 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 Notice
The 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.

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