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TMI Blog2024 (10) TMI 552X X X X Extracts X X X X X X X X Extracts X X X X ..... law makers intended not to follow principles of natural justice while inserting Rule 86A in the statute book. A plain reading of the judgment in Basanta Kumar Shaw [ 2022 (8) TMI 50 - CALCUTTA HIGH COURT] shows that the question whether the principles of natural justice are to be read into Rule 86A was not subject matter of discussion. The Calcutta High Court opined that Input Tax Credit is a concession and not a vested right. Thus, Rule 86A neither expressly nor by necessary implication excludes the principles of natural justice, the principles of natural justice for the detailed reasons given hereinabove must be read into the provision. The action of blocking the electronic credit ledger of the petitioners without following the principles of natural justice and without assigning adequate reasons cannot sustain judicial scrutiny. Thus, the impugned action in all the Writ Petitions is set aside - the impugned action cannot be countenanced - petition allowed. - HON BLE SRI JUSTICE SUJOY PAUL AND HON BLE SRI JUSTICE NAMAVARAPU RAJESHWAR RAO For the Petitioners: Sri M. Uma Shankar. Sri M. Naga Deepak. For Respondents: Sri Swaroop Oorilla, learned Special Government Pleader for State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. Laxmi Fine Chem v. Assistant Commissioner 2024 (5) TMI 509 and in the case of M/s. Sri Krishna Enterprises v. The Superintendent of Central Tax 2023 (11) TMI 957, to bolster the submissions: (1) the impugned drastic action of blocking the electronic credit ledger is arbitrary and runs contrary to the principles of natural justice, more so, when it is taken without issuing show cause notice. (2) As per clause 3.1.3 of Circular No. CBEC-20/16/05/2021-GST/1552 dated 02.11.2021 issued by the Ministry of Finance, Department of Revenue, Central Board of Indirect Taxes and Customs, GST Policy Wing, Government of India, it is clear that the department itself was conscious that the power under Rule 86A cannot be exercised in routine manner, instead, it must be exercised sparingly and with utmost circumspection. (3) The point involved is no more res integra, as the Gujarat High Court in the case of Samay Alloys India Pvt. Ltd v. State of Gujarat 2022 (2) TMI 843 has already considered the above draconian provision and set aside similar action. (4) The impugned document does not contain necessary details i.e., the details of the supplier whose registration is cancelled, the date when suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioners may avail such remedy. 8. The parties have confined their arguments to aforesaid extent and not pressed any other point. 9. We have heard the learned counsel for the parties at length and perused the record. FINDINGS : Statutory alternative remedy: 10. The learned Government Pleader has taken pains to contend that Rule 86A(2) of the Rules provides a statutory alternative remedy, and for this reason, the petitioners should be relegated to avail the said remedy. We do not see any merit in this contention for the simple reason that Sub-rule (2) nowhere prescribes any mode of preferring any application, appeal or representation. The statutory remedy lies when there exists an express right of preferring an appeal, application, etc., and a corresponding duty on the competent authority to entertain and decide the same (see Director of Settlements, A.P. v. M.R.Apparao (2002) 4 SCC 638 and Municipal Corporation of Greater Mumbai v. Rafiqunnisa M.Khalifa (2019) 5 SCC 119 ). In absence of any such provision of preferring such application and corresponding duty on the authority, the objection of learned Government Pleader deserves to be rejected. 11. Even if for the sake of argument ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplication of mind considering all the facts of the case , including the nature of prima facie fraudulently availed or ineligible input tax credit and whether the same is covered under the grounds mentioned in sub-rule (1) of rule 86A, as discussed in para 3.1.2 above; the amount of input tax credit involved; and whether disallowing such debit of electronic credit ledger of a person is necessary for restricting him from utilizing/ passing on fraudulently availed or ineligible input tax credit to protect the interests of revenue. 3.1.4 It is reiterated that the power of disallowing debit of amount from electronic credit ledger must not be exercised in a mechanical manner and careful examination of all the facts of the case is important to determine case(s) tit for exercising power under rule 86A . The remedy of disallowing debit of amount from electronic credit ledger being, by its very nature, extraordinary, has to be resorted to with utmost circumspection and with maximum care and caution. It contemplates an objective determination based on intelligent care and evaluation as distinguished from a purely subjective consideration of suspicion. The reasons are to be on the basis of ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r officer shall issue the notice under sub-section (1) at least six months prior to the time limit specified in sub-section (10) for issuance of order. (3) Where a notice has been issued for any period under sub-section (1), the proper officer may serve a statement, containing the details of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for such periods other than those covered under sub-section (1), on the person chargeable with tax. (4) to (8) xxx (9) The proper officer shall, after considering the representation, if any, made by the person chargeable with tax, determine the amount of tax, interest and penalty due from such person and issue an order. (1) The 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Rules is silent about the observance of principles of natural justice. The parties were at loggerheads on the question of applicability of principles of natural justice when power is being exercised under Rule 86A. This is an interesting conundrum which deserves serious consideration. 18. A conjoint reading of Section 74 and Rule 86A leaves no room for any doubt that the intention and object behind insertion of those provisions is to deprive the person chargeable from a benefit which is wrongly or fraudulently claimed and enjoyed. A Section in a statute is always on a higher footing than the Rule made under the Act. As noticed, Section 74 statutorily recognizes and mandates that principles of natural justice are to be followed. Rule 86A, on the other hand, is totally silent on the aspect of applicability of principles of natural justice. Thus, if Rule 86A is implemented without following the principles of natural justice, it may cause hardship, inconvenience and injustice. It is difficult to accept that the law makers intended not to follow principles of natural justice while inserting Rule 86A in the statute book. If we interpret Rule 86A in the manner suggested by learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purports to be regulating; and that alternative is to be rejected which will introduce uncertainty, friction or confusion into the working of the system . (Emphasis Supplied) 23. The said principle enunciated by LORD SHAW was accepted with profit while construing Section 193 of the Sea Customs Act, 1878 by SUBBARAO, J., in Collector of Customs v. Digvijaya Singhji Spinning Weaving Mills Ltd. AIR 1961 SC 1549. In State of Gujarat v. Chaturbhuj Maganlal AIR 1976 SC 1697, the Apex Court opined that a contrary conclusion from a provision can be avoided so that it would not impede the efficacy of the provision and introduce inconvenience, friction, confusion and artificiality in the working of the provision. 24. S.R.DAS, J., in State of Punjab v. Ajaib Singh AIR 1953 SC 10 observed that if two constructions are possible then the court must adopt that which will ensure smooth and harmonious working of the Constitution and eschew the other which will lead to absurdity or give rise to practical inconvenience or make well-established provision of existing law nugatory. 25. In Chief Justice of Andhra Pradesh v. L.V.A. Dikshitulu AIR 1979 SC 193 , it was prominently held as under: where two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cause against his compulsory retirement. A Division Bench of this Court in its judgment in that case observed as follows: (SCC pp. 460-61, para 8) Rules of natural justice are not embodied rules nor can they be elevated to the position of fundamental rights. As observed by this Court in Kraipak, A.K. v. Union of India [(1969) 2 SCC 262 : AIR 1970 SC 150] the aim of rules of natural justice is to secure justice or to put it negatively to prevent miscarriage of justice. These rules can operate only in areas not covered by any law validly made. In other words they do not supplant the law but supplement it . It is true that if a statutory provision can be read consistently with the principles of natural justice, the courts should do so because it must be presumed that the Legislatures and the statutory authorities intend to act in accordance with the principles of natural justice. But if on the other hand a statutory provision either specifically or by necessary implication excludes the application of any or all the principles of natural justice then the court cannot ignore the mandate of the Legislature or the statutory authority and read into the concerned provision the principles o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be stayed for a stated period. The notice should set out what the reasons and circumstances are which, according to the Commissioner, necessitate such stay so that the assessee has the opportunity of meeting the same. This is a requirement of natural justice that, having regard to the scope of Rule 37-A, requires to be read into it. (Emphasis Supplied) 30. In the case of Sahara India (Firm), Lucknow v. Commissioner of Income Tax, Central-I and Another (2008) 14 SCC 151, the Apex Court, while referring the decision in C.B. Gautam (supra), ruled as under: 32. The upshot of the entire discussion is that the exercise of power under Section 142(2-A) of the Act leads to serious civil consequences and, therefore, even in the absence of express provision for affording an opportunity of pre-decisional hearing to an assessee and in the absence of any express provision in Section 142(2-A) barring the giving of reasonable opportunity to an assessee, the requirement of observance of principles of natural justice is to be read into the said provision. Accordingly, we reiterate the view expressed in Rajesh Kumar case [(2007) 2 SCC 181 : (2006) 287 ITR 91]. (Emphasis Supplied) 31. In the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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