ITC of FY 2017-18 blocked

[SUSHIL BANSAL]

Dear experts,

our client purchased goods from a supplier in the FY 2017-18.Now the registration of the supplier cancelled by the department from the date which is before our purchase date and our ITC blocked by the department on dated 30.4.2024.My querry is whether this action of the department is legally valid as we have not been issued any show cause notice & the time limit of notice u/s 73/74 has already expired.

[Ganeshan Kalyani]

Sir, in the below case law, the Hon'ble High Court modified the GST cancellation order to operate prospectively from the date of issuance of the SCN thereby holding that, GST registration should not be cancelled retrospectively when the SCN issued is vague in nature and no opportunity was granted to file objection against retrospective cancellation.

M/s. Friends Media Add Company v. Principal Commissioner of Goods and Service Tax - 2024 (2) TMI 806 - DELHI HIGH COURT

[Shilpi Jain]

There are also cases where the HCs have held that in spite of the retrospective cancellation of registration the ITC cannot be denied in the hands of the recipient since at the time purchases were made by the recipient the registration of the supplier was active. 

[Shilpi Jain]

If any order has been passed consider filing an appeal. Else, file a writ in HC.

[SUSHIL BANSAL]

Tysm Ganeshan Sir & Shilpi madam for your quick response.My querry is under which provisions the department can block ITC of the recepient when the time to issue SCN u/s 73/74 has already elapsed.If the action is beyond the law then certainly writ petition/appeal to be filed.  

[Padmanathan KV]

Rule 86A per say does not speak about time limit. It is only a temporary step taken on a protective basis. However the final recovery anyways can be done only under section 73/74 which in your case is time barred. So, it may be a good ground to raise.

Also consider whether principles of natural justice etc... have been adequately followed.

In case the amount is huge and your working capital will be affected, you may also consider writ petition.

[SUSHIL BANSAL]

Tysm padmanathan Sir for your expert advice.I think time limit for section 74(10) order is 05.02.2025 for the FY 2017-18 & hence the department can take action u/s 74.Sorry to mention that time limit for section 74 has elapsed.Plz correct me if I am wrong.

[KASTURI SETHI]

Last date for issuance of SCN  for 17-18  is    0 5 or 07/11.2024.

[Padmanathan KV]

For invoking Sec 74 Dept has to establish mens rea. Merely because supplier's registration has been cancelled doesnt mean that there is fraud/ intention to evade by recipient unless there is a collusion between the two. 

[SUSHIL BANSAL]

Sir,

I think it should be 6 months prior to 05.02.2025.

[KASTURI SETHI]

.Sh.Sushil Bansal Ji,

W.r.t. your above post, even then  the issuance of SCN is not time barred, if the elements of mens rea are present. If all the transactions are genuine and duly accounted for in the books of account, retrospective cancellation of the registration of the supplier cannot disentitle the buyer/recipient. Regarding the invocation of the extended period, the burden of proof is cast upon the department  (there are so many case laws) but regarding  correct availment of ITC, the burden of proof is cast upon the assessee (buyer) under Section 155 of CGST.

In this case, investigation is in progress. We cannot expect  disclosure of full facts on public forum. Otherwise also  the querists hesitate to disclose full facts on the public forum. and In the absence of full facts, correct and fool-proof advice is not possible.

Right time of seeking advice on public forum is after the issuance of SCN and NOT prior to the issuance of SCN. It is not in the interest of the assessee though name is not disclosed. No need to explain in detail. Half-disclosure of facts means half-baked reply.   

[SUSHIL BANSAL]

Tysm sir for your guidance

[SUSHIL BANSAL]

Shilpi Madam, 

Could you plz tell me one or two latest important HC judgements on ITC blocking

[KASTURI SETHI]

(1) 2024 (1) TMI 1049 - MADRAS HIGH COURT IN THE CASE OF TVL. CLEON OPTOBIZ PVT. LTD., REPRESENTED BY ITS DIRECTOR MR. BHAVESH K SHAH VERSUS THE ASSISTANT COMMISSIONER (ST), CHENNAI

(2) 2023 (3) TMI 533 - SUPREME COURT IN THE CASE OF THE STATE OF KARNATAKA VERSUS M/S ECOM GILL COFFEE TRADING PRIVATE LIMITED

(3) 2023 (4) TMI 912 - MADRAS HIGH COURT IN THE CASE OF TVL. SAHYADRI INDUSTRIES LTD. VERSUS THE STATE OF TAMIL NADU, REPRESENTED BY, THE JOINT COMMISSIONER (CT), ERODE

[SUSHIL BANSAL]

tysm sir

AI Summary

Blocking of input tax credit can be challenged when retrospective supplier cancellation and time-bar restrictions threaten legitimate ITC claims.
Administrative blocking of input tax credit under Rule 86A serves as a temporary protective step, but substantive denial or recovery of ITC is governed by Sections 73/74 subject to limitation and requires establishment of mens rea for extended periods. Retrospective cancellation of a supplier's registration does not automatically deprive a recipient of ITC if purchases were made when the supplier's registration was active; procedural safeguards, opportunity to be heard, and the respective burdens of proof on the department (to show fraud/mens rea) and on the recipient (to prove correct availment) determine entitlement. Appeal or writ remedies may be appropriate where notices are absent or time-barred.