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TMI Blog2024 (11) TMI 460X X X X Extracts X X X X X X X X Extracts X X X X ..... d counsel for the respondents and perused the material on record. 3. A perusal of the material on record will indicate that the Input Tax Credit [ITC] of the petitioner was blocked by the impugned order at Annexure - A dated 09.07.2024, by invoking Rule 86A of the Central Goods and Services Tax Rules, 2017 (for short 'the CGST Rules'). In this context, learned counsel for the petitioner invited my attention to the material on record in order to point out that before passing the impugned order, pre-decisional hearing was not provided to the petitioner nor does the impugned order contain any reason to believe as to why it was necessary to block the ITC and in view of the judgment of the Division Bench of this Court in the case of K-9-Enterprises Vs. State of Karnataka reported in W.A. No. 100425/2023 and connected matters, the impugned order deserves to be quashed. 4. Per contra, learned counsel for respondents supports the impugned order and submit that there is no merit in the petition and the same is liable to be dismissed. 5. In K-9-Enterprises's case referred to supra, the following points were answered in favour of the petitioner- assessee by holding as under: "8.13 In vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rily mean that the respondents must arrive at a satisfaction based on their own independent inquiry and not upon borrowed inquiry as has been done in the instant case. 9.2 The learned Single Judge also failed to appreciate that Rule 86A was drastic and draconian in nature warranting existence of "reasons to believe" before exercising the said power by strictly complying with all the conditions / requirements of the said provision; further, an order blocking the ECL by invoking Rule 86A cannot be passed merely based on investigation reports and without any application of mind and that the onus was on the respondents - revenue to show that the appellants had deliberately availed fraudulent or ineligible ITC; in the instant case, the ECL of the appellants had been blocked by the respondents without verifying the genuineness of the transaction and a bona fide purchaser cannot be denied ITC on account of a supplier's default and the recipient cannot be made to suffer denial of ITC for the wrong doings of the supplier; so also, blocking of ECL would defeat the principles and purpose of value added tax and would lead to a cascading effect thereby resulting in irreparable injury and hard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) fit 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 material evidence available or gathered in relation to fraudulent availment of input tax credit or ineligible input tax credit availed as per the conditions/ grounds under sub-rule (1) of rule 86A. 3.3.1 The amount of fraudulently availed or ineligible input tax credit availed by the registered person, as per the grounds mentioned in sub-rule (1) of rule 86A, shall be prima facie ascertained based on material evidence available or gathered on record. It is advis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to take action solely on the basis of a direction issued by another authority. Before the drastic measure to block a taxpayer's ECL is taken, it was necessary for the concerned officer to have some material to form a belief that the conditions under Rule 86A are satisfied by making an independent analysis before such action is taken and even this aspect has not been considered or appreciated by the learned Single Judge while passing the impugned order, which deserves to be set aside on this ground also. 9.6 The learned Single Judge also did not appreciate 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) fit 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt held as under: 10. A perusal of the impugned order will indicate that except for stating that there is likely addition of the amount mentioned in the order, no reasons, much less valid or cogent reasons are assigned by the 1st respondent as to how and why he has formed an opinion that it was necessary to provisionally attach the fixed deposits of the petitioner for the purpose of protecting the interest of the revenue. The requirements and parameters preceding passing of a provisional attachment order came up for consideration before the Apex Court in the case of Radha Krishan Industries' case (supra), wherein it was held as under:- 48. On the other hand, when the proper officer is of the opinion that the amount which has been paid under sub-section (5) falls short of the amount which is actually payable, a notice under sub-section (1) is to issue for the amount which falls short of what is actually payable. Sub-section (8) contains a stipulation that where a person who is chargeable with tax under sub-section (1) pays the tax together with interest and a penalty of twenty- five per cent of the tax within thirty days of the issuance of the notice, all proceedings in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rules in regard to the manner of attachment. Each of these components of the statute are integral to a valid exercise of power. In other words, when the exercise of the power is challenged, the validity of its exercise will depend on a strict and punctilious observance of the statutory preconditions by the Commissioner. While conditioning the exercise of the power on the formation of an opinion by the Commissioner that "for the purpose of protecting the interest of the government revenue, it is necessary so to do", it is evident that the statute has not left the formation of opinion to an unguided subjective discretion of the Commissioner. The formation of the opinion must bear a proximate and live nexus to the purpose of protecting the interest of the government revenue. 50. By utilising the expression "it is necessary so to do" the legislature has evinced an intent that an attachment is authorised not merely because it is expedient to do so (or profitable or practicable for the Revenue to do so) but because it is necessary to do so in order to protect interest of the government revenue. Necessity postulates that the interest of the Revenue can be protected only by a provisional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttach provisionally any property belonging to the dealer in such manner as may be prescribed."] of the Gujarat Value Added Tax Act, 2003, one of us (Hon'ble M.R. Shah, J.) speaking for a Division Bench of the Gujarat High Court in Vishwanath Realtor v. State of Gujarat [Vishwanath Realtor v. State of Gujarat, 2015 SCC OnLine Guj 6564] observed : (Vishwanath Realtor case [Vishwanath Realtor v. State of Gujarat, 2015 SCC OnLine Guj 6564] , SCC OnLine Guj para 26) "26. Section 45 of the VAT Act confers powers upon the Commissioner to pass the order of provisional attachment of any property belonging to the dealer during the pendency of any proceedings of assessment or reassessment of turnover escaping assessment. However, the order of provisional attachment can be passed by the Commissioner when the Commissioner is of the opinion that for the purpose of protecting the interest of the Government Revenue, it is necessary so to do. Therefore, before passing the order of provisional attachment, there must be an opinion formed by the Commissioner that for the purpose of protecting the interest of the Government Revenue during the pendency of any proceedings of assessment or reassessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of tax in dispute arising from the said order, in relation to which the appeal has been filed." Sub-section (7) stipulates that: "107. (7) Where the appellant has paid the amount under sub-section (6), the recovery proceedings for the balance amount shall be deemed to be stayed." 74. Clause (a) of sub-section (6) provides that no appeal shall be filed without the payment in full, of such part of the amount of tax, interest, fine, fee and penalty arising from the impugned order as is admitted. In addition, under clause (b), ten per cent of the remaining amount of tax in dispute arising from the order has to be paid in relation to which the appeal has been filed. Upon the payment of the amount under sub-section (6) the recovery proceedings for the balance are deemed to be stayed. Thus, in any event, the order of provisional attachment must cease to subsist. The appellant, having filed an appeal under Section 107, is required to comply with the provisions of sub-section (6) of Section 107 while the recovery of the balance is deemed to be stayed under the provisions of sub- section (7). As observed hereinabove and under Section 83, the order of provisional attachment may be pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue. 9. Applying the principles laid down in Radha Krishan's case (supra) to the facts of the instant case, a perusal of the impugned provisional attachment order will clearly indicate that except for merely stating that since there is a likelihood of huge tax payments to be raised on completion of assessment and that for the purpose of protecting the revenue, it is necessary to provisionally attach the fixed deposit of the petitioners, the other mandatory requirements and pre-condition as laid down by the Apex Court have neither been complied with nor fulfilled or followed prior to passing the impugned order. It is apparent that the impugned provisional attachment orders at Annexures-D, D1, D2 and D3 do not satisfy the legal requirements as laid down in Radha Krishan's case (supra) and consequently, in view of the fact that the impugned provisional orders are cryptic, unreasoned, non- speaking and laconic, the same deserve to be quashed. 10. Insofar as the apprehension of the respondents that in the event huge tax payments are to be raised as against the petitioners - assessee, the assessee may not make payment of the same causing loss to the revenue is concerned, in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and consequently, the impugned order which is bald, vague, cryptic, laconic, unreasoned and non-speaking order deserves to be set aside, particularly having regard the undisputed fact that except for stating that he was of the opinion that it was necessary to attach the fixed deposits for the purpose of protecting the interest of the revenue, no other reasons have been assigned by the 1st respondent in the impugned order. 16. A perusal of the impugned order will also indicate that there is no finding recorded as to why a provisional order of attachment had to be passed against the petitioner; it is significant to note that there is no finding recorded by the 1st respondent that the petitioner was a 'fly by night operator' from whom it was not possible to recover the likely demand. The impugned order also does not state that the petitioner was either a habitual defaulter nor that he was not doing any business at all or that the petitioner did not have sufficient funds to satisfy the demand. In other words, in the absence of any reasons as to why and how the demand would be defeated by the petitioner, mere apprehension that huge tax demands are likely to be raised on completion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order, coupled with the fact that the impugned order invoking Section 86A of the CGST Rules by blocking of the ITC of the petitioner does not contain independent or cogent reasons to believe except by placing reliance upon the reports of Enforcement authority which is impermissible in law, since the same is on borrowed satisfaction as held by the Hon'ble Division Bench of this Court, the impugned order deserves to be quashed. 7. It is also pertinent to note that in the impugned order except stating that "a registered person/s who has been found non-existent or not to be conducting any business from any place for which registration has been obtained in contravention of the above provisions", no other reasons are forthcoming in the impugned order. On this ground also, the impugned order dated 09.07.2024 deserves to the quashed. 8. In the result, I pass the following: ORDER (i) The petition is hereby allowed. (ii) Impugned order dated 09.07.2024 at Annexure-A is hereby quashed. (iii) The concerned respondents are directed to unblock the ITC of the petitioner immediately upon the receipt of copy of this order, so as to enable the petitioner to file returns forthwith. (iv) Liber ..... X X X X Extracts X X X X X X X X Extracts X X X X
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