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TMI Blog2025 (1) TMI 251X X X X Extracts X X X X X X X X Extracts X X X X ..... 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.' Since no pre-decisional hearing was provided/granted by the respondents before passing the impugned order, coupled with the fact that the impugned order invoking Section 86A of the CGST Rules by blocking of the Electronic credit ledger 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. It is also pertinent to note that in the impugned order except stating that a registered supplier who has been found to be non-existent or not to be conducting business from his place of registration , no other reasons are forthcoming in the impugned order. On this ground also, the impugned order dated 06.06.2024 deserves to the quashed. Conclusion - The impugned order is quashed, since no pre-decisional hearing was provided/granted by the respondents before passing the impugned o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 view of the aforesaid discussion, we are of the considered opinion that the learned Single Judge clearly fell in error in coming to the conclusion that a pre-decisional hearing was not required to have been provided/granted to the appellants by the respondents- revenue prior to passing the impugned orders blocking the ECL of the appellants and consequently, the said findings recorded by the learned Single Judge deserve to be set aside. 9. The next point that arises for consideration is as to whether the respondents-revenue were justified in passing the impugned orders blocking the Electronic Credit Ledgers of the appellants by invoking Rule 86A of the CGST Rules which mandates that the respondents-revenue should have reasons to believe that the ITC available in the ECL was fraudulently availed or was in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of the transaction and a bonafide 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 hardship to the appellants especially when ITC was a valuable right which cannot be confiscated in a manner opposed to law. 9.3 The learned Single Judge also failed to appreciate that the procedure prescribing the requirements for blocking ECL has been explained by the respondents themselves in the CBEC Circular dated 02.11.2021, the relevant portions are as under: 3.1.2 Perusal of the rule makes it clear that the Commissioner, or an officer authorised by him, not below the rank of Assistant Commissioner, must have reasons to believe that credit of input tax available in the electronic credit ledger is either ineligible or has been fraudulently availed by the registered person, before disallowing the debit of amount from electronic credit ledger of the said registered person under rule 86A. The reasons for such belief must b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 advised that the powers under rule 86A to disallow debit of the amount from electronic credit ledger of the registered person may be exercised by the Commissioner or the officer authorized by him, as per the monetary limits detailed in Para 3.2.1 above. The officer should apply his mind as to whether there are reasons to believe that the input tax credit availed by the registered person has either been fraudulently availed or is ineligible, as per conditions/ grounds mentioned in sub-rule (1) of rule 86A and whether disallowing such debit of electronic credit ledger of the said person is necessary for restricting him from utilizing/ passing on fraudulently availed or ineligible input tax credit to protect the interests of revenue. Such Reasons to believe shall be duly recorded by the concerned officer in writing on file, before he proceeds to dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectronic 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 in Rule 86A. 9.7 A perusal of the impugned orders will indicate that the same have been passed based on the communication received from other officers, without any independent application of mind. This shows that exercise of power under Rule 86A was not because he was independently satisfied about the need for blocking the ECL but, was due to the fact that he felt compelled to obey the command of another officer. This is not the manner in which the law expects the power under rule 86A 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. On a perusal of the impugne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 of the notice shall be deemed to be concluded. Under sub-section (9), the proper officer after considering the representation of the person chargeable to tax is authorised to determine the amount of tax, interest and penalty due and to issue an order. A period of five years is stipulated by sub-section (10) for the issuance of an order in sub-section (9). Sub-section (11) stipulates that upon service of an order under subsection (9), all proceedings in respect of the notice shall be deemed to be concluded upon the person paying the tax with interest under Section 50 and a penalty equivalent to 50 per cent of the tax within thirty days of the communication of an order. These provisions indicate how sub-sections (5), (8) and (11) operate at different stages of the process. 49. Now in this backdrop, it becomes necessary to emphasise that before the Commissioner ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 attachment without which the interest of the Revenue would stand defeated. Necessity in other words postulates a more stringent requirement than a mere expediency. A provisional attachment under Section 83 is contemplated during the pendency of certain proceedings, meaning thereby that a final demand or liability is yet to be crystallised. An anticipatory attachment of this nature must strictly conform to the requirements, both substantive and procedural, embodied in the statute and the rules. The exercise of unguided discretion cannot be permissible because it will leave citizens and their legitimate business activities to the peril of arbitrary power. Each of these ingredients must be strictly applied before a provisional attachment on the property of an assessee can be levied. The Commissioner must be alive to the fact that such provisions are not intended to authorise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 reassessment, it is necessary to attach provisionally any property belonging to the dealer. However, such satisfaction must be on some tangible material on objective facts with the Commissioner. In a given case, on the basis of the past conduct of the dealer and on the basis of some reliable information that the dealer is likely to defeat the claim of the Revenue in case any order is passed against the dealer under the VAT Act and/or the dealer is likely to sale his properties and/or sale and/or dispose of the properties and in case after the conclusion of the assessment/reassessment proceedings, if there is any tax liability, the Revenue may not be in a position to recover the amount thereafter, in such a case only, however, on formation of subjective satisfaction/opinion, the Commissioner may exercise the powers under Section 45 of the VAT Act. 72. It is evident from the facts noted abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 passed during the pendency of any proceedings under Section 62 or Section 63 or Section 64 or Section 67 or Section 73 or Section 74. Therefore, once the final order of assessment is passed under Section 74 the order of provisional attachment must cease to subsist. Therefore, after the final order under Section 74 of the Hpgst Act was passed on 18-2-2021, the order of provisional attachment must come to an end. 11. The said judgment which was passed while dealing with identical provisions under the CGST Act, 2017 and Rules made there under was followed by this Court in the context of Section 281B of the I.T. Act by this Court in Indian Minerals Case (supra), wherein it was held as under:- 8. As held by the Apex Court in the aforesaid decision, mere apprehension on the part of the respondents that huge tax demands are likely to be raised on completion of assessment is not sufficient for the purpose of pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onic, 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 light of the undisputed fact that the proceedings under Section 153A of the said Act of 1961 have already been initiated coupled with the fact that Section 281 of the said Act of 1961, contemplates that any alienation of any property belonging to the petitioners would be null and void, in addition to the specific assertion made by the petitioner that they own and possess immovable property to the tune of more than Rs.300 crores, the said apprehension of the respondents is clearly unfounded and without any basis and consequently, the said apprehension of the respondents cannot be accepted . 12. In the instant case, a perusal of the impugned order will clearly indicate that the same is arbitrary and reflects premeditated conclusion without recording either an opinion or necessary to attach the property; the doctrine of proportionality which is implicated in the purpose and necessity of provisional attachment mandat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessment was not sufficient to constitute formation of opinion and existence of proximate and live link for the purpose and necessity of provisional attachment which implicate the doctrine of proportionality. Under these circumstances also, I am of the considered opinion that the impugned order deserves to be quashed. 9.10 On perusal of the entire material on record, we are satisfied that the said independent arrival of opinion that there was a reason to believe is not found forthcoming from the order issued blocking the said credit and it is entirely based on the satisfaction of another officer; it is quite possible that the transaction, when entered into in 2017 or 2018 could be genuine and when the officer visits in 2020 or 2021, the business could have been closed and therefore the mere closure of business in 2020 or 2021 cannot be a basis for denying credit availed earlier. All these factors required that the responden ..... X X X X Extracts X X X X X X X X Extracts X X X X
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