Blocked input tax credit and Section 74 demand upheld where prior intimation did not create entitlement or bar limitation.
Prior intimation to the department about proposed input tax credit did not bar invocation of Section 74 or establish bona fide entitlement to blocked credit. The HC held that the petitioner had availed credit beyond the limited amount indicated, and that the extended limitation period was justified. Input tax credit on works contract and construction-related inputs and services was also inadmissible under Sections 17(5)(c) and 17(5)(d), and the credit was time-barred under Section 16(4). In view of Safari Retreats, the claim failed, and the demand, interest under Section 50, and penalty under Section 74 were sustained.
Issues: (i) Whether the petitioner could resist invocation of Section 74 on the ground that it had earlier informed the department about proposed availment of input tax credit; (ii) Whether input tax credit on works contract and construction-related inputs/services was admissible in view of the statutory restrictions and the later reversal of the earlier Orissa High Court view; (iii) Whether interest and penalty were exigible on the confirmed demand.
Issue (i): Whether the petitioner could resist invocation of Section 74 on the ground that it had earlier informed the department about proposed availment of input tax credit.
Analysis: The Court held that mere communication of a proposal to claim credit did not amount to departmental approval or create a bona fide entitlement to avail blocked credit. The petitioner had gone beyond the limited credit initially indicated, availed credit for a much larger amount, and the extended period was justified in the facts. The Court also noted that the legal basis on which the petitioner relied had been displaced by the later decision of the Supreme Court reversing the earlier Orissa High Court ruling.
Conclusion: The invocation of Section 74 and the extended limitation period was upheld against the petitioner.
Issue (ii): Whether input tax credit on works contract and construction-related inputs/services was admissible in view of the statutory restrictions and the later reversal of the earlier Orissa High Court view.
Analysis: The Court found that the petitioner was engaged in renting of immovable property, had constructed immovable property, and had availed credit on items hit by the restrictions in Section 17(5)(c) and Section 17(5)(d). It further held that the petitioner had not availed the credit within the time limit under Section 16(4). In the light of the Supreme Court's ruling in Safari Retreats, the earlier basis for claiming such credit no longer survived, and the petitioner was not entitled to the disputed input tax credit.
Conclusion: The disputed input tax credit was held to be inadmissible and the demand was sustained.
Issue (iii): Whether interest and penalty were exigible on the confirmed demand.
Analysis: Once the credit was held to be ineligible and wrongly availed, liability to interest under Section 50 and penalty under Section 74 followed. The Court accepted the departmental reasoning that the statutory conditions for interest and penalty were met on the facts found.
Conclusion: The levy of interest and penalty was upheld against the petitioner.
Final Conclusion: The writ petition failed on merits and on limitation, and the impugned order confirming the tax demand, interest, and penalty was allowed to stand.
Ratio Decidendi: A prior intimation to the department does not, by itself, negate suppression or confer entitlement to blocked input tax credit, and where the credit is statutorily barred and availed beyond the prescribed time, the demand under Section 74 with consequential interest and penalty is sustainable.