2022 (3) TMI 795 - HC - GST

Blocking of input tax credit - Rules 86A of GST Rules - requirement to send a statement in Part-A of GST DRC-01A under Rule 142(1A) of the CGST Rule or not - HELD THAT - Prima facie, perusal of Form GST DRC-01A under rule 142(1A) of the Rules indicates that it is a pre-show cause notice intimation with reference to Section 73(1)/(5) or Section 74(1)/(5) to an assessee so that either he may deposit the amount of tax and interest or he may disagree to the ascertainment resulting in show cause notice under Section 73(1) or Section 74(1), as the case may be - prima facie, it appears that Section 74(1) read with Rule 142(1A) intends to afford an opportunity to the dealer/ assessee on a pre-show cause notice stage which shall ultimately benefit both, i.e the assessee and the department, and shall also reduce litigation. This also indicates to follow the principles of natural justice at a pre-show cause notice stage. Learned standing counsel prays for and is granted a week s time to file counter affidavit. Petitioner shall have three days thereafter to file rejoinder affidavit - Put up as a fresh case before the appropriate bench on 28.03.2022 at 02 00 P.M.

Summary

Issues:
1. Compliance with Rule 142(1A) of the CGST Rules regarding the issuance of notice under Section 74(1) of the CGST/UPGST Act, 2017.
2. Interpretation of Rules 86A of the Rules in relation to blocking of input tax credit and showing negative input tax credit.
3. Amendment to Rule 142(1A) by Notification No.79/2020 dated 15.10.2020 and its implications.
4. Examination of Form GST DRC-01A and its role in providing an opportunity to resolve disputes at a pre-show cause notice stage.
5. Consideration of principles of natural justice in the process of issuing notices and resolving disputes.

Analysis:

1. The petitioner contended that the notice issued under Section 74(1) of the CGST/UPGST Act, 2017 in Form GST DRC 01 was invalid as the statement required under Rule 142(1A) was not submitted by the proper officer. The petitioner argued that non-compliance with Rule 142(1A) rendered the notice void. However, the standing counsel for the respondents pointed out that Rule 142(1A) had been amended by Notification No.79/2020 dated 15.10.2020, replacing the mandatory language with permissive terms. The court noted the importance of following procedural requirements to ensure fairness and reduce litigation, emphasizing the need to provide an opportunity to the dealer/assessee at the pre-show cause notice stage.

2. The petitioner raised a concern regarding the blocking of input tax credit under Rules 86A and the implications of showing negative input tax credit. Citing a decision of the Gujarat High Court, the petitioner argued that blocking input tax credit should not result in negative input tax credit, as it could hinder the dealer from filing returns and paying taxes. The standing counsel informed the court that the amended Rule 142(1A) eliminated the need for a statement in Part-A of GST DRC-01A, indicating a shift in procedural requirements.

3. The court acknowledged the significance of Form GST DRC-01A in providing an opportunity for the dealer to resolve disputes before facing adjudication proceedings. This form serves as a pre-show cause notice intimation, allowing the dealer to either deposit the tax and interest or contest the ascertainment, leading to a show cause notice under the relevant sections. The court highlighted the role of this form in facilitating communication between the dealer and the department, promoting a resolution of disputes and adherence to principles of natural justice.

4. In light of the submissions made by both parties and the amendments to Rule 142(1A), the court granted the standing counsel a week to file a counter affidavit and instructed the respondents to provide a Gazette copy of the notification dated 15.10.2020. The court also directed the respondents to explain how negative credit could be shown in the Electronic Ledger Account while blocking input tax credit. As an interim measure, the petitioner was permitted to file returns along with proof of tax deposit for the relevant tax period.

5. The case was scheduled for further hearing on 28.03.2022, allowing both parties to present additional arguments and evidence. The court's interim measure aimed to ensure compliance with tax obligations while the legal complexities and procedural aspects were being addressed through the ongoing proceedings. The judgment reflected a balanced approach to safeguarding the rights of the dealer/assessee while upholding the integrity of the tax system.