2024 (12) TMI 1075 - HC - GST

Blocking of account and Input Tax Credit under Section 74 of the Central Goods and Services Tax Act, 2017 - wrongful availment of ITC showing fake invoices - concerned firms were found to be non-existent - HELD THAT - The provisions of Section 86-A of the Act have been rightly exercised after receiving information of there being fake income tax credit claims claimed by the petitioner. It is the prima facie view which is required to be taken up by the respondents before taking action under Section 86-A of the Act and at that stage, there is no occasion for issuing any show cause notice or for affording of any opportunity of being heard as the said aspect is to be only dealt at the stage show cause notice has been issued under Section 74 of the Act. It is to protect the revenue that the provisions of Section 86-A have been provided. However, since the entire provisions of the Act are for the purpose of bringing a harmonious conduit between the businessmen and taxing authorities, it is all the more necessary that if any proceedings are to be initiated or are taken up against any of the businessmen, the same should be decided expeditiously. Here it is found that the order was passed of blocking the input tax credit on 20.02.2023 and after one year, again the blocking order has been issued, but at the same time, so far as the proceedings under Section 74 of the Act are concerned, they are yet to culminate the final order. The respondents are directed to pass the final order expeditiously, preferably within one month from today, and so far as the petitioner is concerned, it should be allowed to operate its account as by now, more than one and a half year have elapsed since the account of the petitioner was blocked - petition disposed off.

Summary

Issues:
Blocking of account and Input Tax Credit under Section 74 of the Central Goods and Services Tax Act, 2017; Allegations of wrongful Input Tax Credit; Blocking of amount based on fake invoices and non-existent firms; Exercise of Section 86-A of the Act; Delay in passing final orders and blocking of input tax credit; Direction for expeditious final order and unblocking of account.

Analysis:
The petitioner challenged the blocking of its account and Input Tax Credit amounting to Rs. 32,70,384 under Section 74 of the CGST Act. The petitioner denied availing wrongful Input Tax Credit and contended that the allegations were false. The State counsel argued that the petitioner had utilized fake invoices from non-existent firms, justifying the blocking of the said amount. The court noted that firms like Guru Kirpa Enterprises, R.K. Engineering, GR Auto Component, and Radha Madhav Trading Co. were found non-existent upon physical verification, leading to the cancellation of their registration and blocking of the amount. The court upheld the exercise of Section 86-A of the Act to protect revenue against fake income tax credit claims by the petitioner without the need for a show cause notice at this stage.

The court emphasized the need for expeditious resolution of proceedings between businessmen and taxing authorities. It highlighted a delay in passing final orders under Section 74 while the blocking orders were issued promptly. Notably, the court had previously issued an interim order preventing the final order. Consequently, the court directed the respondents to conclude the final order within one month and allowed the petitioner to operate its account upon furnishing a surety of Rs. 32,70,384. The court disposed of the Writ Petition in line with these directions, vacating the interim order and disposing of all pending applications accordingly.

In conclusion, the judgment addressed the issues of blocking account and Input Tax Credit, the exercise of Section 86-A, delay in final orders, and the directive for expeditious resolution. It balanced the need to protect revenue with the requirement for timely adjudication, ensuring fair treatment for the petitioner while upholding the provisions of the CGST Act.