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2021 (1) TMI 794 - HC - GSTRecovery of dues - blocking the input tax credit available in the credit ledger account of the writ applicant for recovering dues - invocation of Rule 86A of the Central Goods Service Tax Rules, 2017 - HELD THAT - Rule 86A can be invoked only if the conditions stipulated therein are fulfilled. In other words, it is only if the Commissioner or an Officer authorized by him has reasons to believe that the credit of input tax available in the electronic credit ledger has been fraudulently availed or is ineligible for the reasons stated in Rule 86A(1)(a) to (d) that the authority would get the jurisdiction to exercise the power under Rule 86A of the Rules - We fail to understand how Rule 86A could have been invoked in the present matter. The issue, as such, stands squarely covered by three decisions of this High Court, i.e, CHOKSI VERSUS STATE OF GUJARAT 2012 (3) TMI 392 - GUJARAT HIGH COURT , DIFFERENT SOLUTION MARKETING PRIVATE LTD AND 2 VERSUS ASSISTANT COMMISSIONER OF COMMERCIAL TAXES AND 2 2016 (7) TMI 121 - GUJARAT HIGH COURT as well as PARAS SHANTILAL SAVLA VERSUS STATE OF GUJARAT 2019 (7) TMI 350 - GUJARAT HIGH COURT where it was held that Unlike section 179 of the Income-tax Act, 1961, there is no provision in the Sales Tax Act fastening the liability of the company to pay its sales tax dues on its directors. The respondent No.2 is directed to unblock the input tax credit available in the credit ledger account of the writ applicant at the earliest - application allowed.
Issues Involved:
1. Legality of blocking Input Tax Credit (ITC) under Rule 86A of the CGST Rules, 2017. 2. Liability of Directors for company dues under the GVAT Act and other relevant statutes. Detailed Analysis: Issue 1: Legality of blocking Input Tax Credit (ITC) under Rule 86A of the CGST Rules, 2017 The writ applicant challenged the action of respondent No.2 in blocking the ITC under Rule 86A of the CGST Rules, 2017, amounting to ?17,94,723/-, to recover dues under the Gujarat Value Added Tax Act, 2003 (GVAT Act) related to Dolphin Metals (India) Ltd. The applicant, a manufacturer of kitchenware and home appliances, was a director of Dolphin Metals at different periods. The respondent issued a notice to Union Bank of India to attach the bank account of Bhagat Marketing Private Limited, where the applicant is also a director, for recovering dues from Dolphin Metals. When the bank declined due to mismatched details, the respondent blocked the ITC in the applicant's electronic credit ledger. The applicant contended that the action was illegal and violated fundamental rights under Articles 14 and 19(1)(g) of the Constitution, arguing that directors are not personally liable for company dues unless explicitly provided by law. The applicant emphasized that Rule 86A could only be invoked if the ITC was fraudulently availed or ineligible, which was not the case here. The court analyzed Rule 86A, which allows blocking ITC if the Commissioner or authorized officer believes the credit was fraudulently availed or is ineligible. The court found no grounds under Rule 86A to justify the blocking of ITC in this case, as the conditions stipulated in the rule were not met. Issue 2: Liability of Directors for company dues under the GVAT Act and other relevant statutes The respondent argued that under Section 18 of the Central Sales Tax Act, 1956, directors of a private company in liquidation are jointly and severally liable for unpaid taxes. However, the court noted that Dolphin Metals is a public limited company, making Section 18 inapplicable. The respondent also cited Section 49(3) of the CGST Act, 2017, which allows using the electronic cash ledger for payments under the Act, and Section 142(8)(a) for recovering dues as arrears of tax. However, the court found these provisions irrelevant to the case, as they do not authorize blocking ITC for recovering dues of another company. The court referenced previous decisions (Mr. Choksi vs. State of Gujarat, Different Solution Marketing Private Ltd. vs. State of Gujarat, and Paras Shantilal Savla vs. State of Gujarat) supporting the applicant's position. Conclusion: The court concluded that Rule 86A was improperly invoked and directed respondent No.2 to unblock the ITC in the applicant's electronic credit ledger. The court clarified that the department could pursue other lawful recovery methods for the dues of Dolphin Metals (India) Ltd. The writ application was allowed, upholding the applicant's rights and ensuring the proper application of tax laws.
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