TaxTMI 
TaxTMI 
TaxTMI 
2025 (12) TMI 1441
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....rari or Writ in the nature of Certiorari quashing the order passed by resp-2 u/s 86A R/w 16 of the KGST/CGST Act, blocking credit ledger of the Petitioner at ANNEXURE-E dated 16/06/2025 issued by Resp-2 for the periods 2023-24 and 2024-25 in so far as the petitioner is concerned. D) Issue a Writ of Certiorari or Writ in the nature of Certiorari quashing the order passed by resp-2 u/s 86A R/w 16 of the KGST/CGST Act, blocking credit ledger of the Petitioner at ANNEXURE-F dated 20/09/2025 issued by Resp-2 for the period 2022-23 in so far as the petitioner is concerned. E) Issue any other directions as this Hon'ble Court deems fit to pass in the facts and circumstances of the case in the interest of justice and equity including the cost of the Writ Petition. 3. Heard learned counsel for the petitioner and learned AGA for the respondents and perused the material on record. 4. A perusal of the material on record will indicate that the Electronic credit ledger of the petitioner was blocked by the impugned orders at Annexures - C, D, E and F for the period 2024- 25, 2023-24 and 2022-23 dated 16.06.2025 and 20.09.2025 respectively, by invoking Rule 86A readwith ....
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....the powers under Rule 86A of the Rules of 2017. Unless the aforesaid two pre-requisites are fulfilled, the competent authority cannot invoke the powers under Rule 86A of the Rules of 2017 for the purpose of disallowing the debit of the determined amount to the electronic credit ledger or to block the electronic credit ledger even to the extent of amount fraudulently or wrongly availed by the petitioners/assessee. 9.1 However, the learned Single Judge came to the erroneous conclusion that the respondents-revenue had fulfilled/satisfied the aforesaid twin/dual prerequisites/requirements viz., respondents had 'reasons to believe' which were based on cogent material available with them to invoke Rule 86A of the CGST Rules; in this context, the learned Single Judge failed to appreciate that the only 'reason to believe' was alleged satisfaction of certain officers who conducted a field visit in Goa and noticed that the said suppliers were not in business. It is well settled that the expression 'reason to believe' would necessarily mean that the respondents must arrive at a satisfaction based on their own independent inquiry and not upon borrowed inquiry as has been done in the i....
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....ces or debit notes, the tax in respect of which has not been paid to the government. d) The registered person claiming the credit is found to be non-existent or is found not to be conducting any business from the place declared in registration. e) The credit is availed by the registered person without having any invoice or debit note or any other valid document for it. 3.1.3 The Commissioner, or an officer authorised by him, not below the rank of Assistant Commissioner, must form an opinion for disallowing debit of an amount from electronic credit ledger in respect of a registered person, only after proper application of mind considering all the facts of the case, including the nature of prima facie fraudulently availed or ineligible input tax credit and whether the same is covered under the grounds mentioned in sub-rule (1) of rule 86A, as discussed in para 3.1.2 above; the amount of input tax credit involved; and whether disallowing such debit of electronic credit ledger of a person is necessary for restricting him from utilizing/ passing on fraudulently availed or ineligible input tax credit to protect the interests of revenue. 3.1.4 It is rei....
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....ble input tax credit and whether the same is covered under the grounds mentioned in Rule 86A(1). As stated earlier, Rule 86A, which in effect is the power to block ECL is drastic in nature which creates a disability for the taxpayer to avail of the credit in ECL for discharge of his tax liability which he is otherwise entitled to avail and therefore, all the requirements of Rule 86A would have to be fully complied with before the power there under is exercised; when this Rule requires arriving at a subjective satisfaction which is evident from the use of words, "must have reasons to believe", the satisfaction must be reached on the basis of some objective material available before the authority and cannot be made on the flights of ones fancies or whims or caprices. 9.5 In the instant case, the electronic credit ledgers have been blocked solely on the basis of communication from another officer [Field visit report by the Asst. State Tax Officer, Vasco-D-Gama, (Goa)]. There was no tangible material to form any belief that the ITC lying in the appellants' ECL was on account of any fake invoice; it had proceeded to take action solely on the basis of a direction issued by anoth....
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....the Assessing Officer who seems to have been influenced by the findings of the Investigation Wing [i.e, Field visit report by the Asst. State Tax Officer, Vasco-D-Gama, (Goa)] and have not independently formed an opinion on the likely additions to be made during assessment proceedings. In the light of existence of a legal mandatory pre-requirement and precondition of recording of formation of opinion which is in pari-materia with "reasons to believe", it was incumbent upon the officer to arrive at his own satisfaction and not borrowed satisfaction by proper application of mind; the respondents have proceeded solely on the basis that the supplier has been found to be non-existent or not to be conducting any business from the place which it has obtained registration, has blocked the input tax which is impermissible in law without checking the genuineness or otherwise of the transaction and consequently, the impugned orders are bald, vague, cryptic, laconic, unreasoned and non-speaking and deserve to be set aside. 9.9 While dealing with the provisions of the CGST Act, this Court in Xiaomi's case supra, wherein one of us speaking for the Court held as under: 10. A per....
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....cluding a bank account. The attachment is provisional and the statute has contemplated an attachment during the pendency of the proceedings under the stipulated statutory provisions noticed earlier. An attachment which is contemplated in Section 83 is, in other words, at a stage which is anterior to the finalisation of an assessment or the raising of a demand. Conscious as the legislature was of the draconian nature of the power and the serious consequences which emanate from the attachment of any property including a bank account of the taxable person, it conditioned the exercise of the power by employing specific statutory language which conditions the exercise of the power. The language of the statute indicates first, the necessity of the formation of opinion by the Commissioner; second, the formation of opinion before ordering a provisional attachment; third the existence of opinion that it is necessary so to do for the purpose of protecting the interest of the government revenue; fourth, the issuance of an order in writing for the attachment of any property of the taxable person; and fifth, the observance by the Commissioner of the provisions contained in the rules in regard t....
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....n regard to both the purpose and necessity of provisional attachment implicate the doctrine of proportionality. Proportionality mandates the existence of a proximate or live link between the need for the attachment and the purpose which it is intended to secure. It also postulates the maintenance of a proportion between the nature and extent of the attachment and the purpose which is sought to be served by ordering it. Moreover, the words embodied in sub-section (1) of Section 83, as interpreted above, would leave no manner of doubt that while ordering a provisional attachment the Commissioner must in the formation of the opinion act on the basis of tangible material on the basis of which the formation of opinion is based in regard to the existence of the statutory requirement. While dealing with a similar provision contained in Section 45 [ Section 45 (1) provides as follows: "45. Provisional attachment.-(1) Where during the tendency of any proceedings of assessment or reassessment of turnover escaping assessment, the Commissioner is of the opinion that for the purpose of protecting the interest of the government revenue, it is necessary so to do, he may by order in writi....
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....e person whose property is sought to be attached. We are unable to accept the contention of the respondent that merely because proceedings were pending/concluded against another taxable entity, that is, GM Powertech, the powers of Section 83 could also be attracted against the appellant. This interpretation would be an expansion of a draconian power such as that contained in Section 83, which must necessarily be interpreted restrictively. Given that there were no pending proceedings against the appellant, the mere fact that proceedings under Section 74 had concluded against GM Powertech, would not satisfy the requirements of Section 83. Thus, the order of provisional attachment was ultra vires Section 83 of the Act. 73. On 1-3-2021, the appellant has filed an appeal under Section 107 together with a deposit of Rs. 32,15,488 representing ten per cent of the tax due. Section 107(6) contains the following stipulation: "107. (6) No appeal shall be filed under subsection (1), unless the appellant has paid- (a) in full, such part of the amount of tax, interest, fine, fee and penalty arising from the impugned order, as is admitted by him; and (b) a sum ....
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....maintainable, having regard to the fact that the provisional attachment order of a property of a taxable person including the bank account of such person is draconian in nature and the conditions which are prescribed by the statute for the valid exercise of power must be strictly fulfilled, the exercise of power for order of provisional attachment must necessarily be preceded by formation of an opinion by the authorities that it is necessary to do so for the purpose of protecting the interest of Government revenue. Before the order of provisional attachment, the Commissioner must form an opinion on the basis of the tangible material available for attachment that the assessee is not likely to fulfil the demand payment of tax and it is therefore necessary to do so for the purpose of protecting the interest of the Government revenue. In addition to the aforesaid mandatory requirements, before passing the provisional attachment order, it is also incumbent upon the authorities to come to a conclusion based on the tangible material that without attaching the provisional attachment, it is not possible in the facts of the given case to protect the revenue and that the provisional attachmen....
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....uge tax demands are likely to be raised on completion of assessment is not sufficient for the purpose of passing a provisional attachment order and the exercise of the same must necessarily be preceded by the formation of an opinion that it was necessary to do so for the purpose of protecting the interest of Government revenue, that too on the basis of tangible material that the petitioner was not likely to fulfil the demand and on the other hand, was likely to defeat the demand, which is conspicuously missing and absent in the impugned order. 14. The impugned order also discloses that the same has been passed mechanically and is based on borrowed satisfaction and does not meet the test of formation of an opinion of the Assessing Officer who seems to have been influenced by the findings of the Investigation Wing and TPO and have not independently formed an opinion on the likely additions to be made during assessment proceedings. 15. As stated supra, in the light of existence of a legal mandatory pre-requirement and precondition of recording of formation of opinion which is in pari materia with "reasons to believe" in Section 281B of the I.T. Act, it was incumbent ....
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....nder Rule 86A which is yet another circumstance that would vitiate the impugned order. 9.11 The aforesaid facts and circumstances are sufficient to come to the unmistakable conclusion that in the absence of valid nor sufficient material which constituted 'reasons to believe' which was available with respondents, the mandatory requirements/prerequisites/ingredients/parameters contained in Rule 86A had not been fulfilled/satisfied by the respondents-revenue who were clearly not entitled to place reliance upon borrowed satisfaction of another officer and pass the impugned orders illegally and arbitrarily blocking the ECL of the appellant by invoking Rule 86A which is not only contrary to law but also the material on record and consequently, the impugned orders deserve to be quashed. Point No.2 is also accordingly answered in favour of the appellants by holding that the respondents-revenue committed a grave and serious error/illegality/infirmity in passing the impugned orders blocking the Electronic Credit Ledgers of the Appellants by invoking Rule 86A of the CGST Rules." 7. In view of the aforesaid dictum of the Hon'ble Division Bench of this Court, I am of the co....