Facts:The petitioner challenged the requirement of pre-deposit under Section 107(6) of the CGST Act for filing an appeal against proceedings arising from a show cause notice dated 14.06.2022 alleging wrongful availment of input tax credit for the period 2017-18 to 2019-20. The petitioner sought waiver of the pre-deposit on the ground of financial hardship and amounts allegedly receivable from Government departments.Court Decision:The Court held that Section 107(6) mandates payment of the admitted amount of tax, interest, penalty and a pre-deposit of 10% of the disputed tax for filing an appeal. The provision does not confer discretion on the Court to waive the statutory pre-deposit requirement.The Court declined the request for waiver of pre-deposit and held that the petitioner must comply with the statutory requirement. However, the petitioner was permitted to approach the Appellate Authority and request adjustment of amounts already lying with the department or government entities towards the pre-deposit. The writ petition was disposed of with liberty to pursue the remedy before the appellate authority.Cases Referred by Court:Shubh Impex v. Union of India, (2018) 361 ELT 199 (Del)Anjani Technoplast Ltd. v. CCE, (2017) 348 ELT A132 (SC)Diamond Entertainment Technologies (P.) Ltd. v. Commissioner of Central Goods and Tax Commissionerate, Dehradun & Anr.Pioneer Corporation v. Union of India, (2016) 340 ELT 63Manoj Kumar Jha v. DRI, (2019) 365 ELT 166 (Del)Vice-Chancellor, University of Allahabad v. Dr. Anand Prakash MishraA.B. Bhaskara Rao v. CBIManish Goel v. Rohini GoelState of Bihar v. Arvind Kumar

Background.  Digilife Distribution and Marketing Services Ltd. amalgamated into HCL Infosystems under a scheme approved by the NCLT on 10.08.2022, with an appointed date of 01.04.2022. The amalgamating company applied for cancellation of its registration on 12.10.2022 and HCL filed FORM GST ITC-02 with a Chartered Accountant’s certificate on the same day. The department nevertheless issued a show cause notice dated 03.12.2023 under Section 73 and a final order dated 27.04.2024 in the name of the dissolved company.Observations of the Court.  The Court applied the line of authority in Maruti Suzuki India Ltd. and Spice Entertainment, holding that Section 160 of the CGST Act — being pari materia with Section 292B of the Income-tax Act, 1961 — cannot come to the rescue of the respondents or salvage a notice and order issued to a non-existent entity.On Section 87, the Court held that the provision was placed on the statute book ex abundanti cautela, to preserve and identify transactions occurring between the amalgamating companies and to treat them as distinct companies for the period up to the date of the order approving the scheme, so that such transactions do not escape tax. It found itself unable to read Section 87 as enabling the respondents either to continue to place a non-existent entity on notice or to pass an assessment order against it. In terms of Section 87 itself, the liabilities of the non-existent company stand transposed onto the amalgamated entity, so the revenue is not deprived of its right to subject the transactions to tax.Final verdict.  The writ petition was allowed. The show cause notice dated 03.12.2023 and the order dated 27.04.2024 were quashed, leaving it open to the respondents to draw such proceedings as may otherwise be permissible in law.

BackgroundMultiple taxpayers registered under CGST Act/DGST Act filed writ petitions challenging orders passed by the Commissioner/authorized officers under Rule 86A of the CGST Rules, 2017. The grievance was that the authorities had blocked ITC in their respective ECLs in excess of the credit actually available at the time of passing such orders, resulting in an artificial negative balance. Due to this negative balance, petitioners were unable to utilize any subsequently accrued ITC until the negative balance was first neutralized, effectively paralyzing their tax payment mechanism and working capital. The petitioners confined their challenge solely to this specific issue of "negative blocking."Facts Relevant to Understanding the JudgmentThe Revenue passed orders under Rule 86A blocking ITC on the ground that the credit had been fraudulently availed or was ineligible. However, in each case, the amount blocked exceeded the ITC actually lying in the ECL on the date of the order, creating a negative balance. For instance, in W.P.(C) 10980/2024, the total amount blocked was ₹27,28,93,028 whereas the ECL showed a negative balance of ₹25,85,14,327. The petitioners contended that Rule 86A only permits blocking of credit "available" in the ECL, and no power exists to create a negative balance. Revenue argued that the power under Rule 86A extends to the entire quantum of fraudulently availed or ineligible ITC, regardless of whether such credit still exists in the ECL at the time of the order.Court Observations (Verbatim)On nature of ITC:"The right to avail and utilize the ITC is thus a statutory right, which accrues by virtue of the provisions of the CGST Act and is subject to the conditions as set out therein. This right to avail and utilize the ITC is a valuable right. It is, undeniably, an asset, which vests with a taxpayer if the taxpayer satisfies all the stipulated conditions for such entitlement." (Para 30)On Rule 86A being a drastic power:"Undisputedly, the exercise of power under Rule 86A of the Rules effectively denies a taxpayer its ability to discharge its dues by utilizing the ITC or seeking a refund which it is entitled to do under the CGST Act and the Rules. The ITC, undoubtedly, is a valuable resource available to a taxpayer for payment of taxes and other dues. Thus, the denial of access of this resource in fact denies a taxpayer, albeit temporarily, access to its assets. An order under Rule 86A of the Rules in effect reduces the working capital available to a taxpayer." (Para 40)On threshold conditions of Rule 86A:"On a plain reading of the opening sentence of Rule 86A(1) of the Rules, the necessary conditions to be satisfied at the threshold are: (a) that there is a credit of input tax available in the Electronic Credit Ledger; and, (b) that the Commissioner or an officer authorized on his behalf has reasons to believe that the credit of input tax available has been fraudulently availed or is ineligible on account of the reasons as set out in Clauses (a) to (d) of Rule 86A(1) of the Rules." (Para 56)"In view of the aforesaid, it follows that if there is no credit of input tax available in the ECL, one of the necessary conditions for passing an order under Rule 86A(1) of the Rules would not be satisfied." (Para 57)On meaning of "amount equivalent to such credit":"Plainly, the expression 'amount equivalent to such credit' refers to the credit of input tax available in the taxpayer's ECL, which the Commissioner or the officer authorized by him has reasons to believe has been fraudulently availed or is ineligible. It does not refer to the ITC used in the past for payment of dues or which has been refunded." (Para 59)On literal construction:"There is no ambiguity in the plain language of Rule 86A of the Rules. The literal construction of the said Rule also does not lead to any absurdity. The words 'not allow debit of an amount equivalent to such credit in the electric credit ledger' clearly refers to such amount as is credited to the ECL to the extent that the Commissioner or an officer authorized by him has reason to believe has been fraudulently availed or is ineligible." (Para 70)On negative blocking being impermissible:"Rule 86A(1) of the Rules does not contemplate an order, the effect of which is to require a taxpayer to replenish his ECL with valid availment of ITC, to the extent of ITC used in the past, which the Commissioner or an officer authorized by him has reasons to believe, was fraudulently availed or was ineligible. Such an interpretation would in effect amount to construe an order under Rule 86A(1) of the Rules as an order for recovery of tax." (Para 82)On CBIC Circular supporting petitioners:"We find that the aforesaid paragraphs of the Circular dated 02.11.2021 relied upon by the learned counsel for the Revenue do not support the contentions advanced by them. On the contrary, the same support the literal construct of Rule 86A of the Rules and also clarify that the amount of debit to be disallowed from the ECL should not be more than the amount of the ITC, which is believed to have been fraudulently availed or is ineligible." (Para 73)Final VerdictAll writ petitions were allowed. The impugned orders were set aside to the extent they disallowed debit from the respective ECLs in excess of the ITC actually available in the ECL at the time of passing the orders. The "negative blocking" of ECL was held to be without jurisdiction and illegal under Rule 86A of the CGST Rules, 2017.  

Background & Relevant FactsThe petitioner, Blackberry India Pvt. Ltd., was engaged in providing marketing, administration and support services to Blackberry Singapore Pte. Ltd., an overseas entity. The petitioner claimed these services constituted export of services under the Service Tax Rules, 1994 and accordingly filed three separate applications for refund of unutilised CENVAT Credit for the following periods:April–June 2012: Rs. 3,18,11,287/- filed on 28.03.2013April–June 2013: Rs. 2,89,94,208/- filed on 31.03.2014July–September 2013: Rs. 2,47,28,850/- filed on 30.06.2014Total: Rs. 8,55,34,345/-The refund applications were not processed for years. The Adjudicating Authority issued a Show Cause Notice dated 22.01.2020, proposing to reject the refund on the ground that the petitioner was an "intermediary" and hence the place of provision of services was India, not outside India. By Order-in-Original dated 31.08.2020, the refund claims were rejected. The Commissioner (Appeals) upheld this rejection on 19.08.2021.The petitioner appealed to CESTAT, which by Final Order No. 51150/2022 dated 07.12.2022 allowed the appeal and held the services to be export of services — entitling the petitioner to refund. Even after CESTAT's order, the refund was not processed. The petitioner sent a letter dated 07.02.2023 requesting processing of the refund. The Revenue also filed an appeal against the CESTAT order before the Delhi High Court (SERTA 7/2023), which was dismissed on 12.07.2023.The Adjudicating Authority then processed the refund by the impugned order dated 04.05.2023 — sanctioning the principal amount of Rs. 8,55,34,345/- but denying interest under Section 11BB, treating the petitioner's letter dated 07.02.2023 as the date of refund application and holding that since refund was granted within three months thereof, no interest was payable. The petitioner challenged only the denial of interest in the present writ petition.Court Observations (Verbatim)"In a case where Revenue denies the claim for refund and the assessee succeeds before the Appellate Authorities, the interest is required to be calculated from the date immediately after the expiry of three months from the date of application for the refund and not from the date of the appellate orders. This issue was settled by the Supreme Court in Ranbaxy Laboratories Ltd. v. Union of India: (2011) 10 SCC 292.""The said contention [that interest should be calculated from three months from the CESTAT order dated 07.12.2022] is unmerited and as stated above, the said issue stands authoritatively settled by the Supreme Court in Ranbaxy Laboratories Ltd. (supra).""The impugned order is, ex facie, erroneous to the extent it rejects the petitioner's claim for interest. The impugned order sets out a tabular statement...clearly stating the dates on which the petitioner had made its claim for refund.""The Adjudicating Authority has failed to consider that the petitioner had filed its applications of refund on 28.03.2013, 31.03.2014 and 30.06.2014 for the tax periods April-June 2012, April-June 2013, and July-September 2013 respectively. And the interest payable to the petitioner is required to be calculated from the date immediately after expiry of three months from the dates on which those applications were made."Final VerdictWrit petition allowed. The Adjudicating Authority directed to forthwith process the petitioner's claim for interest under Section 11BB of the Central Excise Act read with Section 83 of the Finance Act, computed from the date immediately after expiry of three months from the original application dates (28.03.2013, 31.03.2014 and 30.06.2014 respectively) — not from the letter dated 07.02.2023. 👍 In favour of Assessee.

Facts :The petitioners, registered dealers under the DVAT Act, claimed Input Tax Credit on purchases supported by valid tax invoices from registered selling dealers. The tax authorities denied ITC on the ground that the selling dealers had not deposited the tax with the Government or had not properly disclosed the transactions. The denial was based on Section 9(2)(g) of the DVAT Act. Petitioners contended that they had complied with all statutory requirements and could not control the conduct of selling dealers.  Court Decision:The High Court held Section 9(2)(g) unconstitutional to the extent it denies ITC to bona fide purchasing dealers. The Court held that the provision fails to distinguish between genuine purchasers and those involved in fraud or collusion, thereby violating Article 14 of the Constitution. It was held that a purchasing dealer who has taken all reasonable steps, such as verifying registration and obtaining valid tax invoices, cannot be denied ITC due to default of the selling dealer. However, ITC can be denied where fraud, collusion, or lack of genuineness is established. Cases Referred by Court:•    K.T. Moopil Nair v. State of Kerala •    State of Kerala v. Haji and Haji •    Shri Ram Krishna Dalmia v. Justice S.R. Tendolkar •    Budhan Choudhry v. State of Bihar •    Gheru Lal Bal Chand v. State of Haryana •    Shanti Kiran India Pvt. Ltd. v. Commissioner, Trade and Tax Department •    Rajbala v. State of Haryana •    Binoy Viswam v. Union of India •    Shayara Bano v. Union of India •    Mahalaxmi Cotton Ginning Pressing & Oil Industries v. State of Maharashtra •    Jayam & Co. v. Assistant Commissioner