2021 (9) TMI 1187 - HC - GST

Blocking of input tax credit - Seeking direction upon the respondents to permit the petitioner to debit from its electronic credit ledger as shown in the ledger - violation of principles of natural justice - HELD THAT - Before invoking the power under Rule 86-A, the Authority should have reasons to believe that the credit of input tax available in the electronic credit ledger has been fraudulently availed or the assessee is ineligible, on account of anyone of the contingencies in clauses (a) to (d) of Rule 86-A(i). That apart, the Rule contemplates that the said authorities has to record the reasons in writing and not allowed to debit any amount equivalent to such credit in the credit ledger. It is not clear as to why the appellant-assessee has not been intimated in writing as to what are the reasons, which waved the mind of the authority to invoke the power under Rule 86-A. The respondent cannot be heard to say that they can invoke the power under Rule 86-A without having reasons to believe and without recording such reasons in writing. This is a pre-requisite and in the absence any reason, which has been recorded, the invocation of power under Rule 86-A should be held to be unauthorised, illegal and without jurisdiction. Courts have held as against such order passed by the Assessing Officer rejecting the objections to the reopening, the Act having not provided any remedy, Writ Petitions are entertained by the Court under Article 226 of the Constitution of India. The unrelying principles, which can be culled out from the decision of the Hon'ble Supreme Court is that, the assessee should be afforded an opportunity of hearing and he is entitled to know as to why the assessment is sought to be reopened and he is also entitled to object to such reopening done by the Assessing Officer. The same analogy can be applied to the case on hand. The assessee is entitled to put forth his submission/objection requesting for lifting of such order and establishing a case that there has not been any fraudulent availment of credit or the assessee would not fall within anyone of the contingencies mentioned in clauses (a) to (d) of Rule 86-A(1) so as to make them ineligible for the credit - Since the appellant-assessee did not have the benefit of the reasons on what ground the order under Rule 86-A was passed, the representation is only general in nature. Therefore, for an effective representation to be made the Appellant is entitled to know the reasons, based on which the power under Rule 86-A was invoked by the second respondent. The writ petition is disposed of by directing the respondents or any other officers, who have been authorized by the first respondent to communicate the reasons recorded in writing before invoking the powers under Rule 86-A to the appellant, within a period of one week from the date of receipt of a copy of this order and on receipt of the same - appeal allowed.

Summary

Issues Involved:
1. Interpretation of Rule 86-A of Central Goods and Services Tax Rules, 2017.
2. Validity of blocking credit in the electronic credit ledger.
3. Compliance with principles of natural justice in invoking Rule 86-A.
4. Duty of authority to communicate reasons for invoking Rule 86-A.
5. Right of the appellant to file objections and seek redressal.

Analysis:
1. The judgment deals with the interpretation of Rule 86-A of the Central Goods and Services Tax Rules, 2017. The appellant sought permission to debit a specific amount from its electronic credit ledger, which was blocked under Rule 86-A. The Court agreed with the Single Bench that such a prayer cannot be granted under Article 226 of the Constitution of India.

2. The main issue was the validity of blocking credit in the electronic credit ledger under Rule 86-A. The Court noted that the power under Rule 86-A is drastic and can only be exercised if the authority has reasons to believe that the credit has been fraudulently availed or the assessee is ineligible. The Court emphasized the importance of recording reasons in writing before blocking the credit and the necessity of communicating these reasons to the appellant.

3. The judgment highlighted the significance of complying with the principles of natural justice in invoking Rule 86-A. The Court drew parallels with the procedure laid down by the Supreme Court in income tax cases, where the assessee is entitled to reasons for reopening assessments and the opportunity to file objections. It stressed that the appellant should be given a chance to be heard and to know the grounds for blocking the credit.

4. The duty of the authority to communicate reasons for invoking Rule 86-A was underscored in the judgment. The Court held that the appellant must be informed of the reasons behind blocking the credit to enable them to present their objections effectively. Lack of communication of reasons was deemed to render the invocation of power under Rule 86-A unauthorized and without jurisdiction.

5. Lastly, the judgment affirmed the right of the appellant to file objections and seek redressal. It directed the respondents to communicate the reasons for blocking the credit to the appellant within a week, allowing the appellant to file objections within three days thereafter. The authorities were instructed to pass an order based on the objections and communicate it to the appellant within seven days, providing the appellant with the opportunity to challenge the decision if necessary.