2022 (8) TMI 366 - HC - GST

Input Tax Credit - Credit disallowed on the ground being that the party with whom the assessee had transaction is non-existing at the declared place of business and the registration has been obtained by exercising fraud and willful misstatement/suppression of fact - HELD THAT - Admittedly the allegations relate to transactions pertaining to financial year 2017-2018 and accordingly by a notice dated October 22 2021 the alleged claim of input tax credit to the tune of Rs.71, 23, 836.66 paisa each under CGST/SGST head had been disallowed. If that is so the remaining credit which the assessee will be entitled to on account of blocking of the electronic credit ledger is that the entire business activity has come to a standstill. Apart from that when the communication blocking the electronic credit ledger was passed the credit which was available under that head was only Rs.19, 00, 000/-. The writ appeal along with the application are disposed of by directing the authority to restrict blocking of the electronic ledger credit to the tune of Rs.71, 23, 836.66 paisa under CGST/SGST head and issue a show cause notice upon the appellant within a period of 10 days from receipt of the server copy of the order and thereafter shall afford a reasonable time to the appellant to submit its reply to the show cause notice after which the appellant be afforded an opportunity of personal hearing and an order be passed on merits in accordance with law.

Summary

Issues:
Challenge to order declining interim relief due to blocking of electronic credit ledger leading to negative balance. Allegations of fraudulent input tax credit availed by the appellant. Suspension of registration due to non-filing of return without issuance of show cause notice.

Analysis:
The appellant filed an intra-Court appeal challenging the order declining interim relief regarding the blocking of the electronic credit ledger, resulting in a negative balance. The appellant contended that the reasons given by the authorities for blocking the ledger were untenable and factually incorrect. The dispute arose from disallowance of input tax credit during December 2017 to January 2018, based on transactions with a non-existing party at the declared place of business. This led to a blockage of input tax credit amounting to Rs.71,23836.66 each under Central Goods and Services Tax/West Bengal Goods and Services Tax. The appellant's business activities were severely impacted due to the pending finalization of the ledger blocking proceedings by the authorities.

The Court considered the identical issues raised in the writ petition and the appeal, consolidating both for disposal. The allegations pertained to transactions in the financial year 2017-2018, with a notice disallowing the claimed input tax credit. The Court noted that the appellant's business had come to a standstill due to the blockage of the ledger, especially since the remaining credit available was insufficient. The authorities were directed to conclude the proceedings promptly after the appellant's response. The Court found the suspension of registration for non-filing of returns as a drastic step without issuing a show cause notice.

In the final judgment, the Court directed the authority to restrict the blockage of electronic ledger credit to the specified amount under CGST/SGST head and issue a show cause notice to the appellant within ten days. The appellant was granted an opportunity to respond, followed by a personal hearing before a final order. The authorities were instructed to lift the blockage beyond the specified amount and restore the appellant's registration under the relevant Act to enable return filing. The related matters were disposed of accordingly for compliance with the Court's directives.