| S.No | Name | Date of Order | Subject | Actions |
|---|---|---|---|---|
| 131 | Klassic Traders vs. State of Karnataka & Others | 25-09-2024 | Quashing of ECL blocking order under Rule 86A of CGST Rules, 2017 passed without pre-decisional hearing and without independent 'reasons to believe', based solely on borrowed satisfaction from Enforcement authority reports | View Download |
BackgroundThe petitioner, Klassic Traders, a proprietary concern registered under GST, had ITC of Rs.43,18,514 available in its Electronic Credit Ledger (ECL). By order dated 06.06.2024, the Assistant Commissioner of Commercial Taxes, LGSTO-16, Bengaluru blocked the petitioner's ECL by invoking Rule 86A of the CGST Rules. No pre-decisional hearing was given to the petitioner before passing this order. The blocking order contained no independent reason to believe as to why the ECL needed to be blocked; it merely relied upon Enforcement authority reports stating that a registered supplier was found non-existent or not conducting business from its registered place. No independent application of mind was applied by the blocking authority. The petitioner challenged the blocking order by way of a writ petition before the Karnataka High Court seeking quashing of the order and unblocking of ITC, and also sought a declaration that Rule 86A is ultra vires Section 16(2) of the CGST Act. Court Observations (Verbatim / Near-Verbatim)"In the instant case, since no pre-decisional hearing was provided/granted by the respondents before passing the impugned order, coupled with the fact that the impugned order invoking Section 86A of the CGST Rules by blocking of the Electronic credit ledger of the petitioner does not contain independent or cogent reasons to believe except by placing reliance upon the reports of Enforcement authority which is impermissible in law, since the same is on borrowed satisfaction as held by the Hon'ble Division Bench of this Court, the impugned order deserves to be quashed.""It is also pertinent to note that in the impugned order except stating that 'a registered supplier who has been found to be non-existent or not to be conducting business from his place of registration', no other reasons are forthcoming in the impugned order. On this ground also, the impugned order dated 06.06.2024 deserves to be quashed."The Court further relied upon and reproduced the binding ratio from K-9-Enterprises (Division Bench), including:"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.""A bonafide purchaser cannot be denied ITC on account of a supplier's default and the recipient cannot be made to suffer denial of ITC for the wrong doings of the supplier.""The impugned orders are bald, vague, cryptic, laconic, unreasoned and non-speaking and deserve to be set aside." Final VerdictThe writ petition was allowed. The blocking order dated 06.06.2024 was quashed. The respondents were directed to immediately unblock the ECL of the petitioner upon receipt of the order to enable filing of returns forthwith. Liberty was reserved to the respondents to proceed against the petitioner in accordance with law and in terms of the Division Bench judgment in K-9-Enterprises. 👍 | ||||
| Klassic Traders vs. State of Karnataka & Others 25-09-2024 Quashing of ECL blocking order under Rule 86A of CGST Rules, 2017 passed without pre-decisional hearing and without independent 'reasons to believe', based solely on borrowed satisfaction from Enforcement authority reportsBackgroundThe petitioner, Klassic Traders, a proprietary concern registered under GST, had ITC of Rs.43,18,514 available in its Electronic Credit Ledger (ECL). By order dated 06.06.2024, the Assistant Commissioner of Commercial Taxes, LGSTO-16, Bengaluru blocked the petitioner's ECL by invoking Rule 86A of the CGST Rules. No pre-decisional hearing was given to the petitioner before passing this order. The blocking order contained no independent reason to believe as to why the ECL needed to be blocked; it merely relied upon Enforcement authority reports stating that a registered supplier was found non-existent or not conducting business from its registered place. No independent application of mind was applied by the blocking authority. The petitioner challenged the blocking order by way of a writ petition before the Karnataka High Court seeking quashing of the order and unblocking of ITC, and also sought a declaration that Rule 86A is ultra vires Section 16(2) of the CGST Act. Court Observations (Verbatim / Near-Verbatim)"In the instant case, since no pre-decisional hearing was provided/granted by the respondents before passing the impugned order, coupled with the fact that the impugned order invoking Section 86A of the CGST Rules by blocking of the Electronic credit ledger of the petitioner does not contain independent or cogent reasons to believe except by placing reliance upon the reports of Enforcement authority which is impermissible in law, since the same is on borrowed satisfaction as held by the Hon'ble Division Bench of this Court, the impugned order deserves to be quashed.""It is also pertinent to note that in the impugned order except stating that 'a registered supplier who has been found to be non-existent or not to be conducting business from his place of registration', no other reasons are forthcoming in the impugned order. On this ground also, the impugned order dated 06.06.2024 deserves to be quashed."The Court further relied upon and reproduced the binding ratio from K-9-Enterprises (Division Bench), including:"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.""A bonafide purchaser cannot be denied ITC on account of a supplier's default and the recipient cannot be made to suffer denial of ITC for the wrong doings of the supplier.""The impugned orders are bald, vague, cryptic, laconic, unreasoned and non-speaking and deserve to be set aside." Final VerdictThe writ petition was allowed. The blocking order dated 06.06.2024 was quashed. The respondents were directed to immediately unblock the ECL of the petitioner upon receipt of the order to enable filing of returns forthwith. Liberty was reserved to the respondents to proceed against the petitioner in accordance with law and in terms of the Division Bench judgment in K-9-Enterprises. 👍 | ||||
| 132 | Sh. Raghav Agarwal & Connected Matters v. Commissioner of Central Tax and GST Delhi North & Ors. | 24-09-2024 | Whether Rule 86A of the CGST Rules, 2017 permits blocking of Input Tax Credit (ITC) in the Electronic Credit Ledger (ECL) in excess of the credit actually available therein, thereby creating a negative balance. | View Download |
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. | ||||
| Sh. Raghav Agarwal & Connected Matters v. Commissioner of Central Tax and GST Delhi North & Ors. 24-09-2024 Whether Rule 86A of the CGST Rules, 2017 permits blocking of Input Tax Credit (ITC) in the Electronic Credit Ledger (ECL) in excess of the credit actually available therein, thereby creating a negative balance.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. | ||||
| 133 | Veremax Technologie Services Limited vs Assistant Commissioner of Central Tax | 04-09-2024 | Show Cause Notice – Clubbing of multiple financial years in a single show cause notice under Section 73 of the CGST Act, 2017 – validity of consolidated show cause notice. | View Download |
Facts:The petitioner challenged the show cause notice dated 03.05.2024 and the Order-in-Original dated 21.11.2023 issued under Section 73 of the CGST/IGST/SGST Acts for the financial years 2017-18 (July 2017 to March 2018), 2018-19, 2019-20 and 2020-21. The petitioner contended that the department issued a single consolidated show cause notice covering multiple tax periods instead of issuing separate notices for each financial year.Court Decision:The Court held that under Section 73 of the CGST Act, the limitation period of three years for passing an order is calculated separately from the due date of furnishing the annual return for each financial year. Consequently, actions relating to different financial years must be treated independently.Relying on the principles laid down by the Supreme Court and the Madras High Court, the Court held that issuance of a single consolidated show cause notice for multiple financial years is contrary to the statutory scheme of the CGST Act.Accordingly, the Court allowed the writ petition and quashed the show cause notice dated 03.05.2024 issued for the tax periods 2017-18 to 2020-21. The Court clarified that the respondent is at liberty to issue separate show cause notices for each assessment year in accordance with Section 73 of the CGST Act.Cases Referred by Court:· Titan Company Ltd. v. Joint Commissioner of GST, W.P. No.33164 of 2023 (Madras High Court)· State of Jammu and Kashmir and Others v. Caltex (India) Ltd., AIR 1966 SC 1350 | ||||
| Veremax Technologie Services Limited vs Assistant Commissioner of Central Tax 04-09-2024 Show Cause Notice – Clubbing of multiple financial years in a single show cause notice under Section 73 of the CGST Act, 2017 – validity of consolidated show cause notice.Facts:The petitioner challenged the show cause notice dated 03.05.2024 and the Order-in-Original dated 21.11.2023 issued under Section 73 of the CGST/IGST/SGST Acts for the financial years 2017-18 (July 2017 to March 2018), 2018-19, 2019-20 and 2020-21. The petitioner contended that the department issued a single consolidated show cause notice covering multiple tax periods instead of issuing separate notices for each financial year.Court Decision:The Court held that under Section 73 of the CGST Act, the limitation period of three years for passing an order is calculated separately from the due date of furnishing the annual return for each financial year. Consequently, actions relating to different financial years must be treated independently.Relying on the principles laid down by the Supreme Court and the Madras High Court, the Court held that issuance of a single consolidated show cause notice for multiple financial years is contrary to the statutory scheme of the CGST Act.Accordingly, the Court allowed the writ petition and quashed the show cause notice dated 03.05.2024 issued for the tax periods 2017-18 to 2020-21. The Court clarified that the respondent is at liberty to issue separate show cause notices for each assessment year in accordance with Section 73 of the CGST Act.Cases Referred by Court:· Titan Company Ltd. v. Joint Commissioner of GST, W.P. No.33164 of 2023 (Madras High Court)· State of Jammu and Kashmir and Others v. Caltex (India) Ltd., AIR 1966 SC 1350 | ||||
| 134 | Anil Kumar Hajelay & Ors. v. Hon’ble High Court of Delhi, | 13-08-2024 | Urgency of Integration of Section 105 BNSS | View Download |
Facts of the CaseThe present proceedings arose out of an application filed by the Government of National Capital Territory of Delhi (GNCTD) seeking modification of paragraph 9 of an earlier order dated 18 July 2024 passed by the High Court. The earlier order had directed the Chief Secretary, GNCTD, to proceed with grant of “financial sanction” and to float a comprehensive tender for establishing hybrid court infrastructure in all 691 courts, including 14 pilot courts.The GNCTD submitted that the overall project involved expenditure exceeding Rs. 100 crore and, as per prevailing financial rules, required approval from the Expenditure Finance Committee. It was therefore requested that the expression “financial sanction” be replaced with “administrative sanction.” The GNCTD further sought permission to float tenders initially only for 14 pilot courts instead of all 691 courts, with eligibility conditions requiring bidders to have technical and financial competence to execute the entire project. It was also contended that floating a comprehensive tender at once might make it difficult to revise ICT specifications after testing the pilot courts.The matter thus came before the Court to determine:Whether paragraph 9 of the earlier order required modification regarding the nature of sanction.Whether the tender process should be limited to 14 pilot courts at the initial stage.Court Observations and DecisionThe Court held that mere substitution of the term “financial sanction” with “administrative sanction” was not appropriate. Instead, it directed that the expression be replaced with “administrative and financial sanction and all other necessary sanctions/approvals,” in accordance with applicable financial rules.On the request to limit the tender process to 14 pilot courts, the Court rejected the proposal. It observed that restricting the tender to pilot courts while imposing eligibility conditions related to all 691 courts could lead to complications and delay, thereby undermining comprehensive and timely execution of the project.The Court emphasized the urgent need for adequate hybrid court infrastructure in Delhi District Courts, particularly in light of the enactment and enforcement of new criminal laws, including Section 105 of the Bharatiya Nagarik Suraksha Sanhita, 2023, which mandates audio-video recording of certain procedural acts. It held that expeditious implementation of infrastructure was essential.Accordingly, the Court directed the Chief Secretary, GNCTD, to proceed simultaneously and expedite the grant of administrative and financial sanction and all other necessary approvals for all 691 courts, as per the preliminary estimate dated 19 April 2024 amounting to Rs. 387,03,19,388/-, based on the configuration approved by the National Informatics Centre (NIC).The Court further directed that a comprehensive tender for all 691 courts, including 14 pilot courts, shall be floated. It clarified that the successful bidder must initially set up 14 hybrid courts on a pilot basis within one month from the date of award, and after approval by competent authorities, proceed with setting up the remaining courts with necessary modifications, if any. | ||||
| Anil Kumar Hajelay & Ors. v. Hon’ble High Court of Delhi, 13-08-2024 Urgency of Integration of Section 105 BNSSFacts of the CaseThe present proceedings arose out of an application filed by the Government of National Capital Territory of Delhi (GNCTD) seeking modification of paragraph 9 of an earlier order dated 18 July 2024 passed by the High Court. The earlier order had directed the Chief Secretary, GNCTD, to proceed with grant of “financial sanction” and to float a comprehensive tender for establishing hybrid court infrastructure in all 691 courts, including 14 pilot courts.The GNCTD submitted that the overall project involved expenditure exceeding Rs. 100 crore and, as per prevailing financial rules, required approval from the Expenditure Finance Committee. It was therefore requested that the expression “financial sanction” be replaced with “administrative sanction.” The GNCTD further sought permission to float tenders initially only for 14 pilot courts instead of all 691 courts, with eligibility conditions requiring bidders to have technical and financial competence to execute the entire project. It was also contended that floating a comprehensive tender at once might make it difficult to revise ICT specifications after testing the pilot courts.The matter thus came before the Court to determine:Whether paragraph 9 of the earlier order required modification regarding the nature of sanction.Whether the tender process should be limited to 14 pilot courts at the initial stage.Court Observations and DecisionThe Court held that mere substitution of the term “financial sanction” with “administrative sanction” was not appropriate. Instead, it directed that the expression be replaced with “administrative and financial sanction and all other necessary sanctions/approvals,” in accordance with applicable financial rules.On the request to limit the tender process to 14 pilot courts, the Court rejected the proposal. It observed that restricting the tender to pilot courts while imposing eligibility conditions related to all 691 courts could lead to complications and delay, thereby undermining comprehensive and timely execution of the project.The Court emphasized the urgent need for adequate hybrid court infrastructure in Delhi District Courts, particularly in light of the enactment and enforcement of new criminal laws, including Section 105 of the Bharatiya Nagarik Suraksha Sanhita, 2023, which mandates audio-video recording of certain procedural acts. It held that expeditious implementation of infrastructure was essential.Accordingly, the Court directed the Chief Secretary, GNCTD, to proceed simultaneously and expedite the grant of administrative and financial sanction and all other necessary approvals for all 691 courts, as per the preliminary estimate dated 19 April 2024 amounting to Rs. 387,03,19,388/-, based on the configuration approved by the National Informatics Centre (NIC).The Court further directed that a comprehensive tender for all 691 courts, including 14 pilot courts, shall be floated. It clarified that the successful bidder must initially set up 14 hybrid courts on a pilot basis within one month from the date of award, and after approval by competent authorities, proceed with setting up the remaining courts with necessary modifications, if any. | ||||
| 135 | National Plasto Moulding The State of Assam & Ors. | 05-08-2024 | Constitutional validity of Sections 16(2)(c) and 16(2)(d) of the Central Goods and Services Tax Act, 2017 and the Assam Goods and Services Tax Act, 2017 — whether Input Tax Credit (ITC) can be denied to a bona fide purchasing dealer on account of the fa | View Download |
BackgroundA batch of writ petitions was filed by multiple registered dealers before the Gauhati High Court challenging the constitutional validity of Sections 16(2)(c) and 16(2)(d) of the CGST Act, 2017 and the Assam GST Act, 2017, along with show cause notices issued to the petitioners. The core grievance in all the petitions was common — the Department sought to deny ITC to purchasing dealers on the ground that their respective selling dealers had failed to deposit the tax collected from them into the Government Treasury, despite the purchasing dealers having entered into genuine and bona fide transactions supported by valid tax invoices issued by validly registered selling dealers. FactsThe petitioners, being registered dealers, had purchased goods from registered selling dealers who had issued tax invoices in accordance with the provisions of the GST law. The purchasing dealers had duly paid the tax component to the selling dealers as part of their purchase transactions. However, the selling dealers failed to deposit the said tax into the Government Treasury. On this basis, the Department issued show cause notices to the purchasing dealers proposing to deny ITC claimed by them. The petitioners challenged both the constitutional validity of Sections 16(2)(c) and 16(2)(d) of the CGST Act, 2017 and the Assam GST Act, 2017, as well as the show cause notices and consequential orders issued thereunder. The senior counsel for the petitioners submitted that the controversy was squarely covered by the judgment of the Delhi High Court in On Quest Merchandising India Private Limited v. Government of NCT of Delhi & Ors. (2017 SCC OnLine Del 11286), wherein it was held that a purchasing dealer cannot be punished for the act of the selling dealer who failed to deposit tax collected. The respondents' counsel could not dispute that the controversy was covered by the said Delhi High Court judgment. Court Observations (Verbatim — Crucial Extracts)Delhi High Court in On Quest Merchandising India Private Limited v. Government of NCT of Delhi & Ors. (as quoted and adopted by the Gauhati High Court):"Applying the law explained in the above decisions, it can be safely concluded in the present case that there is a singular failure by the Legislature to make a distinction between purchasing dealers who have bona fide transacted with the selling dealer by taking all precautions as required by the DVAT Act and those that have not. Therefore, there was need to restrict the denial of ITC only to the selling dealers who had failed to deposit the tax collected by them and not punish bona fide purchasing dealers. The latter cannot be expected to do the impossible. It is trite that a law that is not capable of honest compliance will fail in achieving its objective. If it seeks to visit disobedience with disproportionate consequences to a bona fide purchasing dealer, it will become vulnerable to invalidation on the touchstone of Article 14 of the Constitution." — Para 39"The court respectfully concurs with the above analysis and holds that in the present case, the purchasing dealer is being asked to do the impossible, i.e., to anticipate the selling dealer who will not deposit with the Government the tax collected by him from those purchasing dealers and therefore avoid transacting with such selling dealers. Alternatively, what section 9(2)(g) of the DVAT Act requires the purchasing dealer to do is that after transacting with the selling dealer, somehow ensure that the selling dealer does in fact deposit the tax collected from the purchasing dealer and if the selling dealer fails to do so, undergo the risk of being denied the ITC. Indeed section 9(2)(g) of the DVAT Act places an onerous burden on a bona fide purchasing dealer." — Para 41"The court hereby holds that the expression 'dealer or class of dealers' occurring in section 9(2)(g) of the DVAT Act should be interpreted as not including a purchasing dealer who has bona fide entered into purchase transactions with validly registered selling dealers who have issued tax invoices in accordance with section 50 of the Act where there is no mismatch of the transactions in Annexures 2A and 2B. Unless the expression 'dealer or class of dealers' in section 9(2)(g) is 'read down' in the above manner, the entire provision would have to be held to be violative of Article 14 of the Constitution." — Para 53"The result of such reading down would be that the Department is precluded from invoking section 9(2)(g) of the DVAT to deny ITC to a purchasing dealer who has bona fide entered into a purchase transaction with a registered selling dealer who has issued a tax invoice reflecting the TIN number. In the event that the selling dealer has failed to deposit the tax collected by him from the purchasing dealer, the remedy for the Department would be to proceed against the defaulting selling dealer to recover such tax and not deny the purchasing dealer the ITC. Where, however, the Department is able to come across material to show that the purchasing dealer and the selling dealer acted in collusion then the Department can proceed under section 40A of the DVAT Act." — Para 54Supreme Court Order on SLP (as quoted by the Gauhati High Court):"On hearing learned Additional Solicitor General appearing for the petitioner, we are not inclined to interfere with the impugned order. The special leave petition is dismissed."Gauhati High Court's Own Conclusion:"Having gone through the above referred judgments, we are of the view that the controversy raised in this batch of writ petitions is squarely covered by the decision of the Delhi High Court in the case of On Quest Merchandising India Private Limited (supra). Hence, the show cause notices impugned in the present writ petitions and the consequential orders are set aside. However, the Department is free to act in those cases, where the purchase transactions are not bona fide, in accordance with law." Final VerdictThe Gauhati High Court disposed of the batch of writ petitions by setting aside all show cause notices and consequential orders issued to the purchasing dealers. It was held that the controversy was squarely covered by the Delhi High Court judgment in On Quest Merchandising (supra) affirmed by the Supreme Court, and that ITC cannot be denied to bona fide purchasing dealers for the default of the selling dealer in depositing tax. However, the Department was expressly granted liberty to proceed against those purchasing dealers where the purchase transactions are found to be not bona fide. | ||||
| National Plasto Moulding The State of Assam & Ors. 05-08-2024 Constitutional validity of Sections 16(2)(c) and 16(2)(d) of the Central Goods and Services Tax Act, 2017 and the Assam Goods and Services Tax Act, 2017 — whether Input Tax Credit (ITC) can be denied to a bona fide purchasing dealer on account of the faBackgroundA batch of writ petitions was filed by multiple registered dealers before the Gauhati High Court challenging the constitutional validity of Sections 16(2)(c) and 16(2)(d) of the CGST Act, 2017 and the Assam GST Act, 2017, along with show cause notices issued to the petitioners. The core grievance in all the petitions was common — the Department sought to deny ITC to purchasing dealers on the ground that their respective selling dealers had failed to deposit the tax collected from them into the Government Treasury, despite the purchasing dealers having entered into genuine and bona fide transactions supported by valid tax invoices issued by validly registered selling dealers. FactsThe petitioners, being registered dealers, had purchased goods from registered selling dealers who had issued tax invoices in accordance with the provisions of the GST law. The purchasing dealers had duly paid the tax component to the selling dealers as part of their purchase transactions. However, the selling dealers failed to deposit the said tax into the Government Treasury. On this basis, the Department issued show cause notices to the purchasing dealers proposing to deny ITC claimed by them. The petitioners challenged both the constitutional validity of Sections 16(2)(c) and 16(2)(d) of the CGST Act, 2017 and the Assam GST Act, 2017, as well as the show cause notices and consequential orders issued thereunder. The senior counsel for the petitioners submitted that the controversy was squarely covered by the judgment of the Delhi High Court in On Quest Merchandising India Private Limited v. Government of NCT of Delhi & Ors. (2017 SCC OnLine Del 11286), wherein it was held that a purchasing dealer cannot be punished for the act of the selling dealer who failed to deposit tax collected. The respondents' counsel could not dispute that the controversy was covered by the said Delhi High Court judgment. Court Observations (Verbatim — Crucial Extracts)Delhi High Court in On Quest Merchandising India Private Limited v. Government of NCT of Delhi & Ors. (as quoted and adopted by the Gauhati High Court):"Applying the law explained in the above decisions, it can be safely concluded in the present case that there is a singular failure by the Legislature to make a distinction between purchasing dealers who have bona fide transacted with the selling dealer by taking all precautions as required by the DVAT Act and those that have not. Therefore, there was need to restrict the denial of ITC only to the selling dealers who had failed to deposit the tax collected by them and not punish bona fide purchasing dealers. The latter cannot be expected to do the impossible. It is trite that a law that is not capable of honest compliance will fail in achieving its objective. If it seeks to visit disobedience with disproportionate consequences to a bona fide purchasing dealer, it will become vulnerable to invalidation on the touchstone of Article 14 of the Constitution." — Para 39"The court respectfully concurs with the above analysis and holds that in the present case, the purchasing dealer is being asked to do the impossible, i.e., to anticipate the selling dealer who will not deposit with the Government the tax collected by him from those purchasing dealers and therefore avoid transacting with such selling dealers. Alternatively, what section 9(2)(g) of the DVAT Act requires the purchasing dealer to do is that after transacting with the selling dealer, somehow ensure that the selling dealer does in fact deposit the tax collected from the purchasing dealer and if the selling dealer fails to do so, undergo the risk of being denied the ITC. Indeed section 9(2)(g) of the DVAT Act places an onerous burden on a bona fide purchasing dealer." — Para 41"The court hereby holds that the expression 'dealer or class of dealers' occurring in section 9(2)(g) of the DVAT Act should be interpreted as not including a purchasing dealer who has bona fide entered into purchase transactions with validly registered selling dealers who have issued tax invoices in accordance with section 50 of the Act where there is no mismatch of the transactions in Annexures 2A and 2B. Unless the expression 'dealer or class of dealers' in section 9(2)(g) is 'read down' in the above manner, the entire provision would have to be held to be violative of Article 14 of the Constitution." — Para 53"The result of such reading down would be that the Department is precluded from invoking section 9(2)(g) of the DVAT to deny ITC to a purchasing dealer who has bona fide entered into a purchase transaction with a registered selling dealer who has issued a tax invoice reflecting the TIN number. In the event that the selling dealer has failed to deposit the tax collected by him from the purchasing dealer, the remedy for the Department would be to proceed against the defaulting selling dealer to recover such tax and not deny the purchasing dealer the ITC. Where, however, the Department is able to come across material to show that the purchasing dealer and the selling dealer acted in collusion then the Department can proceed under section 40A of the DVAT Act." — Para 54Supreme Court Order on SLP (as quoted by the Gauhati High Court):"On hearing learned Additional Solicitor General appearing for the petitioner, we are not inclined to interfere with the impugned order. The special leave petition is dismissed."Gauhati High Court's Own Conclusion:"Having gone through the above referred judgments, we are of the view that the controversy raised in this batch of writ petitions is squarely covered by the decision of the Delhi High Court in the case of On Quest Merchandising India Private Limited (supra). Hence, the show cause notices impugned in the present writ petitions and the consequential orders are set aside. However, the Department is free to act in those cases, where the purchase transactions are not bona fide, in accordance with law." Final VerdictThe Gauhati High Court disposed of the batch of writ petitions by setting aside all show cause notices and consequential orders issued to the purchasing dealers. It was held that the controversy was squarely covered by the Delhi High Court judgment in On Quest Merchandising (supra) affirmed by the Supreme Court, and that ITC cannot be denied to bona fide purchasing dealers for the default of the selling dealer in depositing tax. However, the Department was expressly granted liberty to proceed against those purchasing dealers where the purchase transactions are found to be not bona fide. | ||||
| 136 | Sunil Kumar K v. State Tax Officer & Ors. | 08-07-2024 | Validity of service of GST assessment order through common portal under Sections 169 and 146 | View Download |
Facts :The appellant challenged an assessment order on the ground that it was only uploaded on the GST portal and not otherwise communicated. It was contended that the portal was not notified for uploading orders and therefore service was invalid. The appellant claimed lack of knowledge due to delayed access to the portal. The Single Judge dismissed the writ petition directing the appellant to avail alternate remedy.Court Decision:The Division Bench held that Section 169 expressly permits service of orders by making them available on the common portal. It ruled that once a portal is notified under Section 146, it can be used for all statutory functions including communication of orders. The Court found that the appellant had in fact accessed and downloaded the order, and delay was attributable to the appellant. The appeal was dismissed and the order of the Single Judge was upheld. | ||||
| Sunil Kumar K v. State Tax Officer & Ors. 08-07-2024 Validity of service of GST assessment order through common portal under Sections 169 and 146Facts :The appellant challenged an assessment order on the ground that it was only uploaded on the GST portal and not otherwise communicated. It was contended that the portal was not notified for uploading orders and therefore service was invalid. The appellant claimed lack of knowledge due to delayed access to the portal. The Single Judge dismissed the writ petition directing the appellant to avail alternate remedy.Court Decision:The Division Bench held that Section 169 expressly permits service of orders by making them available on the common portal. It ruled that once a portal is notified under Section 146, it can be used for all statutory functions including communication of orders. The Court found that the appellant had in fact accessed and downloaded the order, and delay was attributable to the appellant. The appeal was dismissed and the order of the Single Judge was upheld. | ||||
| 137 | M. Trade Links v. Union of India & Ors. | 04-06-2024 | Challenge to validity and application of Input Tax Credit provisions under GST; denial of ITC due to supplier default and time limitation (Sections involved: Section 16(2)(c) and Section 16(4) of CGST Act, 2017 & SGST Act) | View Download |
Facts:The petitioners, registered dealers under GST, were denied Input Tax Credit despite possessing valid invoices, proof of payment, and receipt of goods/services. In several cases, suppliers either failed to remit tax or failed to reflect transactions in returns, leading to denial of ITC under Section 16(2)(c). The petitioners challenged the provisions as imposing an impossible burden on recipients and also contested the time limitation under Section 16(4). Multiple writ petitions raising similar issues were heard together. Court Decision:The High Court upheld the validity of Sections 16(2)(c) and 16(4) of the GST Act. The Court held that Input Tax Credit is not an absolute right but a statutory entitlement subject to conditions prescribed under the Act. It was held that fulfillment of all conditions under Section 16(2), including actual payment of tax to the Government, is mandatory for availing ITC. The Court further held that the time limit prescribed under Section 16(4) is valid and enforceable, and ITC cannot be claimed beyond the stipulated period. Cases Referred by Court:• On Quest Merchandising India Pvt. Ltd. v. Union of India • Commissioner of Trade and Taxes v. Arise India Ltd. • Jayam & Co. v. Assistant Commissioner • ALD Automotive Pvt. Ltd. v. Commercial Tax Officer | ||||
| M. Trade Links v. Union of India & Ors. 04-06-2024 Challenge to validity and application of Input Tax Credit provisions under GST; denial of ITC due to supplier default and time limitation (Sections involved: Section 16(2)(c) and Section 16(4) of CGST Act, 2017 & SGST Act)Facts:The petitioners, registered dealers under GST, were denied Input Tax Credit despite possessing valid invoices, proof of payment, and receipt of goods/services. In several cases, suppliers either failed to remit tax or failed to reflect transactions in returns, leading to denial of ITC under Section 16(2)(c). The petitioners challenged the provisions as imposing an impossible burden on recipients and also contested the time limitation under Section 16(4). Multiple writ petitions raising similar issues were heard together. Court Decision:The High Court upheld the validity of Sections 16(2)(c) and 16(4) of the GST Act. The Court held that Input Tax Credit is not an absolute right but a statutory entitlement subject to conditions prescribed under the Act. It was held that fulfillment of all conditions under Section 16(2), including actual payment of tax to the Government, is mandatory for availing ITC. The Court further held that the time limit prescribed under Section 16(4) is valid and enforceable, and ITC cannot be claimed beyond the stipulated period. Cases Referred by Court:• On Quest Merchandising India Pvt. Ltd. v. Union of India • Commissioner of Trade and Taxes v. Arise India Ltd. • Jayam & Co. v. Assistant Commissioner • ALD Automotive Pvt. Ltd. v. Commercial Tax Officer | ||||
| 138 | JR Metal Chennai Ltd. v. The Assistant Commissioner of Central Tax and Two Others | 08-05-2024 | An order under Section 85 fastening successor liability on the buyer of plant, machinery, land and building, on a finding that this amounted to a transfer of the seller’s business. At issue: whether that finding was open to writ scrutiny as made without | View Download |
Background. The petitioner had purchased plant and machinery, land and building of M/s Venkatasai Ispat Industries Pvt. Ltd. under a sale deed dated 17.02.2021. An order dated 16.04.2024 of the Assistant Commissioner, CGST, Anantapur Division held that this amounted to a transfer of ownership of business within the meaning of Section 85 of the CGST Act, and fastened joint and several liability on the petitioner for the transferor’s dues. The petitioner did not dispute the existence of a statutory remedy of appeal, but contended that the writ was maintainable because the finding of transfer of business was without jurisdiction, since only assets, and not the business, had been purchased.Observations of the Court. The Court set out Section 85(1) of the CGST Act, under which a taxable person who transfers his business, in whole or in part, by sale, gift, lease, leave and licence, hire or in any other manner, and the transferee to whom it is transferred, are jointly and severally liable for the transferor’s tax, interest and penalty up to the time of transfer. It noted that the sub-section uses the expression “transfers his business”.Relying on State of Karnataka v. Shreyas Papers (P) Ltd., (2006) 1 SCC 615, on Krishna Lifestyle Technologies Ltd. v. Union of India, 2008 SCC Online Bom 137, and on Sri Jayajothi & Co. Ltd. v. Commissioner of Central Excise, 2010 SCC OnLine Mad 6002, the Court accepted the proposition that transfer of the “ownership of business” requires the business to be sold as a going concern, that transfer of one or more assets does not by itself amount to transfer of the ownership of business — a wider concept than ownership of discrete assets — and that liability attaches only where the transferee succeeds to the business as its successor-in-interest.The Court held that there was no dispute on that proposition of law, but that whether there was in fact a transfer of business was a question of fact requiring determination on evidence, and that this was not a ground that could not be taken before the appellate authority; the impugned order’s finding that there was a transfer of business could well be examined by that authority.It further held that it was not convinced the impugned order was without jurisdiction, since the order was not on its face without jurisdiction and it was not the petitioner’s case that the authority inherently lacked jurisdiction to decide the question; in the exercise of writ jurisdiction, the Court did not consider it appropriate at that stage to enter into the disputed question of fact.Final verdict. The writ petition was dismissed solely on the ground of the availability of the statutory alternative remedy of appeal, leaving it open to the petitioner to avail that remedy if so advised. No order was made as to costs, and pending interlocutory applications, if any, were closed. | ||||
| JR Metal Chennai Ltd. v. The Assistant Commissioner of Central Tax and Two Others 08-05-2024 An order under Section 85 fastening successor liability on the buyer of plant, machinery, land and building, on a finding that this amounted to a transfer of the seller’s business. At issue: whether that finding was open to writ scrutiny as made withoutBackground. The petitioner had purchased plant and machinery, land and building of M/s Venkatasai Ispat Industries Pvt. Ltd. under a sale deed dated 17.02.2021. An order dated 16.04.2024 of the Assistant Commissioner, CGST, Anantapur Division held that this amounted to a transfer of ownership of business within the meaning of Section 85 of the CGST Act, and fastened joint and several liability on the petitioner for the transferor’s dues. The petitioner did not dispute the existence of a statutory remedy of appeal, but contended that the writ was maintainable because the finding of transfer of business was without jurisdiction, since only assets, and not the business, had been purchased.Observations of the Court. The Court set out Section 85(1) of the CGST Act, under which a taxable person who transfers his business, in whole or in part, by sale, gift, lease, leave and licence, hire or in any other manner, and the transferee to whom it is transferred, are jointly and severally liable for the transferor’s tax, interest and penalty up to the time of transfer. It noted that the sub-section uses the expression “transfers his business”.Relying on State of Karnataka v. Shreyas Papers (P) Ltd., (2006) 1 SCC 615, on Krishna Lifestyle Technologies Ltd. v. Union of India, 2008 SCC Online Bom 137, and on Sri Jayajothi & Co. Ltd. v. Commissioner of Central Excise, 2010 SCC OnLine Mad 6002, the Court accepted the proposition that transfer of the “ownership of business” requires the business to be sold as a going concern, that transfer of one or more assets does not by itself amount to transfer of the ownership of business — a wider concept than ownership of discrete assets — and that liability attaches only where the transferee succeeds to the business as its successor-in-interest.The Court held that there was no dispute on that proposition of law, but that whether there was in fact a transfer of business was a question of fact requiring determination on evidence, and that this was not a ground that could not be taken before the appellate authority; the impugned order’s finding that there was a transfer of business could well be examined by that authority.It further held that it was not convinced the impugned order was without jurisdiction, since the order was not on its face without jurisdiction and it was not the petitioner’s case that the authority inherently lacked jurisdiction to decide the question; in the exercise of writ jurisdiction, the Court did not consider it appropriate at that stage to enter into the disputed question of fact.Final verdict. The writ petition was dismissed solely on the ground of the availability of the statutory alternative remedy of appeal, leaving it open to the petitioner to avail that remedy if so advised. No order was made as to costs, and pending interlocutory applications, if any, were closed. | ||||
| 139 | K-9 Enterprises vs. State of Karnataka | 02-04-2024 | Legality of blocking of Electronic Credit Ledger (ECL) under Rule 86A of CGST Rules, 2017 without pre-decisional hearing and without independent application of mind. | View Download |
BackgroundThe appellants — GST-registered businesses dealing in lead, lead scrap and allied goods — had availed Input Tax Credit (ITC) on purchases from GST-registered suppliers, which stood credited in their Electronic Credit Ledgers (ECL). The tax authorities, acting on a field visit report of the Assistant State Tax Officer, Vasco-da-Gama, Goa (an officer from another jurisdiction), which found certain suppliers to be non-existent or not conducting business from their registered place, issued orders dated 27.06.2023 blocking the ECL of the appellants by invoking Rule 86A of the CGST Rules, 2017. No pre-decisional hearing was granted to the appellants before blocking the ECL. The appellants challenged these orders before the Single Judge by way of writ petitions, which were disposed of rejecting the appellants' contentions. Aggrieved, the appellants filed the present intra-court writ appeals before the Division Bench. Court Observations (Verbatim / Near-Verbatim)On Pre-Decisional Hearing (Point No. 1):"Though Rule 86A does not expressly/specifically provide for adherence to principles of natural justice, the same would necessarily have to be read into Rule 86A and complied with while invoking the said provision.""When the ECL of the appellants was sought to be blocked and such credit cannot be utilised for upto 1 year, the said blocking would entail and result in serious civil consequences for the appellants warranting compliance with the principles of natural justice and providing an opportunity of hearing to the appellants.""Ordinarily, a post-decisional hearing is not a substitute for pre-decisional hearing and that pre-decisional hearing is important especially when the respondents-revenue passed the impugned orders which would entail and visit the appellants with serious civil consequences.""It was not physically possible for the appellants to immediately/forthwith encash/withdraw the ITC available in its ECL so as to warrant emergent/urgent blocking of the ECL without providing a pre-decisional hearing to the appellants.""Respondents-revenue committed a grave and serious error/illegality/infirmity in not providing/granting a pre-decisional hearing to the Appellant before passing the impugned order blocking its Electronic Credit Ledger under Rule 86A of the CGST Rules."On 'Reasons to Believe' and Independent Application of Mind (Point No. 2):"Rule 86A, which in effect is the power to block ECL is drastic in nature which creates a disability for the taxpayer to avail of the credit in ECL for discharge of his tax liability 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 thereunder 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.""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.""The impugned orders have been passed based on the communication received from other officers, without any independent application of mind. This shows that exercise of power under Rule 86A was not because he was independently satisfied about the need for blocking the ECL but, was due to the fact that he felt compelled to obey the command of another officer.""The impugned order 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... the impugned orders are bald, vague, cryptic, laconic, unreasoned and non-speaking and deserve to be set aside.""It is quite possible that the transaction, when entered into in 2017 or 2018 could be genuine and when the officer visits in 2020 or 2021, the business could have been closed and therefore the mere closure of business in 2020 or 2021 cannot be a basis for denying credit availed earlier.""A bonafide purchaser cannot be denied ITC on account of a supplier's default and the recipient cannot be made to suffer denial of ITC for the wrong doings of the supplier." Final VerdictAll six writ appeals were allowed. The common order of the Single Judge dated 27.07.2023 and all the ECL blocking orders dated 27.06.2023 / 02.06.2023 were set aside and quashed. 👍 | ||||
| K-9 Enterprises vs. State of Karnataka 02-04-2024 Legality of blocking of Electronic Credit Ledger (ECL) under Rule 86A of CGST Rules, 2017 without pre-decisional hearing and without independent application of mind.BackgroundThe appellants — GST-registered businesses dealing in lead, lead scrap and allied goods — had availed Input Tax Credit (ITC) on purchases from GST-registered suppliers, which stood credited in their Electronic Credit Ledgers (ECL). The tax authorities, acting on a field visit report of the Assistant State Tax Officer, Vasco-da-Gama, Goa (an officer from another jurisdiction), which found certain suppliers to be non-existent or not conducting business from their registered place, issued orders dated 27.06.2023 blocking the ECL of the appellants by invoking Rule 86A of the CGST Rules, 2017. No pre-decisional hearing was granted to the appellants before blocking the ECL. The appellants challenged these orders before the Single Judge by way of writ petitions, which were disposed of rejecting the appellants' contentions. Aggrieved, the appellants filed the present intra-court writ appeals before the Division Bench. Court Observations (Verbatim / Near-Verbatim)On Pre-Decisional Hearing (Point No. 1):"Though Rule 86A does not expressly/specifically provide for adherence to principles of natural justice, the same would necessarily have to be read into Rule 86A and complied with while invoking the said provision.""When the ECL of the appellants was sought to be blocked and such credit cannot be utilised for upto 1 year, the said blocking would entail and result in serious civil consequences for the appellants warranting compliance with the principles of natural justice and providing an opportunity of hearing to the appellants.""Ordinarily, a post-decisional hearing is not a substitute for pre-decisional hearing and that pre-decisional hearing is important especially when the respondents-revenue passed the impugned orders which would entail and visit the appellants with serious civil consequences.""It was not physically possible for the appellants to immediately/forthwith encash/withdraw the ITC available in its ECL so as to warrant emergent/urgent blocking of the ECL without providing a pre-decisional hearing to the appellants.""Respondents-revenue committed a grave and serious error/illegality/infirmity in not providing/granting a pre-decisional hearing to the Appellant before passing the impugned order blocking its Electronic Credit Ledger under Rule 86A of the CGST Rules."On 'Reasons to Believe' and Independent Application of Mind (Point No. 2):"Rule 86A, which in effect is the power to block ECL is drastic in nature which creates a disability for the taxpayer to avail of the credit in ECL for discharge of his tax liability 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 thereunder 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.""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.""The impugned orders have been passed based on the communication received from other officers, without any independent application of mind. This shows that exercise of power under Rule 86A was not because he was independently satisfied about the need for blocking the ECL but, was due to the fact that he felt compelled to obey the command of another officer.""The impugned order 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... the impugned orders are bald, vague, cryptic, laconic, unreasoned and non-speaking and deserve to be set aside.""It is quite possible that the transaction, when entered into in 2017 or 2018 could be genuine and when the officer visits in 2020 or 2021, the business could have been closed and therefore the mere closure of business in 2020 or 2021 cannot be a basis for denying credit availed earlier.""A bonafide purchaser cannot be denied ITC on account of a supplier's default and the recipient cannot be made to suffer denial of ITC for the wrong doings of the supplier." Final VerdictAll six writ appeals were allowed. The common order of the Single Judge dated 27.07.2023 and all the ECL blocking orders dated 27.06.2023 / 02.06.2023 were set aside and quashed. 👍 | ||||
| 140 | Shantanu Sanjay Hundekari vs. Union of India & Ors. | 18-03-2024 | Validity of show cause notice imposing penalty under Section 122(1A) and invoking Section 137 of the CGST Act against an employee of a company for alleged GST evasion by the company. | View Download |
Court DecisionThe Court allowed the writ petition and quashed the show cause notice dated 19 September 2023 insofar as it was issued to the petitioner.The Court held:Section 122(1A) applies only to a taxable person:Section 122(1A) applies to a person who retains the benefit of transactions covered under clauses (i), (ii), (vii) or (ix) of Section 122(1), and at whose instance such transaction is conducted. Such person must necessarily be a “taxable person” as defined under Sections 2(107) and 2(94) of the CGST Act.The petitioner, being merely an employee and power of attorney holder of Maersk, was not a taxable or registered person and could not retain the benefit of the alleged transactions. Therefore, invocation of Section 122(1A) against him was wholly without jurisdiction.Jurisdictional ingredients not satisfied:The show cause notice did not disclose any material to establish that the petitioner retained the benefit of the alleged GST evasion or that the transactions were conducted at his instance. In absence of these basic elements, the notice was held to be illegal for want of jurisdiction and for non-application of mind.Section 137 could not be invoked in a demand notice under Section 74:Section 137 relates to offences by companies and falls under the chapter dealing with offences and penalties. The impugned notice was a demand cum show cause notice under Section 74, which pertains to determination of tax not paid or short paid. The Court held that such penal provisions could not be intermingled with demand proceedings, and such invocation against the petitioner was without jurisdiction.No vicarious liability under Sections 122 and 137:The Court held that no principle of vicarious liability could be read into Sections 122 or 137 so as to fasten liability on an employee for tax alleged to be evaded by the company.Disproportionate demand:The demand of ₹3731 crores from the petitioner, which was alleged to be the liability of Maersk, was held to be highly unconscionable and disproportionate.Accordingly, the show cause notice was quashed insofar as it applied to the petitioner. The connected writ petitions were also allowed on the same reasoning. | ||||
| Shantanu Sanjay Hundekari vs. Union of India & Ors. 18-03-2024 Validity of show cause notice imposing penalty under Section 122(1A) and invoking Section 137 of the CGST Act against an employee of a company for alleged GST evasion by the company.Court DecisionThe Court allowed the writ petition and quashed the show cause notice dated 19 September 2023 insofar as it was issued to the petitioner.The Court held:Section 122(1A) applies only to a taxable person:Section 122(1A) applies to a person who retains the benefit of transactions covered under clauses (i), (ii), (vii) or (ix) of Section 122(1), and at whose instance such transaction is conducted. Such person must necessarily be a “taxable person” as defined under Sections 2(107) and 2(94) of the CGST Act.The petitioner, being merely an employee and power of attorney holder of Maersk, was not a taxable or registered person and could not retain the benefit of the alleged transactions. Therefore, invocation of Section 122(1A) against him was wholly without jurisdiction.Jurisdictional ingredients not satisfied:The show cause notice did not disclose any material to establish that the petitioner retained the benefit of the alleged GST evasion or that the transactions were conducted at his instance. In absence of these basic elements, the notice was held to be illegal for want of jurisdiction and for non-application of mind.Section 137 could not be invoked in a demand notice under Section 74:Section 137 relates to offences by companies and falls under the chapter dealing with offences and penalties. The impugned notice was a demand cum show cause notice under Section 74, which pertains to determination of tax not paid or short paid. The Court held that such penal provisions could not be intermingled with demand proceedings, and such invocation against the petitioner was without jurisdiction.No vicarious liability under Sections 122 and 137:The Court held that no principle of vicarious liability could be read into Sections 122 or 137 so as to fasten liability on an employee for tax alleged to be evaded by the company.Disproportionate demand:The demand of ₹3731 crores from the petitioner, which was alleged to be the liability of Maersk, was held to be highly unconscionable and disproportionate.Accordingly, the show cause notice was quashed insofar as it applied to the petitioner. The connected writ petitions were also allowed on the same reasoning. | ||||
