2024 (9) TMI 906 - HC - GST

Blocking of input tax credit (ITC) - application was rejected out of hand without any reason on impugned communication - non-application of mind - violation of principles of natural justice - HELD THAT - Perusal of impugned communication does not reveal any application of mind by the authority regarding the redressal provision invoked by petitioner. Contention on its behalf has been, the blocking can be done and it was done by due exercise of jurisdiction. Only reasons are required to be given, subsequently supplied to petitioner but in no way is petitioner entitled to be heard on the decision to block. Significantly, there was no assertion that the petition/application was misconceived. Petitioner is entitled to interference. Impugned communication is set aside and quashed. The application under rule 86A (2) is restored to the authority for passing fresh order. Here we may add, by rule 86A(1) there can be blocking by the authority on reasons to be given. Petition disposed off.

Summary

Issues:
1. Blocking of input tax credit entitlement
2. Rejection of application under rule 86A (2)
3. Jurisdiction and violation of principles of natural justice
4. Legality of blocking and application under rule 86A (2)

Analysis:

Issue 1: Blocking of input tax credit entitlement
The petitioner's entitlement to obtain input tax credit (ITC) was blocked, and reasons for blocking were communicated. The petitioner applied under rule 86A (2) in Odisha Goods and Services Tax Rule, 2017, to unblock the ITC. However, the application was rejected without reason, leading to the dispute.

Issue 2: Rejection of application under rule 86A (2)
The rejection of the petitioner's application under rule 86A (2) was challenged in the writ petition. The impugned communication cited a previous High Court judgment where the matter was adjudicated, leading to the rejection of the petitioner's request. The petitioner sought interference due to the rejection of the application without proper reasoning.

Issue 3: Jurisdiction and violation of principles of natural justice
The Standing Counsel representing the revenue pointed out that the petitioner's earlier writ petition was disposed of by a coordinate Bench, rejecting the grounds of jurisdiction and violation of natural justice. The Standing Counsel argued that there was no basis for the petitioner to seek extraordinary jurisdiction in the current writ petition.

Issue 4: Legality of blocking and application under rule 86A (2)
The Standing Counsel relied on previous orders by coordinate Benches to support the argument that writ petitions challenging blocking on grounds of jurisdiction or violation of natural justice are not maintainable. It was contended that the application under sub-rule (2) of rule 86A was a continuation of the jurisdictional issue, and the writ petition did not establish a cause of action.

The judgment highlighted the provisions of sub-rules (2) and (3) in rule 86A, indicating that the authority can unblock ITC if conditions for disallowance no longer exist. The Court noted that the impugned communication lacked proper consideration of the redressal provision invoked by the petitioner. The Court held that the petitioner was entitled to interference, setting aside the communication and restoring the application under rule 86A (2) for a fresh decision by the authority.

In conclusion, the Court emphasized the legislative intent behind rule 86A, allowing dealers to apply for unblocking ITC within a year of blocking. The authority was directed to pass a fresh order within three weeks, considering the hardship blocking imposes on business operations. The writ petition was disposed of in favor of the petitioner, providing relief and a chance for redressal in line with the GST rules.