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TMI Blog2022 (3) TMI 908X X X X Extracts X X X X X X X X Extracts X X X X ..... the expression "provisions of the Income Tax Act" and replace the same with the expression "provisions of the Goods and Services Tax Act, 2017". 2. By this writ application under Article 226 of the Constitution of India, the writ applicant has prayed for the following reliefs: "(a) That this Hon'ble Court be pleased to issue a Writ of Certiorari, or a Writ in the nature of Certiorari, or any other appropriate Writ, Order or direction, calling for the papers and proceedings leading to the records relating to blocking of Input Tax Credit of the Petitioner to the tune of Rs. 97,17,290/ (Rupees Ninety Seven Lakhs Seventeen Thousand Two Hundred and Ninety Only) and after looking into the same and the legality thereof, this Hon'ble Court be pleased to quash and set aside the action of Respondent No.3 regarding blocking of Input Tax Credit of the Petitioner which has been shown on the login credential of GSTN portal of the Petitioner (Annexure-E); (b) That this Hon'ble Court be pleased to issue a Writ of Mandamus, or a Writ in the nature of Mandamus, or any other appropriate writ Order or direction to the Respondents to unblock the Input Tax Credit to the tune of Rs. 97, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in brief, for blocking the ITC under Rule 86A of the Rules. Mr. Modh would submit that without any reasons how would a dealer come to know as to why his ITC has been blocked. He would submit that all the transactions of his client with M/s. Anmol Enterprise are clean. If there is any information or material with the department to doubt the credentials of M/s. Anmol Enterprise then for such reason alone, the ITC of the writ applicant could not have been blocked. In other words, what Mr. Modh is trying to convey is that his client is a bona fide purchaser of the goods. The goods were delivered in accordance with law. In such circumstances referred to above, Mr. Modh prays that there being merit in his writ application, the same be allowed and the impugned order/action on the part of the respondent no.3 in blocking the ITC be quashed and set aside. 5. On the other hand, this writ application has been vehemently opposed by Mr. Utkarsh Sharma, the learned AGP appearing for the respondents. Mr. Sharma would submit that having regard to the satisfaction arrived at by the authority based on some information/material, it cannot be said that the action on the part of the respondent no.3 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lable with this office your supplier Anmol Enterprise has not conducted any business from any place for any period during which registration has been obtained and found a FAKE/BOGUS UNIT. Therefore, your firm does not satisfies the conditions u/s 16 of CGST/SGST Act and uses of ITC under rule 86(A)(1). You are hereby advised to pay the amount of tax as ascertained above along with the amount of applicable interest and penalty under section 74(5) within thirty (30) days failing which Show-cause Notice will be issued under section 74(1). In case you wish to file any submissions against the above ascertainment, the same may be furnished within thirty (30) days in Part B of this form. Sd/- Assistant Commissioner of State Tax, Unit - 62, Surat." 7. Mr. Sharma would submit that the inquiry is in progress. He fairly conceded that although 7 months have elapsed, since the ITC came to be blocked yet, no show cause notice has been issued till this date under Section 73 or 74 respectively as the case may be. He would submit that the object of blocking the ITC in exercise of power under Rule 86A of the Rules is to protect the interest of the Revenue. In such circumstances referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been paid to the Government; or c) the registered person availing the credit of input tax has been found non-existent or not to be conducting any business from any place for which registration has been obtained; or d) the registered person availing any credit of input tax is not in possession of a tax invoice or debit note or any other document prescribed under rule 36, may, for reasons to be recorded in writing, not allow debit of an amount equivalent to such credit in electronic credit ledger for discharge of any liability under section 49 or for claim of any refund of any unutilised amount. (2) The Commissioner, or the officer authorised by him under sub-rule (1) may, upon being satisfied that conditions for disallowing debit of electronic credit ledger as above, no longer exist, allow such debit. (3) Such restriction shall cease to have effect after the expiry of a period of one year from the date of imposing such restriction.". 4. In the said rules, with effect from the 11th January, 2020, in rule 138E, after clause (b), the following clause shall be inserted, namely:- "(c) being a person other than a person specified in clause (a), has not furnished the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hin a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed: Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon. (3) Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income-tax Act, 1961, the input tax credit on the said tax component shall not be allowed. (4) A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier. "Provided that the registered person sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for issue of any show-cause notice or intimation notice. In such circumstances, the person affected may be taken by surprise when he would go to the portal to pay taxes and finds that his ITC is not usable. 13. This very Bench in one of its recent pronouncements in the case of Samay Alloys India Pvt. Ltd. Vs. State of Gujarat, (Special Civil Application No.18059 of 2021) decided on 03.02.2022 had the occasion to consider the scope of Rule 86A more particularly, in a case wherein the balance in the electronic credit ledger is NIL. In Samay Alloys India Pvt. Ltd. (Supra), this Court took the view that the Rule 86A is not the Rule which entitles the proper Officer to make debit entries in the electronic credit ledger of the registered person. The Rule merely allows the proper officer to disallow the registered person the debit from the electronic credit ledger for the limited period of time and on a provisional basis. This Court took the view that in case the debit entries are made by the proper Officer, the same would tantamount to permanent recovery of the input tax credit and the permanent recovery is governed by the statutory provisions (Sections 73 or 74 respectively of the CG ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll as philosophically, is an essential element of equity or non-arbitrariness and it pervades Article 14 like a brooding omnipresence and the procedure contemplated by Article 21 must answer the test of reasonableness in order to be in conformity with Article 14. Fair and reasonable exercise of power would be there only when the power is exercised in the manner prescribed in the provision of law conferring the power and for the purpose for achievement of which it exists. This would underline the importance of existence of reasons to believe that there is fraudulent or erroneous availment of credit standing in the ECL. In other words, the power under rule 86-A cannot be exercised unless there is a subjective satisfaction made on the basis of objective material by the authority. 17. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the rule maker, and that means, reasons must be recorded in writing in each and every case. This is because of the fact that any order which brings to bear adverse consequences upon the person against whom the order is passed, must disclose the reasons for it so that the person affected thereby would know why he is being made to suffer or otherwise he would not be able to seek appropriate redressal of his grievance arising from such an order. Right to know the reasons behind an administrative order having civil consequences is a well embedded principle forming part of doctrine of fair play which runs like a thread through the warp and weft of the fabric of our Constitutional order made up by Articles 14 and 21 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. 19. There is another reason which we would like to state here to support our conclus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce - - - - - - 23. The aforesaid order is bereft of any reasons and therefore, there is no question of any reflection therein of the authority passing the order on being satisfied about the necessity of passing it. When the first requirement of Rule 86A is of, "having reasons to believe" and it has manifestly been not followed, the impugned order would have to be treated as erroneous in law. The second requirement regarding recording of reasons in writing is also followed in breach. In such circumstances, it can be said that the case on hand is one of an arbitrary exercise of power under Rule 86A. 24. Before we close this judgment, we must observe something as regards Section 43A of the Act, 2018. 24.1 Rule 86A may subject a bona fide assessee to undue hardship by the blockage of his credit ledger due to the default of his supplier. This may tantamount to equating the default of the recipient with that of the supplier. Section 43A was inserted into the Act vide the CGST (Amendment) Act, 2018. Section 43A(6) provides that the supplier and the recipient of a supply shall be jointly and severally liable to pay tax, or to pay the input tax credit availed, as the case m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only case when such provision applies is if the tax authorities come across some material to show that the purchasing dealer and the selling dealer, acted in collusion in detriment to the exchequer. However, in the event that the selling dealer has failed to deposit the tax collected, the remedy for the authorities is to proceed against the defaulting selling dealer to recover such tax and not to deny the purchasing dealer his input. The Supreme Court affirmed the said case and dismissed the Revenue's petition seeking special leave to appeal against this decision. 24.5 In Sri Vinayaga Agencies v. Assistant Commissioner, W.P. Nos. 2036 to 2038 of 2013, dated 29.01.2013 (Madras High Court), the Madras High Court held that law does not empower the tax authorities to reverse the ITC availed, on a plea that the selling dealer has not deposited the tax. It can revoke the input credit only if it relates to the incorrect, incomplete or improper claim of such credit. 24.6 The need for the law to distinguish between honest and dishonest dealers was acknowledged by the Punjab and Haryana High Court in Gheru Lal Bal Chand v. State of Haryana, Civil Writ Petition No.6573 of 2007, decided on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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