2025 (1) TMI 1074 - HC - GST

Blocking the Input Tax Credit (ITC) - Challenge to order issued under Rule 86A(1) of the Kerala State Goods and Services Tax Rules 2017 - challenge to order issued under Section 74 of the Central Goods and Services Tax/Kerala State Goods and Services Tax Act 2017 - HELD THAT - Since the show cause notice specifically alleged that there have been transactions using fake invoices which were fraudulent in nature the issue falls within the realm of disputed facts which cannot be agitated in this proceeding under Article 226 of the Constitution of India. Since the show cause notice as well as the impugned order specifically refers to the alleged instances of fraudulent acts of the petitioner in accepting fake invoices and supply of goods without actual movement of goods this is not a proper case for exercising the jurisdiction under Article 226 of the Constitution of India and the petitioner ought to be relegated to pursue the remedy before the statutory authorities. Petition dismissed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the order blocking the Input Tax Credit (ITC) under Rule 86A(1) of the Kerala State Goods and Services Tax Rules, 2017, was validly issued.
Whether the order issued under Section 74 of the Central Goods and Services Tax/Kerala State Goods and Services Tax Act, 2017, imposing tax, interest, and penalty, was justified.
Whether the petitioner was provided with an effective opportunity of hearing before the issuance of the impugned orders.
Whether the petitioner should seek remedy through statutory appeals rather than invoking Article 226 of the Constitution of India.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the Order Blocking ITC under Rule 86A(1)

Relevant Legal Framework and Precedents: Rule 86A(1) of the Kerala State Goods and Services Tax Rules, 2017, allows the blocking of ITC in the electronic credit ledger under certain conditions. The petitioner challenged the blocking of ITC, arguing that it was done without a hearing.
Court's Interpretation and Reasoning: The court noted that Rule 86A(1) does not explicitly require a hearing before blocking ITC. It emphasized that granting a hearing could undermine the purpose of the procedure, which is to prevent misuse of ITC.
Key Evidence and Findings: The court observed that the order was issued by a competent authority and was valid for one year, expiring on the date of judgment.
Application of Law to Facts: The court concluded that the petitioner had not demonstrated any statutory requirement for a hearing under Rule 86A(1), and thus, the blocking of ITC was not procedurally flawed.
Treatment of Competing Arguments: The petitioner argued for a hearing based on principles of natural justice, but the court found no statutory support for this claim under Rule 86A(1).
Conclusions: The court upheld the validity of the order blocking ITC, dismissing the petitioner's challenge on procedural grounds.

Issue 2: Justification of the Order under Section 74

Relevant Legal Framework and Precedents: Section 74 of the Act deals with the determination of tax liability in cases of fraud or willful misstatement. The petitioner challenged the order under this section, claiming compliance with Section 16 requirements.
Court's Interpretation and Reasoning: The court noted that the petitioner was alleged to have engaged in fraudulent transactions involving fake invoices and non-existent goods. It emphasized that these allegations involve disputed facts unsuitable for resolution under Article 226.
Key Evidence and Findings: The court referenced the show cause notice and impugned order, which detailed the alleged fraudulent activities.
Application of Law to Facts: The court determined that the allegations of fraud warranted adjudication through statutory appeals rather than constitutional writ proceedings.
Treatment of Competing Arguments: The petitioner cited precedents suggesting procedural impropriety, but the court found these cases factually distinct and inapplicable.
Conclusions: The court dismissed the petitioner's challenge, directing them to pursue statutory remedies.

Issue 3: Opportunity of Hearing

Relevant Legal Framework and Precedents: Section 75(4) of the Act mandates an opportunity of hearing before passing an order. The petitioner claimed this was not effectively provided.
Court's Interpretation and Reasoning: The court acknowledged that an advocate appeared on behalf of the petitioner, suggesting that an opportunity was granted. It noted that the effectiveness of this opportunity was a disputed fact, not suitable for Article 226 proceedings.
Key Evidence and Findings: The court referred to the impugned order's acknowledgment of the petitioner's representation.
Application of Law to Facts: The court found no procedural violation in the opportunity provided, as the petitioner was represented during the proceedings.
Treatment of Competing Arguments: The petitioner argued for a more substantive hearing, but the court deemed the existing opportunity adequate under the circumstances.
Conclusions: The court concluded that the petitioner had been given an opportunity to be heard, dismissing the procedural challenge.

Issue 4: Appropriateness of Article 226 Invocation

Relevant Legal Framework and Precedents: Article 226 of the Constitution allows for writ petitions in cases of violation of fundamental rights or legal principles. The petitioner sought relief under this provision.
Court's Interpretation and Reasoning: The court emphasized the availability of statutory appeals under Section 107 of the Act, suggesting that the petitioner should exhaust these remedies first.
Key Evidence and Findings: The court highlighted the existence of an effective appellate remedy, which the petitioner had not pursued.
Application of Law to Facts: The court determined that the disputed factual issues were better suited for resolution through statutory appeals rather than writ proceedings.
Treatment of Competing Arguments: The petitioner argued for immediate relief under Article 226, but the court prioritized the statutory appeal process.
Conclusions: The court dismissed the writ petition, directing the petitioner to pursue statutory remedies.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "Grant of an opportunity of hearing before issuing an order under Rule 86A(1) of the Rules will infact defeat the very purpose of such a procedure."
Core principles established: The judgment reinforces the principle that statutory remedies should be exhausted before invoking constitutional writ jurisdiction, especially in cases involving disputed facts.
Final determinations on each issue: The court upheld the validity of the orders under Rule 86A(1) and Section 74, dismissed the procedural challenges regarding the opportunity of hearing, and directed the petitioner to seek remedy through statutory appeals.

In conclusion, the Kerala High Court dismissed the writ petition, emphasizing the importance of pursuing statutory appeals for resolving disputed factual issues and upholding the procedural validity of the impugned orders.

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