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TMI Blog2024 (10) TMI 444X X X X Extracts X X X X X X X X Extracts X X X X ..... ution of India. (C) This Hon'ble Court may be pleased to declare the provisions of Rule 86A of the CGST/SGST Rules, 2017 as being unreasonable, inasmuch as e said Rule does not incorporate the principles of natural justice and is therefore violative of Article 19(1)(g) of the Constitution of India. (D) This Hon'ble Court may be pleased to read down the provisions of Rule 86A of the CGST/SGST Rules, 2017 so as to enable a Registered Person to show reasonable cause before action is taken under the Rule by an authorized officer. (E) This Hon'ble High Court may be pleased to issue such other writ or writs as this Hon'ble Court may deem it fit to grant int eh facts and circumstances of the petitioner's case." 2. Heard learned counsel for the petitioner and learned counsel for the respondents and perused the material on record. 3. A perusal of the material on record will indicate that the Electronic credit ledger of the petitioner was blocked by the impugned order at Annexure - L dated 14.08.2024, by invoking Rule 86A of the Central Goods and Services Tax Rules, 2017 (for short 'the CGST Rules'). In this context, learned counsel for the petitioner invited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 instant case. 9.2 The learned Single Judge also failed to appreciate that Rule 86A was drastic and draconian in nature warranting existence of "reasons to believe" before exercising the said power by strictly complying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redit 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 reiterated that the power of disallowing debit of amount from electronic credit ledger must not be exercised in a mechanical manner and careful examination of all the facts of the case is important to determine case(s) fit for exercising power under rule 86A.The remedy of disallowing d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty 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 another authority. Before the drastic measure to block a taxpayer's ECL is taken, it was necessary for the concerned officer to have some material to form a belief that the conditions under Rule 86A are satisfied by making an independent analysis before such action is taken and even this aspect has not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egal 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 perusal of the impugned order will indicate that except for stating that there is likely addition of the amount mentioned in the order, no reasons, much less valid or cogent reasons are assigned by the 1st respondent as to how and why he has formed an opinion that it was necessary to provisionally attach the fixed deposits of the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ising 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 to the manner of attachment.Each of these components of the statute are integral to a valid exercise of power. In other words, when the exercise of the power is challenged, the validity of its exercise will depend on a strict and punctilious observance of the statutory preconditions by the Commissioner. While conditioning the exercise of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent 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 writing attach provisionally any property belonging to the dealer in such manner as may be prescribed."] of the Gujarat Value Added Tax Act, 2003, one of us (Hon'ble M.R. Shah, J.) speaking for a Division Bench of the Gujarat High Court in Vishwanath Realtor v. State of Gujarat [Vishwanath Realtor v. State of Gujarat, 2015 SCC OnLine Guj 6564] observed : (Vishwan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 equal to ten per cent of the remaining amount of tax in dispute arising from the said order, in relation to which the appeal has been filed." Sub-section (7) stipulates that: "107. (7) Where the appellant has paid the amount under sub-section (6), the recovery proceedings for the balance amount shall be deemed to be stayed." 74. Clause (a) of sub-section (6) provides that no appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 attachment order is completely warranted for the purpose of protecting the Government revenue. 9. Applying the principles laid down in Radha Krishan's case (supra) to the facts of the instant case, a perusal of the impugned provisional attachment order will clearly indicate that except for merely stating that since there is a likelihood of huge tax payments to be raised on completion of assessment and that for the purpose of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd, 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 upon the 1st respondent to arrive at his own satisfaction and not borrowed satisfaction by proper application of mind and consequently, the impugned order which is bald, vague, cryptic, laconic, unreasoned and non-speaking order deserves to be set aside, particularly having regard the undisputed fact that except for stating that he was of the opinion that it was necessary to attach the fixed deposits for the purpose of protecting the interest of the revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learly 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." 6. In view of the aforesaid dictum of the Division Bench of this Court, I am of the considered opinion that in the instant case since no pre-decisional hearing are provided/granted by the respondents before passing the impugned order, coupled with the fact that the impugned order invoking Section 86A blocking of the Electronic credit ledger of the petition does not contain independent or cogent reasons to believe/accept by placing reliance upon reports of enforcement authority which is impermissible in law, since the same is on borrowed satisfaction as held by Division Be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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