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TMI Blog2024 (10) TMI 1167X X X X Extracts X X X X X X X X Extracts X X X X ..... deserves to be quashed. Impugned order dated 23.01.2020 at Annexure-A is hereby quashed - the concerned respondents are directed to unblock the Electronic credit ledger of the petitioner immediately upon the receipt of copy of this order , so as to enable the petitioner to file returns forthwith - petition allowed. - THE HON'BLE MR JUSTICE S. R. KRISHNA KUMAR FOR THE PETITIONER : SRI. SURENDRAN J G THUMBUCHETTY, ADVOCATE FOR THE RESPONDENTS : BY SRI. HEMAKUMAR K., AGA FOR R1 AND R3; SRI. ASHOK B SHETTY, ADVOCATE FOR R2; SRI. B.S. VENKATANARAYANA, ADVOCATE FOR R4 ORDER In this petition, the petitioner seeks the following reliefs : (A) This Hon'ble Court may be pleased to declare the provisions of Rule 86A of the CGST/SGST Rules, 2017 as being unreasonable, besides being discriminatory arbitrary therefore violative of Article 14 of the Constitution of India. (B) This Hon'ble Court may be pleased to declare the provisions of Rule 86A of the CGST/SGST Rules, 2017 as being unreasonable, inasmuch as the said Rule does not incorporate the principles of natural justice and is therefore violative of Article 19 (1) (g) of the Constitution of India. (C) This Hon'ble Court ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... believe that the ITC available in the ECL was fraudulently availed or was ineligible as contemplated in the said provision; in this regard, the learned Single Judge noticed that 2 pre-requisites/conditions had to be satisfied/fulfilled before invocation of Rule 86A and blocking the ECL of the appellants and held as under: 18. The first requisite of the Rule which is required to be considered by the competent authority is with regard to the basis of material available before he taking any action for blocking of electronic credit ledger. The second pre-requisite is of recording the reasons in writing for invoking the powers under Rule 86A of the Rules of 2017. Unless the aforesaid two pre-requisites are fulfilled, the competent authority cannot invoke the powers under Rule 86A of the Rules of 2017 for the purpose of disallowing the debit of the determined amount to the electronic credit ledger or to block the electronic credit ledger even to the extent of amount fraudulently or wrongly availed by the petitioners/assessee. 9.1 However, the learned Single Judge came to the erroneous conclusion that the respondents-revenue had fulfilled/satisfied the aforesaid twin/dual prerequisites/ r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said registered person under rule 86A. The reasons for such belief must be based only on one or more of the following grounds: a) The credit is availed by the registered person on the invoices or debit notes issued by a supplier, who is found to be non-existent or is found not to be conducting any business from the place declared in registration. b) The credit is availed by the registered person on invoices or debit notes, without actually receiving any goods or services or both. c) The credit is availed by the registered person on invoices or debit notes, the tax in respect of which has not been paid to the government. d) The registered person claiming the credit is found to be non-existent or is found not to be conducting any business from the place declared in registration. e) The credit is availed by the registered person without having any invoice or debit note or any other valid document for it. 3.1.3 The Commissioner, or an officer authorised by him, not below the rank of Assistant Commissioner, must form an opinion for disallowing debit of an amount from electronic credit ledger in respect of a registered person, only after proper application of mind considering all the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded by the concerned officer in writing on file, before he proceeds to disallow debit of amount from electronic credit ledger of the said person. 9.4 It is clear from the aforesaid CBIC Circular that the respondents-revenue must form an opinion for disallowing debit of an amount from electronic credit ledger in respect of a registered person, only after proper application 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 Rule 86A(1). As stated earlier, Rule 86A, which in effect is the power to block ECL is drastic in nature which creates a disability for the taxpayer to avail of the credit in ECL for discharge of his tax liability which he is otherwise entitled to avail and therefore, all the requirements of Rule 86A would have to be fully complied with before the power there under 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 and cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -established principle of administrative law. On a perusal of the impugned orders, it is crystal clear that the order to block the ECL provisionally was out of the borrowed satisfaction of the respondent authorities rather than based on any independent analysis. 9.8 As stated supra, the impugned order discloses that the same has been passed mechanically and is based on borrowed satisfaction and does not meet the test of formation of an opinion of the Assessing Officer who seems to have been influenced by the findings of the Investigation Wing [i.e, Field visit report by the Asst. State Tax Officer, Vasco-D-Gama, (Goa)] and have not independently formed an opinion on the likely additions to be made during assessment proceedings. In the light of existence of a legal mandatory pre-requirement and precondition of recording of formation of opinion which is in pari-materia with reasons to believe , it was incumbent upon the officer to arrive at his own satisfaction and not borrowed satisfaction by proper application of mind; the respondents have proceeded solely on the basis that the supplier has been found to be non-existent or not to be conducting any business from the place which it h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... drop, it becomes necessary to emphasise that before the Commissioner can levy a provisional attachment, there must be a formation of the opinion and that it is necessary so to do for the purpose of protecting the interest of the government revenue. The power to levy a provisional attachment is draconian in nature. By the exercise of the power, a property belonging to the taxable person may be attached, including a bank account. The attachment is provisional and the statute has contemplated an attachment during the pendency of the proceedings under the stipulated statutory provisions noticed earlier. An attachment which is contemplated in Section 83 is, in other words, at a stage which is anterior to the finalisation of an assessment or the raising of a demand. Conscious as the legislature was of the draconian nature of the power and the serious consequences which emanate from the attachment of any property including a bank account of the taxable person, it conditioned the exercise of the power by employing specific statutory language which conditions the exercise of the power. The language of the statute indicates first, the necessity of the formation of opinion by the Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e alive to the fact that such provisions are not intended to authorise Commissioners to make pre-emptive strikes on the property of the assessee, merely because property is available for being attached. There must be a valid formation of the opinion that a provisional attachment is necessary for the purpose of protecting the interest of the government revenue. 51. These expressions in regard to both the purpose and necessity of provisional attachment implicate the doctrine of proportionality. Proportionality mandates the existence of a proximate or live link between the need for the attachment and the purpose which it is intended to secure. It also postulates the maintenance of a proportion between the nature and extent of the attachment and the purpose which is sought to be served by ordering it. Moreover, the words embodied in sub-section (1) of Section 83, as interpreted above, would leave no manner of doubt that while ordering a provisional attachment the Commissioner must in the formation of the opinion act on the basis of tangible material on the basis of which the formation of opinion is based in regard to the existence of the statutory requirement. While dealing with a simi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 45 of the VAT Act. 72. It is evident from the facts noted above that the order of provisional attachment was passed before the proceedings against the appellant were initiated under Section 74 of the Hpgst Act. Section 83 of the Act requires that there must be pendency of proceedings under the relevant provisions mentioned above against the taxable person whose property is sought to be attached. We are unable to accept the contention of the respondent that merely because proceedings were pending/concluded against another taxable entity, that is, GM Powertech, the powers of Section 83 could also be attracted against the appellant. This interpretation would be an expansion of a draconian power such as that contained in Section 83, which must necessarily be interpreted restrictively. Given that there were no pending proceedings against the appellant, the mere fact that proceedings under Section 74 had concluded against GM Powertech, would not satisfy the requirements of Section 83. Thus, the order of provisional attachment was ultra vires Section 83 of the Act. 73. On 1-3-2021, the appellant has filed an appeal under Section 107 together with a deposit of Rs 32,15,488 represen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... completion of assessment is not sufficient for the purpose of passing a provisional order of attachment. It has also been held that apart from the fact that a writ petition under Article 226 of the Constitution of India challenging the provisional attachment order was maintainable, having regard to the fact that the provisional attachment order of a property of a taxable person including the bank account of such person is draconian in nature and the conditions which are prescribed by the statute for the valid exercise of power must be strictly fulfilled, the exercise of power for order of provisional attachment must necessarily be preceded by formation of an opinion by the authorities that it is necessary to do so for the purpose of protecting the interest of Government revenue. Before the order of provisional attachment, the Commissioner must form an opinion on the basis of the tangible material available for attachment that the assessee is not likely to fulfil the demand payment of tax and it is therefore necessary to do so for the purpose of protecting the interest of the Government revenue. In addition to the aforesaid mandatory requirements, before passing the provisional att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the purpose and necessity of provisional attachment mandates the existence of a proximate or a live link between the need for the attachment and the purpose which it is intended to secure. 13. Further, mere apprehension that huge tax demands are likely to be raised on completion of assessment is not sufficient for the purpose of passing a provisional attachment order and the exercise of the same must necessarily be preceded by the formation of an opinion that it was necessary to do so for the purpose of protecting the interest of Government revenue, that too on the basis of tangible material that the petitioner was not likely to fulfil the demand and on the other hand, was likely to defeat the demand, which is conspicuously missing and absent in the impugned order. 14. The impugned order also discloses that the same has been passed mechanically and is based on borrowed satisfaction and does not meet the test of formation of an opinion of the Assessing Officer who seems to have been influenced by the findings of the Investigation Wing and TPO and have not independently formed an opinion on the likely additions to be made during assessment proceedings. 15. As stated supra, in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t availed earlier. All these factors required that the respondents-revenue ought to have carefully considered and verified all aspects before taking such a drastic action of blocking credit under Rule 86A which is yet another circumstance that would vitiate the impugned order. 9.11 The aforesaid facts and circumstances are sufficient to come to the unmistakable conclusion that in the absence of valid nor sufficient material which constituted reasons to believe which was available with respondents, the mandatory requirements/prerequisites/ ingredients/parameters contained in Rule 86A had not been fulfilled/satisfied by the respondentsrevenue who were clearly not entitled to place reliance upon borrowed satisfaction of another officer and pass the impugned orders illegally and arbitrarily blocking the ECL of the appellant by invoking Rule 86A which is not only contrary to law but also the material on record and consequently, the impugned orders deserve to be quashed. Point No. 2 is also accordingly answered in favour of the appellants by holding that the respondentsrevenue committed a grave and serious error/illegality/infirmity in passing the impugned orders blocking the Electronic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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