9911796707
TMI Blog2023 (3) TMI 489X X X X Extracts X X X X X X X X Extracts X X X X ..... 04.2022. In addition, the petitioner also impugns the instructions dated 08.03.2022 issued by the Department of Trade & Taxes (Policy Branch), Government of NCT of New Delhi (hereafter 'the impugned instructions'). 2. The Input Tax Credit (hereafter 'ITC') available in the petitioner's Electronic Credit Ledger (hereafter 'ECL') was blocked on 26.11.2020 under Rule 86A of the Central Goods & Services Tax Rules, 2017 (hereafter 'the Rules'). The respondents did not unblock the same immediately on the expiry of the period of one year. The respondents did so on 30.03.2022, but appropriated the blocked ITC against a tax demand created on the same date. The petitioner claims that the said demand was created artificially with the object of denying the ITC, which would be available to the petitioner on the same being unblocked. The petitioner claims that the same was done pursuant to the impugned instructions, which are contrary to law. 3. It is also the petitioner's case that the blocking of the ITC was done without any tangible material or justifiable reasons, and merely on the instruction of another authority, which is impermissible. Factual Context 4. Briefly stated, the relevant f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ITC, which had been blocked. The petitioner sent another e-mail dated 15.02.2021 to the respondents expressing its difficulty in filing GSTR-3B returns as the system was not permitting the petitioner to file the same for the period from December, 2020 to January, 2021, because the ITC amount was reflected as blocked. The petitioner received a response to the said e-mail informing the petitioner that since its GST registration fell within the administrative jurisdiction of the State, the petitioner's e-mail had been forwarded for necessary action. 4.6 The petitioner claims that it continued to pursue the GST authorities by sending e-mails and had also personally visited the jurisdictional officers and submitted copies of the GST returns as well as system-generated statements of inward supplies in Form GSTR-2A. The petitioner contended that the authorities had wrongfully blocked the ITC without providing any reasons for the same. The petitioner claims that since no effective response was received and the ITC continued to remain blocked, it was constrained to deposit Rs.36,49,074/-in cash against its liability for the month of December, 2020. It filed the return in form GSTR-3B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which did not permit the authorities to block the ECL for a period exceeding twelve months. 6. He also submitted that in terms of the impugned instructions, the officers were directed to create a demand by disallowing the ITC in cases where the ITC had been blocked. He submitted that following the impugned instructions, the proper officers were not unblocking the ITC, even though the period of one year had elapsed, prior to creating an illusory demand for appropriating the ITC on the same being unblocked. Reasons and Conclusions 7. As is apparent from the above, the grievance of the petitioner, principally, relates to the blocking of its ITC and the subsequent appropriation of the said amount to satisfy the demand as raised by the impugned order. At the outset, it is relevant to refer to Rule 86A of the Rules, in exercise of which, the petitioner's ITC available in the ECL was blocked. Rule 86A of the Rules reads as under:- "RULE 86A. Conditions of use of amount available in electronic credit ledger.- (1) The Commissioner or an officer authorised by him in this behalf, not below the rank of an Assistant Commissioner, having reasons to believe that credit of input tax available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said clauses are satisfied or the ITC was fraudulently availed, the ITC in the ECL cannot be blocked. 9. It is also relevant to note that in terms of Rule 86A of the Rules, it is also necessary for the concerned officer (Commissioner or an officer authorized by him not below the rank of Assistant Commissioner) to record the reasons for blocking the ITC in writing. 10. 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. 11. In Sheo Nath Singh v. Appellate Assistant Commissioner of Income Tax, Calcutta: (1972) 3 SCC 234, the Supreme Court had interpreted the expression 'reason to believe' in the context of Section 34(1A) of the Income Tax Act, 1922 and had observed as under: "10. .....There can be no manner of doubt that the words "reason to believe" suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income Tax Officer may act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns, which are based on tangible material and have "a live link with the formation of the belief." This view was also followed by the Supreme Court in a later decision in the case of Income Tax Officer, Ward No. 16(2) v. Techspan India Private Limited & Anr.: (2018) 6 SCC 685. 14. In Commissioner of Income Tax-15 (Erstwhile Cit-IX) v. Shri Chintoo Tomar: 2014 SCC OnLine Del 7544, a Division Bench of this Court had observed as under: "5. .....The expression "reasons to believe" predicates a belief which is founded and induced by existence of palpable or cogent material or information. Reason to suspect cannot amount to reason to believe. As it is the beginning of the inquiry, having a prima facie opinion is sufficient; and irrebuttable conclusive evidence or finding is not required. But the prima facie formation of belief should be rational, coherent and not ex facie incorrect and contrary to what is on record." 15. Although the aforesaid decisions were rendered in the context of Section 147 of the Income Tax Act, 1961, the interpretation of the expression 'reason to believe' is also relevant for understanding the meaning of the said expression as used in Rule 86A of the Rules. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as Annexure A were found to be involved as beneficiaries and are within the jurisdiction of the GST Delhi East. The petitioner's name is mentioned at serial no.13 of the said list. It also mentions that the taxable value involved is Rs.1,54,90,000/- and the total tax to be paid by the party (the petitioner) is Rs.27,88,200/-. Respondent no.4, based on the said letter, proceeded to block the petitioner's ITC without any further information. 18. It is relevant to note that, in the counter affidavit, the respondents have stated that the Delhi State GST Department has no authority to investigate the petitioner and the status of investigation, initiated by the Central GST Department, is not known. It is also asserted that the Delhi State GST Department - which has blocked the petitioner's ITC - has no authority to be involved in the investigation against the petitioner. 19. It is clear that the petitioner's ITC was blocked on an allegation that the ITC availed was on account of fake invoices. However, the respondent, who had blocked the petitioner's ITC, had no information as to the fake transactions and had proceeded solely on the basis of a directive issued by the Joint Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er's ITC was required to be unblocked as the period of one year had elapsed after it was blocked. Paragraph nos. 11 and 12 of the counter affidavit filed by respondent nos. 2 to 4 are reproduced below: "11. It is stated that thereafter, the ITC of the Petitioner was kept blocked beyond the period of 1 year as the Central GST Department did not provide any further instructions as to what to do with the blocked ITC. It is stated that in absence of such directions from the CGST, the present matter remained in limbo until the State GST Department issued further directions. It is stated that whether the Petitioner's ITC should be blocked or not can only be ascertained by the Central Tax Commissioner as the SGST is not involved with the investigation. 12. That thereafter, the Delhi Govt. Dept. of Trade & Taxes issued a circular on25.02.2022 where it was notified that in all cases where the ITC has been kept pending blocked for more than 1 year, all ward in-charges and Zonal In-Charges are requested to take necessary action. The copy of circular dated25.02.2022 is annexed herewith as ANNEXURE C-2." 26. It is also relevant to refer to Section 74(1) of the CGST Act, which reads as unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e year. 31. Notwithstanding that the restriction placed on the petitioner's ITC had ceased; the respondents continued to illegally block the petitioner's ITC solely because no other instructions had been received. It is also apparent that the respondents were fully aware that their action of continuing to block the petitioner's ITC was contrary to Rule 86A of the Rules, however, the same did not deter them from continuing to block the ITC. 32. It is also apparent that respondent no.4 had proceeded to pass the impugned order not because it found that the petitioner had wrongly availed of the ITC by reason of a fraud or wilful-misstatement or suppression of facts to evade tax, but solely to deprive the petitioner from utilising the ITC, which could no longer be kept blocked by virtue of Rule 86A(3) of the Rules. 33. The petitioner has also assailed the impugned instructions. The impugned instructions indicate that the ITC amounting to Rs.2037.31 crores in respect of 6414 registered taxpayers was blocked by Delhi State GST Officers, and is lying blocked for a period exceeding one year. The said Circular also records that GSTN is contemplating introducing a functionality for automat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the wrong ITC, shall also be sent to the concerned jurisdictional authority (other firm)." 35. The directive to issue a show cause notice proposing to create a demand by disallowing the ITC and thereafter, creating a demand cannot be read in isolation and in disregard of the provisions of the Act and the Rules. If the impugned instructions are understood to mean that a show cause notice be issued mechanically and a demand be created to appropriate the blocked ITC, the same would be contrary to law. A show cause notice can be issued only if the conditions under Section 74 of the CGST Act are satisfied. In case relating to ITC, the show cause notice can be issued only if the proper officer believes that ITC has been "wrongly availed or utilised by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax". No show cause notice can be issued without the proper officer forming at least a prima facie view that the tax has not been paid or short paid or erroneously refunded or the ITC had been wrongly availed or utilised by reason of fraud or any wilful-misstatement or suppression of facts. 36. Concededly, in the present case, respondent no.4 had no particular ..... X X X X Extracts X X X X X X X X Extracts X X X X
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