2022 (2) TMI 569 - HC - GST

Provisional Attachment of property - Blocking of Electronic Credit Ledger (ECL) - The petitioner maintains that the procedure prescribed in rule 86-A, however, was not followed. - petitioner has raised an issue of jurisdiction contending that the impugned order of blocking the ECL could not have been passed by an authority like the Deputy Commissioner i.e. respondent no.1 and ought to have been passed, if at all, by the Commissioner as per rule 86-A. HELD THAT - There are no merit in the contention as this rule itself shows that the power can be exercised not only by the Commissioner but also by an officer authorised by him in this behalf and only restriction is that the delegate of the Commissioner cannot be an officer who is below the rank of an Assistant Commissioner. In this case, there is no dispute about the fact that respondent no.1, a Deputy Commissioner holding the rank above an Assistant Commissioner, was duly authorised by the Commissioner to initiate action under section 86-A of the CGST Act. The contention is, therefore, rejected. Whether blocking of Electronic Credit Ledger (ECL) under Rule 86-A of the Central Goods and Services Tax Rules, 2017 amounts to provisional attachment of property under section 83 of the Central Goods and Services Act, 2017 and if so, whether it could have been done without following conditions and procedure prescribed in section 83 of the Central Goods and Services Tax Act, 2017? - HELD THAT - The power of provisional attachment of the property under section 83 of the CGST Act can be exercised only after initiation of any proceeding under Chapters XII, XIV and XV, which relate to assessment, inspection, search, seizure, arrest and demands and recovery of tax not paid or shortly paid or erroneously paid. For invoking the power under rule 86-A, it is not necessary that proceeding under any of the said Chapters is initiated and it can be exercised, when conditions prescribed therein are met. It is thus clear that the power under rule 86-A is quite distinct from the power under section 83 and, therefore, any order passed under rule 86-A cannot be treated as the order amounting to the provisional attachment of property under section 83 of CGST Act. The argument made by learned counsel for the petitioner that the impugned order is no less than an order for provisional attachment under section 83 is rejected and the question is answered in terms that the impugned order could not be understood as the order amounting to provisional attachment of property under section 83 of the CGST Act and, therefore, further question regarding following of the procedure prescribed in section 83 would not arise. Whether rule 86-A of Rules, 2017 permits blocking of the ECL, and if yes, to what extent? - HELD THAT - There is no specific mention therein about the blocking of the ECL and what is stated is that the Competent Authority may not allow debit of an amount equivalent to an amount determined or found to be fraudulently or wrongly shown as credit available in the ECL for discharge of any liability under Section 49 or any equivalent refund of an unutilised amount of credit in the ECL. Disallowing debit of an amount to the ECL is nothing but blocking of the ECL. But, such blocking of the ECL cannot be for an amount which is more than the amount found to be fraudulently or wrongly availed of - rule 86-A of Rules, 2017 does permit dis-allowance of debit of an amount to the electronic credit ledger only to the extent of fraudulent or wrong availment of credit in the ECL and such disallowance can be done through blocking of the ECL to the extent of the amount fraudulently or wrongly shown as lying in credit in the ECL. Whether the order of blocking of Electronic Credit Ledger (ECL) is arbitrary and illegal? - HELD THAT - In the reply filed by respondent no.1, it is admitted that the blocking of ECL was done by her because there was direction received by her from respondent no.3 via respondent no.4 regarding blocking of the ECL as per rule 86-A. This admission shows that there was an abdication of authority conferred upon respondent no.1 regarding exercise of power under rule 86-A which ought to have been exercised by her after applying her mind independently in the matter, but that was not to be. The surrender of the authority made by her was in favour of respondent no.3, although respondent no.3, on its part had only recommended for blocking of the ECL. This shows that exercise of power under rule 86-A made by respondent no.1 was not because she was independently satisfied about the need for blocking the ECL but, was due to the fact that she felt compelled to obey the command of her superior - the order was passed virtually by respondent no.3. This is not the manner in which the law expects the power under rule 86-A to be exercised. When a thing is directed to be done in a particular manner, it must be done in that manner or not at all is the well established principle of administrative law which has not been followed here - the impugned order is arbitrary and illegal. Whether, in the facts and circumstances of this case, the respondents are justified in blocking Electronic Credit Ledger (ECL) under rule 86-A of Central Goods and Services Tax Rules, 2017? - HELD THAT - Rule 86-A has been adequately framed by the rule making authority so as to take care of any possible misuse of the power. The authority has ensured that sufficient safeguards against the misuse of power are embedded in rule 86-A itself and accordingly the rule has been framed. It is already explained in detail the meaning, extent, necessity and manner of operation of these safeguards and, therefore, there are nothing more here that is required to be done. The impugned order of blocking of the ECL of the petitioner is hereby quashed and set aside - Petition allowed in part.

Summary

Issues Involved:

1. Whether blocking of Electronic Credit Ledger (ECL) under Rule 86-A of the Central Goods and Services Tax Rules, 2017 amounts to provisional attachment of property under section 83 of the Central Goods and Services Act, 2017.
2. Whether rule 86-A of Rules, 2017 permits blocking of the ECL, and if yes, to what extent.
3. Whether the order of blocking of Electronic Credit Ledger (ECL) is arbitrary and illegal.
4. Whether, in the facts and circumstances of this case, the respondents are justified in blocking Electronic Credit Ledger (ECL) under rule 86-A of Central Goods and Services Tax Rules, 2017.

Detailed Analysis:

1. Blocking of ECL and Provisional Attachment under Section 83:

The court analyzed whether blocking of the ECL under Rule 86-A is akin to provisional attachment under Section 83 of the CGST Act. It was determined that the effect of the power exercised under Rule 86-A is to place an embargo on the utilization of the amount of credit or refund of the unutilized amount of credit. This is distinct from the seizure of the credit amount for its consequent appropriation for the realization of tax dues, which occurs in the case of attachment of property. The court concluded that the power under Rule 86-A is distinct from the power under Section 83, and any order passed under Rule 86-A cannot be treated as an order amounting to provisional attachment of property under Section 83 of the CGST Act.

2. Permissibility and Extent of Blocking ECL under Rule 86-A:

The court examined Rule 86-A, which allows the Commissioner or an authorized officer to disallow the debit of an amount equivalent to the credit found to be fraudulently or wrongly availed. The rule does not explicitly mention blocking of the ECL, but such blocking can be inferred from the disallowance of debit. The court clarified that blocking of the ECL must be limited to the amount found to be fraudulently or wrongly availed. Thus, Rule 86-A permits blocking of the ECL only to the extent of the fraudulent or wrong availment of credit.

3. Arbitrariness and Illegality of the Blocking Order:

The court emphasized that Rule 86-A has two prerequisites: the competent authority must have reasons to believe that the credit has been fraudulently availed, and these reasons must be recorded in writing. The impugned order did not meet these requirements as it lacked reasons and did not specify the amount to the extent to which the ECL was blocked. The court found the order to be an instance of arbitrary exercise of power under Rule 86-A and thus illegal. Additionally, the court noted that the order was issued based on directions from a higher authority without independent application of mind by the Deputy Commissioner, further rendering it arbitrary and illegal.

4. Justification for Blocking ECL:

Given that the impugned order was found to be unsustainable in law, the court did not specifically address the justification for blocking the ECL. The necessity for examining the justification would have arisen if the order had been found sustainable on the touchstone of due process but required consideration on merits, which was not the case here.

Conclusion:

The court quashed and set aside the impugned order of blocking the ECL of the petitioner. It allowed the respondents to consider invoking the power under Rule 86-A afresh, in accordance with the law and the observations made in the judgment. The petition was partly allowed, and the court did not find it necessary to issue a direction for framing additional guidelines for the exercise of power under Rule 86-A, as the rule itself contained sufficient safeguards against misuse.