2025 (10) TMI 790 - HC - GST

Refusal to order unblocking of electronic input tax credit ledger during DGGI investigation; writ dismissed as premature

ORISSA HC declined to interfere with administrative action blocking input tax credit, holding that the statutory authority is seised of ongoing ... Bocking of input tax credit - supplier found nonfunctioning - supplier having furnished returns, though its registration is shown to have been cancelled suo motu by the Department - HELD THAT:- Scrutiny of documents enclosed to the writ petition reveals that the petitioner in order to show the genuineness of the transaction(s) with the named supplier(s) has adduced evidence along with explanation/submission before the Deputy Commissioner of State Tax, State Enforcement Unit, Bolangir. Therefore, it is construed that appropriate authority is in seisin of the matter relating to transaction effected between the named suppliers and the petitioner. Any observations on facts made by this Court at this juncture may not be justified as finding of facts is the domain of the statutory authority vested with power. It is trite that while invoking extraordinary jurisdiction under Articles 226 and 227 of the Constitution of India, this Court should be circumspect particularly when factual adjudication is pending before the authority concerned and the writ court should not curtail the power of the authority by taking to itself the exercise of adjudication on the factual merit of the matter. This Court is afraid to entertain the writ petition at this stage, inasmuch as the investigation qua the transactions effected between the named suppliers in the report of the DGGI and the petitioner is continuing. Therefore, this Court declines to make any observation on the factual aspect on the material collected during such investigation. Since it is conceded by the learned Standing Counsel that the blocking of electronic credit ledger has been limited to the extent of claim of input tax credit with respect to certain transactions effected with the named suppliers, this court is not persuaded with the submission of the learned counsel for the petitioner to issue writ of mandamus to the authority concerned to unblock the electronic credit ledger. This Court having perceived no prejudice caused to the petitioner during course of investigation undertaken by the DGGI, finds no merit in the writ petition. The writ petition, being misconceived and premature, the same is liable to be dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the blocking of input tax credit (ITC) in the electronic credit ledger under Rule 86A of the GST Rules is permissible where the supplier is alleged to be 'non-functioning' or its registration cancelled suo motu. 2. Whether a recipient who has filed returns, met conditions under Section 16 of the GST Act and produced invoices and payment proofs is entitled to a writ direction to unblock ITC while a statutory investigation by DGGI into alleged fraudulent/suspect transactions is pending. 3. What is the scope of the writ court's jurisdiction under Articles 226/227 when factual adjudication and investigation by statutory authorities concerning ITC claims are ongoing? ISSUE-WISE DETAILED ANALYSIS - Issue 1: Validity of blocking ITC under Rule 86A Legal framework: Rule 86A empowers tax authorities to block input tax credit in the electronic ledger where there is 'reason to believe' that fraudulent or erroneous availment of ITC has taken place; Section 16 prescribes conditions for entitlement to ITC. Precedent Treatment: No earlier judicial precedents were cited or treated in the judgment; the Court proceeded on statutory text and material produced by enforcement authorities. Interpretation and reasoning: The Court examined the enforcement communication indicating the supplier was found non-functioning and the DGGI alert/notice flagging dubious transactions. The authority's invocation of Rule 86A followed an ongoing intelligence and investigative process directed to identify fraudulent availment, circular trading, and non-existent suppliers. Given that the blocking was limited to specified transactions and made in the context of an active investigation, the Court accepted that such action reflects a prima facie 'reason to believe' sufficient to trigger Rule 86A. Ratio vs. Obiter: Ratio - The Court holds that invocation of Rule 86A by an authority in the course of an ongoing DGGI investigation into allegedly dubious suppliers, where material indicates non-functioning suppliers, is not invalid per se; preliminary blocking in such circumstances is permissible. Obiter - Observations on merits of individual transactions were refrained from. Conclusions: Blocking ITC under Rule 86A in the factual matrix of an ongoing probe into non-functioning/fraudulent suppliers was not set aside; the Court declined to characterise the blocking as arbitrary or an excess of power on the record before it. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Entitlement to writ relief to unblock ITC pending investigation Legal framework: Section 16 sets conditions for ITC; remedial relief by writ under Articles 226/227 is available where statutory rights are infringed and no adequate alternative remedy exists, but relief is discretionary where factual adjudication is pending before specialized administrative authorities. Precedent Treatment: The Court relied on general principles governing exercise of writ jurisdiction when factual issues are pending before statutory authorities rather than on any particular case law. Interpretation and reasoning: The petitioner produced invoices, bank payment proofs and explanations to the enforcement unit. However, the Court emphasized that the authority is seised of the matter and that the DGGI investigation encompasses verification of the transaction chain, demand/recovery prospects, and detection of circular trading. Given that factual determination is actively being undertaken by the statutory machinery, the Court considered it inappropriate to preempt or curtail that process by issuing a mandamus to unblock the ledger. Ratio vs. Obiter: Ratio - A writ directing immediate unblocking of ITC is unsuitable and premature where the statutory investigation into suspect suppliers and transactions is in progress and the authority is seized of explanations and documents. Obiter - The Court noted the petitioner's production of documents but declined to assess their sufficiency on merits. Conclusions: The petitioner's entitlement to ITC could not be vindicated by interim writ relief at that stage; the Court refused to mandate unblocking of the electronic credit ledger while investigations continue. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Scope of writ jurisdiction when investigation/adjudication is pending Legal framework: The extraordinary jurisdiction of the writ court under Articles 226/227 is to be exercised with caution where specialised statutory authorities are engaged in factual adjudication; courts should avoid substituting their own factual findings for those of the authority. Precedent Treatment: The Court applied established constitutional principles about deference to fact-finding by specialized authorities; no specific cases were cited in the judgment. Interpretation and reasoning: The Court observed that factual findings are within the domain of the statutory authority and that the writ jurisdiction should not be used to curtail or pre-empt the authority's inquiry. It found that making factual observations at that juncture would be unjustified and that the petitioner's remedy lay in contesting the authority's conclusion after completion of the investigatory/adjudicatory process. Ratio vs. Obiter: Ratio - When an investigation by a statutory body into alleged fraudulent transactions is ongoing, the writ court should ordinarily refrain from exercising its extraordinary jurisdiction to decide factual disputes that are the subject of that investigation. Obiter - A caveat that the decision does not preclude the petitioner from pursuing statutory remedies or approaching the court after the authority's determination. Conclusions: The Court declined jurisdiction to decide on the factual merit of the ITC claim while the DGGI investigation and related proceedings are pending, thereby dismissing the writ petition as premature. CONSOLIDATED CONCLUSION The Court dismissed the petition as misconceived and premature: (a) preliminary blocking of ITC under Rule 86A in the context of an ongoing DGGI investigation into non-functioning/dubious suppliers was not interfered with; (b) the writ remedy was inappropriate while statutory fact-finding and investigation continued; and (c) no mandamus to unblock the electronic credit ledger was issued. Observations on factual merits were intentionally avoided as the statutory authority retains primary jurisdiction to adjudicate those issues.