TaxTMI 
TaxTMI 
2023 (9) TMI 1330
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....ive ITC amounting to Rs.2,30,35,228/- as on 01.07.2017 under the erstwhile Value Added Tax (hereafter 'VAT') regime. 3. The petitioner filed the requisite form (GST Tran-I) on 07.10.2017 for transition of the ITC as available under the VAT regime, to the GST regime on its roll out with effect from 01.07.2017. 4. The petitioner claims that on 13.07.2018, it found that a credit amounting to Rs.1,77,81,200/- had been blocked by the respondents in June, 2018. 5. According to the petitioner, there were no plausible reasons for blocking the petitioner's ITC. It claims that its representatives made several visits to the GST officials in the month of July, 2018 to August, 2018, but could not ascertain the reason for blocking of the ITC. ....
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....not been paid or short paid or refund has been released erroneously or input tax credit has been wrongly availed or utilized by you or the amount paid by you through the above referred application for intimation of voluntary payment for the reasons and other details mentioned in annexure for the aforesaid tax period. Therefore, you are directed to furnish a reply along with supporting documents as evidence in support of your claim by the date mentioned in table below. You may appear before the undersigned for personal hearing either in person or through authorized representative for representing your case on the date, time and venue, if mentioned in table below. Please note that besides tax, you are also liable to....
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....2. The petitioner contends that the said show cause notice was issued in terms of Circular No. F.3(429)/GST/Policy/2022/1067-1072 dated 08.03.2022 issued by the Policy Branch of the Department of Trade and Taxes, Vyapar Bhawan, I.P. Estate, New Delhi-110002 (hereafter 'the Circular') 13. The Circular requires a proper officer to take certain steps in cases where the ITC has been blocked. The relevant extract of the Circular is reproduced below: "II. In case of taxpayer registration has already been cancelled a. In case of taxpayer, whose ITC had been blocked, and whose registration has already been cancelled, first of all the reason of cancellation should be ascertained. In case the taxpayer was cancelled for being non-....
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.... 5. If the taxpayer has already responded to the notices issued earlier by the Proper Officer and the Proper Officer after examining the responses, has come to the conclusion that the unblocking may no longer be required then such blocked credit should be unblocked forthwith." 14. Clearly, the impugned show-cause notice issued to the petitioner cannot be sustained. It does not effectively provide any reasons for raising a demand. The opening sentence of the impugned show-cause notice appears to be a mechanical reproduction of the statutory provision. 15. In so far as the Circular is concerned, the same cannot be read as permitting the proper officer to mechanically create a demand. The proper officer can issue a show cause notice only....
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....d be unblocked and utilised towards payment of the demand created. b. In case, during the field visit the taxpayer is found existing, then a show cause notice (DRC-01) should be issued proposing to create a demand by disallowing the ITC to the extent, fraudulently availed or for which the taxpayer is not eligible, keeping in view the provisions of clause (a) to (d) of sub rule (1) of rule 86A. Thereafter, DRC 07 should be issued, if no response or non satisfactory response is received, as per the law and finally, the blocked ITC should be unblocked and utilised towards payment of the demand created through DRC-07. c. Here, it should also be kept in mind that earlier when the ITCs were blocked, some or all of these steps mi....
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.... ** ** ** ** 37. It is also clear from a plain reading of the impugned instructions that it suggests that the exercise of issuing a show cause notice and creating a demand should be completed before unblocking the ITC notwithstanding that the period of one year has elapsed after the blocking of the ITC. This is contrary to the express provisions of rule 86A(3) of the Rules. It is apparent that the impugned instructions, to the aforesaid extent, has been issued only to overcome the provisions of rule 86A(3) of the Rules and the impugned instructions, to this extent, cannot be sustained." 17. The aforesaid decision is equally applicable to the Circular, which is the bone of contention in this case. 18. Mr. Satyakam, lea....