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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 ..... gana State Goods and Service Tax (SGST) Act, 2017. 3. It is submitted that on 14.03.2024, the State Tax Officer in purported exercise of power under Rule 86A i.e., Conditions of use of amount available in electronic credit ledger of the CGST Rules, 2017 (Rules), blocked the credit ledger of the petitioner by mentioning 'Registration of supplier has been cancelled'. The ledger is blocked without issuing any show cause notice. No detailed reasons and necessary facts were disclosed, which became foundation for such blocking by the respondent. Because of the blocking, the electronic credit ledger reflects the closing balance as zero. This action of blocking is subject matter of challenge in these petitions filed under Article 226 of the Constitution. Petitioners' contention: 4. Sri M. Uma Shankar, learned counsel for the petitioners in W.P. Nos. 10390, 10425 and 10459 of 2024, submits that in W.P. No. 10390 of 2024, the respondents have issued notice to the petitioner therein and one of the suppliers under Sections 73/74 of the Act and the said proceeding is still pending. In all fairness, the department should have proceeded as per the said show cause notice and after following the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount only. By placing reliance on the judgment in the case of State of Kerala v. K.T. Shaduli Yusuff 1977 (2) SCC 777, it is urged that the principles of natural justice are to be read into Rule 86A. During the course of hearing, it was pointed out that in W.P.Nos.10425, 10459 and 12733 of 2024, the respondents have directly blocked the electronic credit ledger and no notice under Section 74 of the Act was given. Stand of Revenue:- 6. Per contra, Sri Swaroop Oorilla, learned Special Government Pleader for State Tax for respondents, supported the impugned action and urged that constitutionality of Rule 86A is not subject matter of challenge and hence, said Rule must be read as such. The Rule is totally silent about following the principles of natural justice. Thus, the impugned action cannot be held to be illegal merely because it is taken without following the principles of natural justice. Reliance is placed on the judgment of Calcutta High Court in the case of Basanta Kumar Shaw v. Assistant Commissioner of Revenue 2022 SCC OnLine Cal 4544. 7. The Government Pleader further urged that the impugned action in W.P. No. 10390 of 2024 clearly shows that the blockage is made appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Article 226 of the Constitution. Previous Orders: 12. This Court in M/s. Laxmi Fine Chem and M/s. Sri Krishna Enterprises (both cited supra) considered the judgment of the Gujarat High Court in the case of Samay Alloys India Pvt. Ltd (cited supra) dealing with Rule 86A of Rules. The para No. 5 of judgment in the case of M/s. Laxmi Fine Chem (cited supra) is worth recording and the same is reproduced as under: "5. Today, the learned Standing Counsel for the State submits that upon instructions he has been informed to state that the impugned action of blocking the input tax credit was without issuance of any show cause notice. Thus the said action on the part of the respondents in passing the order of blocking the input tax credit to the tune of Rs. 50,06,000/- by making a negative credit in the electronic credit ledger of the petitioner is per se bad in law and violative of principles of natural justice. As regards the second ground, there is a recent decision of the Division Bench of the Gujarat High Court, in the case of Samay Alloys India Pvt.Ltd. vs. State of Gujarat decided on 03.02.2022, dealing with the aspect of Rule 86(A) of the CGST Rules 2017, wherein in paragraph No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ' must be discernible and whenever required must be disclosed. In the instant case, in the fitness of the case, it was expected that the name of the supplier, date of cancellation of his registration and other necessary details should have been disclosed to the petitioner to enable him to put forth his defence in an effective manner. Section 74 and Rule 86 : Principles of Natural Justice. 15. The matter may be viewed from another angle. The purpose behind bringing Section 74 of the Act and Rule 86A of the Rules in the statute book is to ensure that the benefit of Input Tax Credit, etc., cannot be enjoyed fraudulently. The relevant portions of both the provisions are reproduced in a tabular form in order to examine the provisions in juxta position. Section 74:- Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or any willful-misstatement or suppression of facts: Rule 86A:- Conditions of use of amount available in electronic credit ledger. (1) Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrong ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... session of a tax invoice or debit note or any other document prescribed under rule 36, may, for reasons to be recorded in writing, not allow debit of an amount equivalent to such credit in electronic credit ledger for discharge of any liability under section 49 or for claim of any refund of any unutilized amount. (2) The Commissioner, or the officer authorised by him under sub-rule (1) may, upon being satisfied that conditions for disallowing debit of electronic credit ledger as above, no longer exist, allow such debit. (Emphasis Supplied) 16. A plain reading of Section 74 of the Act shows that it also talks about determination of Input Tax Credit wrongly availed or utilized by reason of fraud or any willful misstatement or by suppression of facts. In the event of any such condition being available, Sub-section (1) provides service of notice on the person chargeable with tax. Sub-section (2) prescribes the time limit for issuance of notice under Sub-section (1). Sub-section (3) makes it clear that proper officer needs to serve a statement containing necessary details relating to Input Tax Credit wrongly availed or utilized. In turn, the person chargeable may file his response i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a construction giving rise to anomalies should be avoided (see Veluswami Thevar v. G.Raja Nainar AIR 1959 SC 422. Where the language of a statute, in its ordinary meaning and grammatical construction, leads to a manifest contradiction of the apparent purpose of the enactment, or to some inconvenience or absurdity, hardship or injustice, presumably not intended, a construction may be put upon it which modifies the meaning of the words, and even the structure of the sentence (see Tirath Singh v. Bachittar Singh AIR 1955 SC 830). 20. In Shamrao v. District Magistrate, Thana AIR 1952 SC 324, the Apex Court opined that the object of the construction of a statute being to ascertain the will of the Legislature, it may be presumed that neither injustice nor absurdity was intended. If, therefore literal interpretation would produce such a result, and the language admits of an interpretation which would avoid it, then such an interpretation may be adopted. 21. In order to avoid inconsistency, injustice, anomaly and hardship and also in order to iron out the creases between Section 74 of the Act and Rule 86A of the Rules, we deem it proper to interpret it by holding that principles of natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27. The principles of natural justice are not expressly required to be followed in certain taxing statutes, yet in certain judgments, the Apex Court opined that the said principles must be read into the relevant provision. It is apposite to consider following judgments in this regard. 28. In the case C.B. Gautam v. Union of India and Others (1993) 1 SCC 78, the Apex Court held as under: "26. The next question to which we propose to address ourselves is whether the provisions of Chapter XX-C are bad in law as there is no provision for giving the concerned parties an opportunity of being heard before an order is passed under the provisions of Section 269-UD of the said Chapter for the purchase by the Central Government of an immovable property agreed to be sold in an agreement of sale. In this regard a plain reading of the provisions of the said Chapter clearly shows that they do not contain any provision for giving the concerned parties an opportunity to be heard before an order for compulsory purchase of the property by the Central Government is made. In connection with the requirement of opportunity of being heard before an order for compulsory purchase is made we find that som ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affected... 30. In the light of what we have observed above, we are clearly of the view that the requirement of a reasonable opportunity being given to the concerned parties, particularly, the intending purchaser and the intending seller must be read into the provisions of Chapter XX-C. In our opinion, before an order for compulsory purchase is made under Section 269-UD, the intending purchaser and the intending seller must be given a reasonable opportunity of showing cause against an order for compulsory purchase being made by the appropriate authority concerned... In our view, therefore, the requirement of an opportunity to show cause being given before an order for purchase by the Central Government is made by an appropriate authority under Section 269-UD must be read into the provisions of Chapter XX-C. There is nothing in the language of Section 269-UD or any other provision in the said Chapter which would negate such an opportunity being given. Moreover, if such a requirement were not read into the provisions of the said Chapter, they would be seriously open to challenge on the ground of violations of the provisions of Article 14 on the ground of non-compliance with princip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the person concerned before an order under the said Rule is made, notwithstanding the fact that the said Rule does not contain any express provision for the affected party being given an opportunity of being heard." (Emphasis Supplied) 32. The learned counsel for the respondents placed reliance on the Division Bench judgment of Calcutta High Court in the case of Basanta Kumar Shaw (cited supra). It is submitted that Rule 86A has been interpreted by the Calcutta High Court and the Court has taken a different view than the view taken by the Gujarat High Court in Samay Alloys (cited supra) case. 33. We have gone through the judgment in the case of Basanta Kumar Shaw (cited supra). A plain reading of the judgment 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. In our view, 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 judgment of the Calcut ..... X X X X Extracts X X X X X X X X Extracts X X X X
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