2020 (9) TMI 679 - HC - GST

Vires of Rule 86A of Central Goods and Services Tax Rules, 2017 - power to block the Input Tax Credit - HELD THAT - Having gone through the material on record, for the present, we are inclined to issue notice to the respondents with respect to the reliefs prayed in the draft amendment and paras-8(B) and 8(C) of the main petition. Let notice be issued to the respondents returnable on 14th September 2020.

Issues involved:
Challenge to Rule 86A of Central Goods and Services Tax Rules, 2017 regarding blocking of Input Tax Credit without fault of recipient; Petitioner's request to utilize Input Tax Credit until supplier's tax payment is confirmed; Stay against recovery of Input Tax Credit; Request for interim relief; Any other appropriate relief.

Analysis:

1. Challenge to Rule 86A:
The writ applicant, a partnership firm, has approached the court seeking the issuance of a Writ of Mandamus to strike down Rule 86A of the Central Goods and Services Tax Rules, 2017. The petitioner contends that this rule, which empowers the blocking of Input Tax Credit without the fault of the registered recipient, is ultra vires of Section 16 of the CGST Act, 2017. The primary argument revolves around the legality and fairness of such provisions that affect the rights of taxpayers.

2. Request for Utilization of Input Tax Credit:
Additionally, the petitioner has requested the court to allow them to utilize the Input Tax Credit until it is established that the supplier failed to pay the tax, following the provisions of the CGST Rules, 2017. This request indicates the petitioner's desire to continue benefiting from the Input Tax Credit unless proven otherwise, emphasizing the importance of procedural fairness and due process in tax matters.

3. Stay against Recovery of Input Tax Credit:
Moreover, the petitioner has sought a stay against the recovery of a specific amount of Input Tax Credit, as mentioned in the letter dated 20.03.2020. This request for stay highlights the urgency and significance of preserving the financial interests of the petitioner pending the final resolution of the legal proceedings, showcasing the immediate impact of the disputed tax credit on the petitioner's financial position.

4. Interim Relief Request:
The petitioner has also requested an ex-parte ad-interim relief to allow the utilization of Input Tax Credit, further underscoring the petitioner's urgency and the potential irreparable harm that could result from the blocking or recovery of the tax credit. This interim relief request aims to secure the petitioner's financial stability and operational continuity during the legal proceedings, pending a final decision on the matter.

5. Other Appropriate Relief:
Lastly, the petitioner has prayed for any other further relief deemed fit by the court based on the facts and circumstances of the case. This broad request indicates the petitioner's openness to additional remedies or considerations that the court may find necessary or justifiable in light of the legal arguments and evidence presented during the proceedings, demonstrating the petitioner's willingness to cooperate with the court's decision-making process.

In conclusion, the court, after hearing the arguments presented by the petitioner's counsel and examining the material on record, has decided to issue notice to the respondents regarding the relief sought in the draft amendment and specific paragraphs of the main petition. The court has also directed the petitioner to provide necessary documentation to the Additional Solicitor General of India for further review and clarification on the issues raised, particularly concerning the invocation of Rule 86A and its implications on the Input Tax Credit of the petitioner. The upcoming hearing on 14th September 2020 will likely delve deeper into the legal complexities surrounding the disputed tax credit and the regulatory framework governing such matters.

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