Background.  The petitioner had acquired a wind electric generator park of twenty windmills by slump sale in 2015 and sold that business to Bilal Match Works under a sale of business agreement dated 14.06.2019 for a consideration of Rs. 9,50,00,000. Relying on the figure of Rs. 10,34,32,205 appearing in the petitioner’s sixth annual report for FY 2019-20, being cost of machinery plus profit on sale, the assessment order dated 26.11.2021 confirmed tax of Rs. 93,08,898 each under CGST and SGST together with penalty at one hundred per cent under Section 122(1).Observations of the Court.  The Court pointed to the department’s own notice dated 21.10.2021, which had recorded that where a person ceases to be a taxable person, goods forming part of the assets of the business are deemed to be supplied immediately before he ceases to be a taxable person unless the business is transferred as a going concern to another person, in terms of entry 4(c)(i) of Schedule II, and which had categorically admitted, on the strength of the agreement filed, that the consideration of Rs. 9,50,00,000 was not exigible to tax, proposing to bring only the differential of Rs. 84,32,205 to tax.The impugned order having nonetheless confirmed the demand on the entire Rs. 10,34,32,205 taken from the annual report, the Court held the demand to be unsustainable, arbitrary and contrary to that notice.Final verdict.  The writ petition was allowed, the impugned order was set aside and the matter was remitted to the respondent to pass a fresh order on merits and in accordance with law, after hearing the petitioner, within eight weeks from receipt of the order.

Facts:The petitioner challenged the assessment order dated 07.08.2024 for the years 2019-20 and 2022-23 and the rectification order dated 12.11.2024 passed by the State Tax Officer. The petitioner contended that the show cause notice was vague and that the limitation for filing appeal should not be computed from the date of the original assessment order since a rectification application under Section 161 had been filed and rejected later.Court Decision:The Court held that when a rectification application under Section 161 of the GST Act is filed, the rectification order merges with the original assessment order. If the rectification application is rejected, the limitation period for filing an appeal against the original assessment order cannot be computed from the date of the original order. The limitation would commence from the date on which the rectification application is disposed of.Since the rectification order was passed on 12.11.2024, the limitation for filing appeal against the assessment order dated 07.08.2024 would be reckoned from 12.11.2024. The writ petitions were disposed of granting liberty to the petitioner to file an appeal and clarifying that limitation shall be calculated from the date of rejection of the rectification application.Cases Referred by Court:·         MD Electric Co. v. State Tax Officer, Chennai, (2024) 17 Centax 348 (Mad.) 

BackgroundAn Assessment Order dated 20th December 2023 was passed against the Petitioner under Section 73 of the TNGST Act 2017. Within the stipulated time, the Petitioner filed a Rectification Application under Section 161 seeking rectification of errors apparent on the face of the record in the Assessment Order. The first Respondent, without assigning any reasons as to why the Assessment Order did not suffer from any apparent error and without giving any opportunity of hearing, rejected the Rectification Application vide order dated 02nd February 2024. The Rectification Order merely extracted tables of figures indicating the amounts the petitioner was liable to pay — without any reasoning or analysis. The Petitioner challenged both the Assessment Order and the Rectification Order before the High Court under Article 226 of the Constitution.Relevant Facts & Rival ContentionsThe Petitioner contended that the Rectification Application was rejected without hearing and without assigning reasons as to how the Assessment Order was free from apparent errors — a clear violation of the third proviso to Section 161. The Revenue, however, vehemently argued a narrow construction — that no reasons need to be given when rejecting a rectification application, as the authority only needs to check for apparent error and can reject without reasons if none exists. More importantly, the Revenue contended that the hearing requirement under the third proviso to Section 161 arises ONLY when the Assessing Officer initiates rectification suo motu and the resulting order is detrimental to the assessee — and NOT when the rectification application had been made at the instance of the assessee himself. The Revenue further argued that the petitioner had not even indicated any apparent error in his application, and therefore no interference was warranted.Third Proviso to Section 161 — The Pivotal Statutory Text:"Provided also that where such rectification adversely affects any person, the principles of natural justice shall be followed by the authority carrying out such rectification."Revenue's ArgumentProviso applies only to suo motu rectification adverse to assessee — NOT to rejection of assessee-initiated applicationCourt's RulingProviso applies to BOTH situations — even rejection of assessee-initiated application requires hearing and reasons Court Observations (Verbatim)"A perusal of the order does not also indicate that there had been no error apparent on the record to reject the rectification. He had only extracted the tables indicating the figures which the petitioner is liable to pay. There is also no reasonings as to why there is no error apparent on the face of the record. For this reason, the impugned order dated 02.02.2024 is liable to be set aside."— Para 8 (on the mechanical nature of the Rectification Order)"Even though, streneous efforts had been made by the learned Additional Government Pleader that no personal hearing need to be given when an application had been made at the instance of the assesse, I am not in agreementd with the learned Additional Government Pleader. The Provisio indicates that when an order is being made adverse to the assessee, then he should be given an opportunity of being heard when the rectification adversely affects any person. The principles of natural justice had been inbuilt by way of the 3rd Proviso to Section 161."— Para 8 (rejecting Revenue's narrow construction of the third proviso)"If pursuant to a Rectification Application, if a rectification is made and if it adversely affects the assesse, Proviso 3 contemplates an opportunity of hearing to be given. However, when an Rectification Application is made at the instance of assessee and the rectification is being sought to be rejected without considering the reasons for rectification or by giving reasons as to why such rectification could not be entertained. It is also imperative that the assessee to be put on notice."— Para 8 (expanding the scope of natural justice under Section 161 — the core ratio)"I am inclined to hold that the order of rectification passed by the first respondent dated 02.02.2024 is contrary to the provisions of Section 161 and in that aspect, the same alone is set aside and the Rectification Application filed by the petitioner shall be taken afresh by the first respondent and after giving an opportunity to the petitioner, the first respondent shall pass appropriate orders and in accordance with law."— Para 9 (operative conclusion and direction)Final VerdictWrit Petition allowed. Rectification Order dated 02.02.2024 set aside as contrary to the provisions of Section 161 of the CGST/TNGST Act. Rectification Application to be taken afresh; first Respondent directed to grant opportunity of hearing to the Petitioner and then pass a reasoned order in accordance with law. All further remedies of the Petitioner preserved. No order as to costs.

Case Facts:The respondent constructed a shopping mall for leasing purposes and paid GST on inputs like materials and services used in construction, accumulating substantial ITC. The department denied ITC relying on Section 17(5)(d), which blocks credit for construction of immovable property. The Orissa High Court read down the provision and allowed ITC, holding denial would defeat GST objectives. The Revenue challenged this before the Supreme Court along with similar matters questioning the constitutional validity of Section 17(5)(c) and (d).Court Decision:The Supreme Court examined the scheme of the CGST Act and held that ITC is a statutory right subject to conditions and restrictions under the Act. Section 17(5)(c) and (d) clearly restrict ITC on construction of immovable property (other than plant and machinery), and such restriction must be interpreted strictly.The Court upheld the validity of the provisions and rejected the interpretation adopted by the High Court. It held that:A taxing statute must be interpreted strictly based on plain language.ITC cannot be claimed contrary to express statutory restrictions.The legislature is competent to restrict ITC and such restriction does not violate constitutional provisions.The expression “plant or machinery” cannot be expansively interpreted to include buildings like malls merely to claim ITC.Accordingly, the Supreme Court set aside the High Court judgment and held that ITC is not available on construction of immovable property used for renting under Section 17(5)(d).Cases Referred by Court:Eicher Motors Ltd. v. Union of IndiaBharat Sanchar Nigam Ltd. v. Union of IndiaShreya Singhal v. Union of IndiaUnion of India v. Bharti Airtel Ltd.Federation of Hotel & Restaurant Association of India v. Union of IndiaR.K. Garg v. Union of IndiaTwyford Tea Co. Ltd. v. State of KeralaNitdip Textile Processors Pvt. Ltd.P. Laxmi Devi v. State of Andhra PradeshIndore Development Authority v. ManoharlalALD Automotive Pvt. Ltd. v. Commercial Tax OfficerHari Krishna Bhargav v. Union of IndiaJoseph Shine v. Union of IndiaCommissioner of Customs v. Dilip Kumar & Co.Sneh Enterprises v. Commissioner of CustomsVegetable Products Ltd.R.S. Raghunath v. State of KarnatakaUnion of India v. VKC Footsteps India Pvt. Ltd.

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.