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TMI Blog2022 (2) TMI 569X X X X Extracts X X X X X X X X Extracts X X X X ..... rank of an Assistant Commissioner. In this case, there is no dispute about the fact that respondent no.1, a Deputy Commissioner holding the rank above an Assistant Commissioner, was duly authorised by the Commissioner to initiate action under section 86-A of the CGST Act. The contention is, therefore, rejected. Whether blocking of Electronic Credit Ledger (ECL) under Rule 86-A of the Central Goods and Services Tax Rules, 2017 amounts to provisional attachment of property under section 83 of the Central Goods and Services Act, 2017 and if so, whether it could have been done without following conditions and procedure prescribed in section 83 of the Central Goods and Services Tax Act, 2017? - HELD THAT:- The power of provisional attachment of the property under section 83 of the CGST Act can be exercised only after initiation of any proceeding under Chapters XII, XIV and XV, which relate to assessment, inspection, search, seizure, arrest and demands and recovery of tax not paid or shortly paid or erroneously paid. For invoking the power under rule 86-A, it is not necessary that proceeding under any of the said Chapters is initiated and it can be exercised, when conditions prescribed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of respondent no.3, although respondent no.3, on its part had only recommended for blocking of the ECL. This shows that exercise of power under rule 86-A made by respondent no.1 was not because she was independently satisfied about the need for blocking the ECL but, was due to the fact that she felt compelled to obey the command of her superior - the order was passed virtually by respondent no.3. This is not the manner in which the law expects the power under rule 86-A to be exercised. When a thing is directed to be done in a particular manner, it must be done in that manner or not at all is the well established principle of administrative law which has not been followed here - the impugned order is arbitrary and illegal. Whether, in the facts and circumstances of this case, the respondents are justified in blocking Electronic Credit Ledger (ECL) under rule 86-A of Central Goods and Services Tax Rules, 2017? - HELD THAT:- Rule 86-A has been adequately framed by the rule making authority so as to take care of any possible misuse of the power. The authority has ensured that sufficient safeguards against the misuse of power are embedded in rule 86-A itself and accordingly the rule ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its that day of 1.7.2021 came as a surprise for it when it noticed that its ECL was not operational and the portal showed that the ECL was blocked by the Deputy Commissioner, State Sales Tax, MIDC, Nagpur. According to the petitioner, when the official of the Company opened the portal on 1.7.2021 it's screen showed that petitioner's ECL was blocked. Blocking of the ECL, according to the petitioner, had its own adverse impact on the functioning of the petitioner as the petitioner was unable to update its ECL, could not avail of the credit therein to discharge its liability to pay the CGST and could not file its returns. 8. The petitioner submits that the credit amount available in the ECL is the property of the petitioner and the blocking of the ECL of the petitioner amounts to illegal provisional attachment of the property of the petitioner under Section 83 of the CGST Act. The petitioner further submits that such attachment can be done only if any proceeding is pending or initiated under any of sections such as sections 62, 63, 64, 67, 73 and 74. The petitioner further submits that there is no proceeding whatsoever pending under any of these sections and, therefore, there cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tend that the action taken against the petitioner is strictly in accordance with law inasmuch as during the investigation carried on by respondent no.3, it was found that the petitioner had fraudulently availed of credit in its ECL as the petitioner company was not found to be in existence in Maharashtra and was not carrying on its business in the State of Maharashtra. It has been stated, in particular by respondent no.3, that the principal place of business shown by the petitioner and reflected in the registration certificate was fraudulent as the investigation made by respondent no.3 disclosed that the petitioner company never existed at this address and that the petitioner did not occupy these premises for conducting its business. Respondent no.3 has further stated that it was found that one document uploaded on the CGST portal in proof of address of principal place of business of the petitioner, a rental agreement dated 3.10.2017, was in respect of different address and showed that the name of the owner was not correctly written. Respondent no.3 submits that invoices and e-bills prepared online by company disclosed an address from where the company never operated. Respondent no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Neeraj Patil, learned AGP defending the action of respondent nos.1 and 4 submits that it is perfectly within four corners of law and there is no scope for making any interference with the action taken by the authorities. According to him, the action impugned herein is justifiable under rule 86-A of the Rules, 2017, as the provisions made therein are wide enough in their connotation to convey the existence of power to block the ECL. 15. The learned AGP further submits that indepth investigation has been carried out in this case by respondent no.3 and the investigation has revealed that the petitioner company misrepresented that it carried on its business from the address shown in the registration certificate during the period from July 2017 to September 2020 and that the petitioner company uploaded a false document as address proof because of which it has been rightly concluded by respondent no.3 that the petitioner company was not in existence at the address shown in the registration certificate during the said period and, therefore, availment of the credit in the ECL account by the petitioner was fraudulent. He further submits that such fraudulent availment of credit in its ECL b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not require any hearing to be granted but, it requires reaching of satisfaction by the authority to invoke the power under rule 86-A, and in this case, the material provided by respondent no.3 was sufficient for respondent no.1 to entertain such satisfaction to find that it was necessary for her to block the ECL of the petitioner. He also submits that there is no need for issuing any direction to the Union of India for framing of guidelines to regulate exercise of power under rule 86-A by the authorities as the rule itself regulates it. On these grounds, he urges that the petition be dismissed. 18. Before we advert to the main issues involved in this petition, we feel it necessary to deal with the issues which lie at the periphery of the core issues. We have preferred to call them penumbral issues considering the fact that they do not really cast any shadow on the core issues involved here. The first issue is about maintainability of this petition, there being an alternate remedy available under section 107 of the CGST Act, as contended by the respondent nos.1 and 4. The second issue is as regards the power of respondent no.1, a Deputy Commissioner, to pass the order of blocking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the said decision or order for the determination of such points arising out of the said decision or order as may be specified by the Commissioner in his order". 22. A careful perusal of the provision would show that the revisional power conferred upon the Commissioner is in respect of an order passed by an adjudicating authority and the expression, "adjudicating authority", as defined in section 2(4) excludes the "Revisional Authority" from its ambit, as rightly submitted by Shri Mirza, learned counsel for the petitioner. It is, therefore, clear that the petitioner could not have filed any revision petition before the Commissioner under section 107(2) of the CGST Act. In any case, no authority, Commissioner here, can be a revisional authority against his own order, though he can be a reviewing authority against his own order, if power of review is expressly conferred upon him. 23. Thus, neither under sub-section (1) nor under sub-section (2) of section 107, the petitioner could have found any succour for resolution of it's grievance and, therefore, we reject the contention of the respondents that this petition is not maintainable due to availability of an alternate remedy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed upon utilisation of the amount of credit or refund of the unutilised amount of credit. It is quite like maintaining status quo in respect of the amount of credit available in the ECL. This effect is not akin to seizure of the credit amount for it's consequent appropriation for realisation of tax dues as would happen in the case of attachment of property. While amount of credit lying in the ECL could be considered to be the property of the tax payer, if viewed from perspective of ownership or entitlement of the tax payer over the same, not allowing use of such property for discharging liability to pay tax, penalty etc. under section 49 of the Central GST or not permitting its refund to the tax payer cannot seen as seizure or attachment of the property. In attachment of property, the custody of the property is, actually or symbolically, taken over by the department with a view to protect the property from being transferred or altered in character, so that it can be appropriated, if the need arises, for realising tax dues. But, in case of blocking of ECL under rule 86-A, the custody of the property remains with the tax prayer but disability is created on his capacity to utilise it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner or an officer authorised by him in this behalf, not below the rank of an Assistant Commissioner, having reasons to believe that credit of input tax available in the electronic credit ledger has been fraudulently availed or is ineligible in as much as- (a) the credit of input tax has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36- (i) issued by a registered person who has been found non-existent or not to be conducting any business from any place for which registration has been obtained; or (ii) without receipt of goods or services or both; or (b) the credit of input tax has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36 in respect of any supply, the tax charged in respect of which has not been paid to the Government; or (c) the registered person availing the credit of input tax has been found non-existent or not to be conducting any business from any place for which registration has been obtained; or (d) the registered person availing any credit of input tax is not in possession of a tax invoice or debit note or any other document prescrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined amount to the ECL or cannot block the ECL even to the extent of amount found to be fraudulently or wrongly availed of. 33. It must be noted that the power under rule 86-A which in effect is the power to block ECL to the extent stated earlier is drastic in nature. It creates a disability for the tax payer to avail of the credit in ECL for discharge of his tax liability, which he is otherwise entitled to avail. Therefore, all the requirements of rule 86-A would have to be fully complied with before the power thereunder is exercised. When this rule requires arriving at a subjective satisfaction which is evident from the use of words, "must have reasons to believe", the satisfaction must be reached on the basis of some objective material available before the authority. It cannot be made on the flights of ones fancies or whims or imagination. The power under rule 86-A is an administrative power with quasi-judicial hues exhibited in aforestated twin pre-requisites and has civil consequences for a tax payer in the sense, it acts as an obstruction to right of a tax payer to utilise the credit available in his ECL. Any administrative power having quasi-judicial shades, which brings ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action, giving of prior notice or opportunity to be heard may not be practicable but a full remedial hearing would have to be granted. The power conferred upon the Commissioner under rule 86-A is one of such kind. It has civil consequences though for a limited period not exceeding one year and has an element of urgency which perhaps explains why the rule does not expressly speak of any show cause notice or opportunity of hearing before the ECL is blocked. Of course, in order to guard against arbitrary exercise of power, the rule creates certain checks which are found in the twin requirements explained by us earlier. But, in our view, that may not be enough, given the nature of power, and what settled principles of law tell us in the matter. They would, in such a case, require this Court to read into the provisions of rule 86-A something not expressly stated therein, and so, we find that post decisional or remedial hearing would have to be granted to the person affected by blocking of his ECL. We may add that such post decisional hearing may be granted within a reasonable period of time which may not be beyond two weeks from the date of the order blocking the ECL. After such hearing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of objective material, that there are reasons to believe that credit of input tax available in ECL has been fraudulently or wrongly utilised and secondly to record these reasons in writing before the order of disallowing debit of requisite amount to the ECL or requisite refund of unutilised credit, is passed or otherwise the order of blocking the ECL under rule 86-A would be unsustainable in the eye of law. This is also the view taken in the case of M/s HEC India LLP Vs. Commissioner of GST and Central Excise Audit-II and another (WA No.2341 of 2021 dated 16.09.2021), which commends to us. Then, as stated earlier, a remedial hearing followed by confirmation or revocation of the order would be necessary. 39. Now, let us examine impugned order and the background facts against which it has been passed on 1.7.2021. The impugned order is just a two liner and it reads as follows:- "Blocked by Shri/Mr/Ms Vrushali Sukumar Mandape, Deputy Commissioners of State Tax, MIDC-Nagpur-502 Admn.State." This order does not give any reasons and, therefore, there is no question of any reflection therein of the authority passing the order on being satisfied about the necessity of passing it. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommunication respondent no.4 directed respondent no.1 to take necessary action at her end by blocking of ITC of listed tax payers as per rule-86-A. Respondent no.1 complying with the direction, passed the impugned order of blocking of the ECL on 1.7.2021. In the reply filed by respondent no.1, it is admitted that the blocking of ECL was done by her because there was direction received by her from respondent no.3 via respondent no.4 regarding blocking of the ECL as per rule 86-A. This admission shows that there was an abdication of authority conferred upon respondent no.1 regarding exercise of power under rule 86-A which ought to have been exercised by her after applying her mind independently in the matter, but that was not to be. The surrender of the authority made by her was in favour of respondent no.3, although respondent no.3, on its part had only recommended for blocking of the ECL. This shows that exercise of power under rule 86-A made by respondent no.1 was not because she was independently satisfied about the need for blocking the ECL but, was due to the fact that she felt compelled to obey the command of her superior. In other words, the order was passed virtually by resp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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