TaxTMI 
TaxTMI 
2022 (2) TMI 569
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....Tax vide the Central Goods and Services Tax Act, 2017 ("CGST Act" for short) which came into force with effect from 12.4.2017, the company was deemed to be registered under the CGST Act, by virtue of operation of section 26 of the CGST Act. In the year 2020, there were certain changes in the management of the company and, therefore, it sought amendment to the registration certificate, which was granted on 18.7.2020. Thereafter, the company changed its registered address and again sought amendment to the registration certificate as regards 'change of address' which was granted on 2.11.2020. 5. The petitioner submits that after commencement of GST regime, the petitioner regularly filed its returns till September 2020. Till that time, the petitioner further submits, it had also availed of the credit available in it's Electronic Credit Ledger ("ECL" for short) to the extent of Rs. 48,79,61,446/- as permissible under law. 6. The petitioner submits that operation of ECL went on smoothly till 1.7.2021, despite initiation of some illegal action in the nature of registration of a criminal case against the petitioner, and it's investigation, which has been questioned for its legality and v....
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.... 2017"). The petitioner maintains that the procedure prescribed in rule 86-A, however, was not followed. 10. The petitioner further submits that such an action on the part of the respondents is illegal and contrary to the provisions of section 83 of the CGST Act and also 86-A of Rules, 2017. The petitioner has termed this action "unconstitutional" although, there is no prayer made for declaring rule 86-A of Rules, 2017 as ultra vires the Constitution or any substantive provision of the CGST Act. The petitioner also submits that power to attach the ECL which is the result of the blocking of ECL, cannot be exercised without quantifying the amount of wrong availment of credit in ECL as per the provisions of rule 86-A. 11. On these grounds, the petitioner has prayed for quashing of action of blocking of ECL and has also prayed for issuance of a direction to respondent no.2 - Union of India to come out with proper guidelines for responsible exercise of power under rule 86-A of the Rules, 2017, as in the opinion of the petitioner, provisions of rule 86-A of the Rules, 2017, are being misused with detrimental effect on the business of assessees like the petitioner. 12. Respondent nos.1....
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.... illegal blocking of ECL has resulted into attachment of the property of the petitioner, which cannot be done without following the provisions made under section 83 of the CGST Act. He further submits that in any case section 83 of the CGST Act is not applicable here. He further submits that even the procedure prescribed under rule 86-A of the Rules, 2017 has not been been followed in the present case in the sense that there is no order passed by respondent no.1 to the effect that upon consideration of some material before it, it was satisfied that there was fraudulent availment of the credit in ECL account or such credit was availed of even though the petitioner was not eligible for the same. He further submits without such an order recording reasons in writing, blocking of the ECL of the petitioner could not have been done, and even if there was any order, the blocking could have been only to the extent of the amount of credit determined to be fraudulently or wrongly availed and specifically stated therein. He further submits that there is a tendency on the part of the authorities to arbitrarily invoke the provisions of rule 86-A and, therefore, it is necessary that respondent no....
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....ch invocation. He also submits that this petition is not maintainable as alternate remedy of appeal is available under Section 107 of CGST Act. 17. Shri Bhattad, learned counsel for respondent no.3 submits that the action of respondent no.1 is based upon sound reasons provided by what was revealed in the investigation carried out by respondent no.3. He further submits that this is not a case of different address or even a case of any mistake having been committed by the petitioner in stating the correct address of its principal place of business but, a case based upon documentary evidence clearly showing that the petitioner was not operating its business from any place mentioned in the registration certificate during the period from July 2017 to September 2020 and, therefore, no error could be found in the action of blocking of ECL of the petitioner by respondent no.1. He also submits that the petitioner having been registered with the State authorities and there being no facility available at the central level for blocking of ECL, request was made to respondent no.4 for blocking the same which was actually done by respondent no.1 at the request of respondent nos.3 and 4 and that ....
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....It is also clear that this provision does not include any decision or order passed under the Rules framed under Central GST Act or any other Rules. In this case, the respondents maintain that the impugned order and action has been passed and taken under rule 86-A of the Rules, 2017. Therefore, we find that no appeal remedy could have been available to the petitioner under this provision. 21. Under section 107(2), a power is conferred upon the Commissioner to revise, on his own motion, or upon a request from the Commissioner of State Tax or the Commissioner of Union territory tax, any order passed by an adjudicating authority. For the sake of clarity, this provision of law is reproduced thus:- "Section 107 (2): The Commissioner may, on his own motion, or upon request from the Commissioner of State tax or the Commissioner of Union territory tax, call for and examine the record of any proceedings in which an adjudicating authority has passed any decision or order under this Act or the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act, for the purpose of satisfying himself as to the legality or propriety of the said decision or order and may, by orde....
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....he Central Goods and Services Tax Rules, 2017 amounts to provisional attachment of property under section 83 of the Central Goods and Services Act, 2017 and if so, whether it could have been done without following conditions and procedure prescribed in section 83 of the Central Goods and Services Tax Act, 2017? (ii) Whether rule 86-A of Rules, 2017 permits blocking of the ECL, and if yes, to what extent? (iii) Whether the order of blocking of Electronic Credit Ledger (ECL) is arbitrary and illegal? (iv) Whether, in the facts and circumstances of this case, the respondents are justified in blocking Electronic Credit Ledger (ECL) under rule 86-A of Central Goods and Services Tax Rules, 2017? 26. Let us proceed to answer the first question. The answer would lie in the nature of the impugned order. The impugned order has been passed under rule 86-A of the Rules 2017. Rule 86-A enables the Competent Authority or the Commissioner to not allow utilization of the amount of credit available in Electronic Credit Ledger for discharge of any liability for payment of tax, interest, penalty and other amounts under section 49 of the Central GST Act or to refuse the request for refund of an....
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....ot be understood as the order amounting to provisional attachment of property under section 83 of the CGST Act and, therefore, further question regarding following of the procedure prescribed in section 83 would not arise. 29. The learned counsel for the petitioner has relied upon the case of Radha Krishan Industries Vs. State of Himachal Pradesh and others (2021) 6 SCC 771 to support his argument that the procedure prescribed in section 83 must be followed and that the exercise of power under section 83 must be preceded by formation of opinion of the Commissioner that it is necessary for him so to do for the purpose of protecting the interest of the Government which is not reflected in the impugned order. However, as we have found that the impugned order could not be considered as the one passed in exercise of power under section 83 of the CGST Act, in our respectful submission, the case of Radha Krishan Industries (supra) would render no assistance to the petitioner. 30. Coming to the second and third questions, which can be answered together, we are of the view that a closure examination of the provisions made in rule 86-A would throw much required light on these questions. Ru....
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....to the ECL is nothing but blocking of the ECL. But, such blocking of the ECL cannot be for an amount which is more than the amount found to be fraudulently or wrongly availed of. The answer to the second question, therefore, is that rule 86-A of Rules, 2017 does permit dis-allowance of debit of an amount to the electronic credit ledger only to the extent of fraudulent or wrong availment of credit in the ECL and such disallowance can be done through blocking of the ECL to the extent of the amount fraudulently or wrongly shown as lying in credit in the ECL. 32. Coming to the third question, we would say that rule 86-A has two pre-requisites to be fulfilled before the power of disallowing of debit of suitable amount to the Electronic Credit Ledger or blocking of ECL to the extent of the amount fraudulently or wrongly availed of is exercised. The first pre-requisite is of the Competent Authority or the Commissioner having been satisfied on the basis of material available before him that blocking of ECL for the afore-stated reasons is necessary. The second pre-requisite is of recording the reasons in writing for such an exercise of the power. From the language used in rule 86-A it beco....
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....faction made on the basis of objective material by the authority. 35. As regards the following of principles of natural justice, the law is now well settled. In cases involving civil consequences, these principles would be required to be followed although, the width, amplitude and extent of their applicability may differ from case to case depending upon the nature of the power to be exercised and the speed with which the power is to be used. Usually, it would suppose prior hearing before it's exercise (See Swadeshi Cotton Mills Vs. Union of India : (1981) 1 SCC 664 and Nirma Industries Limited and another Vs. Securities and Exchange Board of India : (2013) 8 SCC 20). But, it is not necessary that such prior hearing would be granted in each and every case. Sometimes, the power may be conferred to meet some urgency and in such a case expedition would be the hallmark of the power. In such a case, it would be practically impossible to give prior notice or prior hearing and here the rule of natural justice would expect that at least a post decisional hearing or remedial hearing is granted so that the damage done due to irrational exercise of power, if any, can be removed before things ....
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.... of the Constitution of India. In the case of Andhra Bank V/s. Official Liquidator : (2005) 3 SCJ 762, the Apex Court has held that an unreasoned order does not subserve the doctrine of fair play. It then follows that the word, "may" used before the words, "for the reasons recorded in writing" signifies nothing but a mandatory duty of the competent authority to record reasons in writing. 37. There is another reason which we would like to state here to support our conclusion just made. The power under rule 86-A is of enabling kind and it is conferred upon the Commissioner for public benefit and, therefore, it is in the nature of a public duty. Essential attribute of a public duty is that it is exercised only when the circumstances so demand and not when they do not justify its performance (see Commissioner of Police, Bombay Vs. Gordhandas Bhanji : AIR (39) 1952 Supreme Court 16). It would then mean that justification for exercise of the power has to be found by the authority by making a subjective satisfaction on the basis of objective material and such satisfaction must be reflected in the reasons recorded in writing while exercising the power. 38. Examined in the light of above ....
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....sallowance has to be restricted to only such amount which is equivalent to the amount found to be fraudulently or erroneously availed of in respect of which the credit has accumulated in the ECL, and it is only debit of this amount to the ECL which can be forbidden and not the debit of the entire amount lying in credit in the ECL. The impugned order has the effect of imposing complete ban on utilisation of any credit amount and not just the credit amount found to be fraudulently or erroneously and, therefore, it is illegal for this additional reason. 41. The learned AGP for respondent nos.1, 2 and 4 and learned counsel for respondent no.3 have placed reliance upon certain correspondence between these authorities which revealed as to what weighed with the authority for issuing a direction to respondent no.1 via respondent no.4 for blocking of the ECL. These communications are of dates 27.1.2021 and 25.6.2021. The communication dated 27.1.2021 did not give any reasons as to why the ECL of the petitioner was merited and it only said that as certain material was found during the course of investigation made against the petitioner, the blocking was found necessary. Therefore, this comm....