Case Facts:The petitioner challenged an order dated 28 January 2025 passed under Section 83 of the MGST Act attaching its bank account. The department alleged wrongful availment of Input Tax Credit (ITC) under Section 17(5)(d) and initiated proceedings under Section 67. The petitioner contended that the issue was purely legal and relied on judicial precedent and CBIC guidelines. It was argued that the attachment severely impacted business operations and lacked proper justification. Court Decision:The Court held that the power under Section 83 is drastic and must be exercised strictly in accordance with statutory conditions. It observed that no material was placed on record to show that the petitioner was likely to defeat the demand or that attachment was necessary to protect revenue. The impugned order was found to be based on insufficient reasoning and amounted to a colourable exercise of power. Upon instructions, the State agreed to withdraw the attachment order. The Court set aside the order and directed immediate operation of the bank account. Cases Referred by Court:Radha Krishan Industries vs State of Himachal PradeshSafari Retreats (Supreme Court judgment referred in context of ITC eligibility)  

Court DecisionThe Supreme Court dismissed the Special Leave Petitions filed by the Union of India against the judgment of the Bombay High Court.The Court noted that the High Court had quashed the show cause notices seeking recovery of ₹3731 crores from the respondent, holding that:The basic jurisdictional requirements were not attracted for invoking Section 122(1A) and Section 137 of the CGST Act.No principle of vicarious liability could be read into Sections 122 and 137.The respondent was merely an employee and could not be fastened with the liability alleged against the company.The Supreme Court held that it saw no good reason to interfere with the common impugned orders passed by the High Court.However, the Court clarified that the question of law regarding the interpretation of Sections 122(1A) and 137 of the CGST Act was kept open.Accordingly, the Special Leave Petitions were dismissed and pending applications were disposed of. Cases Referred by the CourtShantanu Sanjay Hundekari vs. Union of India & Ors., WPL Nos. 30198/2023, 30199/2023, 30200/2023 & 30241/2023 (Bombay High Court, judgment dated 28 March 2024)

 BackgroundGujarat Industrial Development Corporation (GIDC), a nodal agency of the Government of Gujarat, acquires and develops industrial estates and allots plots of land on long-term lease of 99 years to industrial entities, initially by a licensing agreement and subsequently by a registered lease deed, on payment of premium and periodic lease rent. The lease deed permits the lessee to assign leasehold rights to a third party with GIDC's approval. After implementation of GST, the department issued summons and show cause notices to members of the Gujarat Chamber of Commerce and Industry who had assigned their leasehold rights along with buildings constructed thereon on the GIDC plots to third party assignees for lump-sum consideration, demanding GST at 18% by treating such assignment as "supply of service" under the CGST/SGST Act, 2017. The petitioner Chamber made representations contending that such assignment is a transfer of immovable property excluded from GST under Entry 5 of Schedule III, and alternatively, that ITC would be admissible if GST is levied. Since representations were not considered, a batch of 60+ writ petitions were filed, with SCA No. 11345 of 2023 treated as the lead matter. Court Observations (Verbatim)"When such leasehold right is transferred by the lessee-assignor in favour of a third person-assignee by execution of deed of assignment, it would be nothing but transfer of an 'immovable property' in view of the settled legal position to the effect that lease for 99 years or for a long term in consideration of premium paid is as much an alienation as sale or mortgage.""Interest in the immovable property in form of leasehold rights cannot be said to be different than the immovable property itself.""Leasehold rights which are to be considered as sale of land would be out of purview of the provisions of scope of supply as per section 7 of the GST Act.""The scope of 'supply of services' would not include transfer of leasehold rights as supply of service as it would be transfer of 'immovable property' being a benefit arising out of immovable property consisting of land and building.""Clause 5 of Schedule III of the GST Act clearly provides that sale of land cannot be treated as supply of goods or services. Therefore, leasehold rights which are to be considered as sale of land would be out of purview of the provisions of scope of supply as per section 7 of the GST Act.""Under the Service Tax Act, even the development rights which are the benefits arising from land were not liable to tax. Leasehold right is in fact a greater right and interest in land than development rights and the principle under the service tax regime would therefore, continue even to apply under the GST regime as the object of introduction of GST is to subsume the existing taxes.""When the lessee/assignor transfers the land having leasehold rights and building to the assignee, same cannot be considered as supply of service as it would be a transfer of immovable property. Therefore...assignment of leasehold rights equal to the renting of immovable property as per clause 5(b) of the Schedule II would be contrary to such legislative intent.""When the legislature in its wisdom has chosen to exclude the sale of land and building from purview of GST Act, there is no ambiguity that section 7(1)(a) would be applicable to the sale of immovable property and once it is held that assignment of the leasehold rights being the benefit/interest arising out of immovable property would partake the character as such, cannot be covered under the scope of supply of services by any stretch of imagination.""Transfer charges paid by the assignee would be subject to levy of GST but at the same time consideration paid by the assignee to the lessee/assignor would amount to transfer of immovable property which would be out of purview of provision of section 7(1)(a) of the GST Act read with Schedule II and Schedule III thereof." Final VerdictAssignment/sale/transfer of leasehold rights of GIDC-allotted industrial plot along with building by lessee/assignor to third party/assignee for consideration is a transfer of immovable property covered under Clause 5 of Schedule III of the GST Act and not a "supply of service" — hence not liable to GST. All impugned show cause notices and orders/appeals were quashed and set aside. Rule made absolute. Stay of operation of the judgment was also rejected by the Court.  

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.