2022 (8) TMI 1144 - HC - GST

Fraudulently availment of ineligible input tax credit - Circular No.CBEC-20/16/05/2021-GST dated 02/11/2021 - HELD THAT - Even the CBITC has understood the possibility of this power under Section 86 A being abused and hence has even advised that it should not be exercised in a mechanical manner but only on careful examination of all the facts of the case because it is an extra ordinary power by its very nature. CBITC has also advised that this extraordinary power has to be resorted to with utmost circumspection and with maximum care and caution. Neither, petitioner has been made available copy of this reasons to believe nor has Respondent Nos.4 and 5 annexed copy of its reasons to believe in its reply. It is not even clear whether any such reasons to believe has been recorded in writing - the concerned officer is bound to furnish these reasons to the assessee. On receipt of such reasons, the assessee is entitled to file objections to taking of any such action and the concerned officer is bound to dispose the same by passing a speaking order. Respondent No.5 is therefore, directed to make available to petitioner by 26th August, 2022 copy of the reasons to believe . Should petitioner wish to file a further affidavit in support to deal with the reasons to believe, petitioner may do so. If petitioner wish to amend the petition, petitioner may tender draft amendment on the next date - Stand over to 30th August, 2022.

Summary

Issues:
Challenge to action under Rule 86 A of the Central Goods and Services Tax Rules, 2017.

Analysis:
The petitioner raised a grievance regarding the action taken under Rule 86 A of the CGST Rules. Rule 86 A empowers the Commissioner or an authorized officer to disallow the debit of an amount from the electronic credit ledger if there are reasons to believe that the credit of input tax has been fraudulently availed or is ineligible. The rule specifies grounds for such belief, including availing credit on non-existent suppliers, without receiving goods or services, on unpaid tax invoices, by non-existent businesses, or without valid documents. The authority must form an opinion after considering all facts, including the nature of fraudulently availed credit and the necessity to restrict its utilization to protect revenue interests.

The Central Board of Indirect Taxes and Customs issued a circular emphasizing that the power under Rule 86 A should not be exercised mechanically but after a careful examination of all case facts. The circular highlighted the extraordinary nature of this power, requiring circumspection and caution in its application. It stressed the need for an objective determination based on material evidence related to fraudulent or ineligible input tax credit. The circular aimed to prevent the abuse of this power by advising against subjective considerations and promoting intelligent evaluation based on available evidence.

The court noted that neither the petitioner nor the respondents had provided a copy of the "reasons to believe" as required by the rule. It emphasized that the concerned officer must furnish these reasons to the assessee, who can then file objections. The officer is obligated to dispose of these objections by passing a speaking order. Consequently, the court directed one of the respondents to provide the petitioner with a copy of the "reasons to believe" by a specified date, allowing the petitioner to file further affidavits or amend the petition if necessary. The case was adjourned to a later date for further proceedings.