2023 (3) TMI 489 - HC - GST

Blocking of ITC and the subsequent appropriation of the said amount to satisfy the demand as raised by the impugned order - Proper/competent Officer to block the credit - HELD THAT:- The ITC can be blocked by a Commissioner or an officer authorised by him in his behalf, not below the rank of an Assistant Commissioner, provided that he has reasons to believe that the ITC available in the ECL has been “fraudulently availed or is ineligible” on account of the reasons as set out in Clauses (a) to (d) of Sub-rule (1) of Rule 86A of the Rules - In SUNNY JAIN VERSUS THE UNION OF INDIA ANR ORS. [2022 (12) TMI 653 - DELHI HIGH COURT] this Court had examined the language of Rule 86A(1) of the Rules and had held that the reasons set out in Clauses (a) to (d) of Rule 86A(1) of the Rules exhaustively set out the conditions of ineligibility. Thus, unless the competent officer has reasons to believe that the conditions in the said clauses are satisfied or the ITC was fraudulently availed, the ITC in the ECL cannot be blocked.

Blocking of the ITC effectively deprives the taxpayer of a valuable resource to discharge its liability and realise the value in monetary terms. Thus, undisputedly, the said action is a drastic step and it is necessary that all legislative checks and balances, enacted in respect of exercise of power to take such measures, are duly satisfied.

In the present case, the respondents had no material to form any opinion that the ITC had been availed wrongly on account of any fraud or any wilful-misstatement or suppression of facts to evade tax. Concededly, the respondents had no material to form any independent opinion whatsoever. It is apparent that the impugned show cause notice was issued in a mechanical manner to comply with the impugned instructions.

There are no hesitation in holding that the impugned show cause notice is not in conformity with the provisions of Section 74 of the CGST Act and is, thus, without authority of law - 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.

The impugned show cause notice and the impugned order are set aside - petition allowed.