Company challenges recovery of allegedly illegal Input Tax Credit amounts through proper forum

The Bombay HC disposed of a petition concerning recovery of allegedly illegally availed Input Tax Credit amounts by a company. The court held that the respondent department should approach the NCLT for appropriate orders regarding the proposed action against the petitioner. The court directed maintenance of status quo for one week from the order's availability to enable the department to seek proper orders from the NCLT. The petition was disposed of with this direction.

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Issues involved:
The petition involves issues related to the blocking of Input Tax Credit (ITC) under Section 74 of the Maharashtra Goods and Service Tax Act, 2017 (MGST Act) and the legality of the show cause notice issued to the company. Another key issue is the conflict between the actions of the respondents and the orders passed by the National Company Law Tribunal (NCLT) under Section 14 of the Insolvency & Bankruptcy Code, 2016 (IBC).

Blocking of Input Tax Credit:
The petitioner, a Resolution Professional appointed by the NCLT, raised concerns regarding the blocking of ITC available in the electronic credit ledger of the company. The respondents had blocked the ITC on the basis of alleged illegal availing from a Non-Genuine Tax Payer (NGP), M/s. Keshav Trading Company. The petitioner argued that this action was in violation of the moratorium order under Section 14 of the IBC.

Show Cause Notice and Recovery Attempts:
The respondents had issued a show cause notice to the company regarding the allegedly illegally availed ITC from M/s. Keshav Trading Company. Despite the company's attempts to justify its actions, it admitted the lack of evidence proving the legitimacy of M/s. Keshav Trading Company as a Genuine Tax Payer. The department's efforts to recover the ITC had failed, leading to the issuance of the show cause notice.

Legal Arguments and Directions:
The petitioner relied on Section 14 of the IBC to argue against the blocking of ITC by the department, claiming it amounted to unauthorized recovery. On the other hand, the respondents cited Rule 86A of the MGST Rules to justify their actions. The court directed the respondents to seek appropriate orders from the NCLT regarding the actions against the petitioner. A status quo was ordered to be maintained for a week to facilitate this process, with the understanding that the status quo would be lifted if no orders were obtained within the specified period.

Adjudication and Future Proceedings:
The court instructed the department to expedite the adjudication of the show cause notice and stated that any recovery orders resulting from the adjudication would be subject to the NCLT's decisions if the resolution proceedings remained pending. The court kept all contentions of the parties open for future proceedings and clarified that decisions on filing returns would also be subject to NCLT orders.

Conclusion:
The petition was disposed of with no costs, emphasizing the importance of obtaining appropriate orders from the NCLT regarding the actions against the petitioner and ensuring expeditious adjudication of the show cause notice.

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