2023 (9) TMI 1330 - HC - GST

Blocking of its Input Tax Credit - Vague SCN - Principles of natural justice - applicability of Circular No. F.3(429)/GST/Policy/2022/1067-1072 dated 08.03.2022 - HELD THAT - The impugned show-cause notice issued to the petitioner cannot be sustained. It does not effectively provide any reasons for raising a demand. The opening sentence of the impugned show-cause notice appears to be a mechanical reproduction of the statutory provision. In so far as the Circular is concerned, the same cannot be read as permitting the proper officer to mechanically create a demand. The proper officer can issue a show cause notice only if he has reasons for raising any demand against the tax payer. The said reason must specifically be stated in the show cause notice. It does, prima facie, appear that the respondent had followed the said Circular in a mechanical manner. It is not apposite to enter this controversy as the same is required to be addressed by the proper officer in the first instance. Since the impugned show cause notice does not contain any allegations as stated in the counter affidavit filed by the respondents, the proceedings initiated pursuant to the impugned show cause notice cannot cover the said allegations. The impugned show cause notice is liable to be set aside as the same fails to disclose any reason for proposing the recovery and is incapable of eliciting any meaningful response - Petition disposed off.

Summary

Issues Involved:
1. Blocking of Input Tax Credit (ITC)
2. Issuance of Show Cause Notice under Section 73 of the CGST Act
3. Claim for Interest on Blocked ITC

Summary:

1. Blocking of Input Tax Credit (ITC):
The petitioner was aggrieved by the blocking of its ITC amounting to Rs. 1,77,81,200/-. The petitioner had transitioned ITC from the VAT regime to the GST regime by filing the requisite form (GST Tran-I) on 07.10.2017. The ITC was blocked in June 2018 without any plausible reasons, and despite several representations and complaints, no resolution was provided. The respondents later unblocked the ITC automatically with effect from 08.04.2022, rendering the petitioner's grievance moot.

2. Issuance of Show Cause Notice under Section 73 of the CGST Act:
Post-filing of the writ petition, the respondents issued a Show Cause Notice dated 25.03.2022 under Section 73 of the CGST Act, proposing a demand identical to the blocked ITC amount. The notice failed to disclose any specific reasons for the demand, merely reproducing statutory provisions mechanically. The court found that the notice did not provide any effective reasons for raising a demand and was issued in a mechanical manner, contrary to the provisions of the Act and Rules. The court referenced a previous decision (M/s Parity Infotech Solutions Pvt. Ltd. v. Government of National Capital Territory of Delhi & Ors.) to emphasize that a show cause notice must be issued based on specific reasons and not mechanically.

3. Claim for Interest on Blocked ITC:
The petitioner also claimed interest at 12% per annum on the blocked ITC. The court noted that there is no statutory provision for granting interest for the period when the ITC is blocked. Given the controversy raised by the respondents regarding the petitioner's stock position and DVAT returns, the court did not find it appropriate to entertain the claim for interest.

Judgment:
The impugned show cause notice was set aside for failing to disclose any reason for proposing the recovery, making it incapable of eliciting any meaningful response. However, the respondents are not precluded from taking any steps permissible by law. The petitioner's claim for interest was not entertained, and the petition was disposed of accordingly. All pending applications also stood disposed of.