Department can't block your ITC unless they've Issued an order under Section 74 of the CGST Act or Rule 86A of the CGST Rules..

Introduction

In a recent legal development, an instant writ petition has been filed seeking judicial relief against the blocking of an Input Tax Credit (ITC) account, amounting to Rs. 34,99,550/- as State Goods and Services Tax (SGST) and Rs. 34,99,550/- as Central Goods and Services Tax (CGST). The petitioner alleges that this action is illegal, without jurisdiction, unenforceable, and contrary to the provisions of the Constitution of India and the Central Goods and Services Tax Act, 2017.

Legal Proceedings and Arguments

• The proceedings commenced with Dr. S.V. Rama Krishna, learned Senior Counsel representing the petitioner, and legal representatives for the respondents presenting their arguments. The petitioner contends that the blocking of the ITC account violates Rule 86A of the CGST Rules, 2017, as the respondents allegedly failed to comply with statutory requirements and did not follow due process before initiating the blocking.
• The petitioner asserts that their response to the notice, including relevant documents such as purchase and sales ledgers, was ignored by the authorities. The petitioner claims that the authorities hastily blocked the ITC, declaring the entire transaction as bogus and involving non-existing companies. The primary argument is that the respondents' action lacked a proper show cause notice, rendering it legally flawed.
• On the other hand, the State contends that the petitioner fraudulently availed ITC by providing invoices from non-existing entities. According to the State, multiple companies engaged in similar practices, and the blocking of the ITC account was a consequence of large-scale discrepancies.

Analysis of Notices and Rules

• The court scrutinized the contents of Annexure-P2, a notice dated 02.12.2022, highlighting fraudulent ITC availment and calling on the petitioner to explain. The court observed that the notice lacked specificity and failed to mention the proceedings under Section 74 of the Telangana State (TS) GST Act, 2017. Furthermore, the court examined the impugned notice, dated 02.12.2022, and emphasized that it did not conform to the requirements of Rule 86A.

Legal Framework: Rule 86A

• Rule 86A outlines the conditions for the use of amounts available in the electronic credit ledger. It empowers authorized officers to disallow the debit of an amount equivalent to fraudulently availed credit. However, such actions must adhere to specific conditions, including the existence of a non-existent or non-business-conducting registered person or the absence of proper documentation.

Court's Decision and Conclusion

• The court concluded that the impugned notice was neither under Section 86A nor Section 74 of the Act. The court held that the notice contravened statutory provisions governing the blocking of ITC and set aside the order on technical grounds. The judgment emphasized that the State retains the right to take appropriate steps in accordance with the law concerning the alleged invalid ITC availment.

Conclusion

• This legal saga unfolds as a testament to the intricacies of tax laws and the importance of adhering to due process. The court's decision, grounded in the interpretation of rules and notices, highlights the necessity for meticulous adherence to statutory provisions in matters of tax assessment and credit blocking. The case serves as a reminder of the delicate balance between taxpayer rights and the state's duty to curb fraudulent practices in the realm of Goods and Services Tax.

Topic-A.S.E. India Versus Union of India

Court-TELANGANA HIGH COURT

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