Order Date – 07 March 2023

Parties: M/s Parity Infotech Solutions Pvt Ltd Vs Government of National Capital Territory of Delhi & ors

Facts – 

• The Petitioner, M/s Parity Infotech Solutions Pvt Ltd, has received an e-mail on 26.11.2020 stating that the balance in ECL has been blocked by the sales tax officer class II. However, no reasons for blocking were reflected on the portal. The petitioner sent e-mails but no satisfactory reply was received.
• On 28.02.2022 issued a show cause notice calling upon the petitioner to furnish a response along with supporting documents in support of its claim. Although the notice also stated that the petitioner could appear before the concerned officer, however, the column against the entry date of personal hearing and time of personal hearing, was entered as ‘NA’.
• A few days later, on 30.03.2022, respondent issued the impugned order under Section 74 of the “GST Act, 2017” calling upon the petitioner to pay an amount of ₹27,88,200/- and the same has been debited from petitioner’s ECL.

Issue –

• Whether blocking of ITC is in order?

Order –

• The Divisional Bench of Hon’ble High Court observed that in terms of Rule 86A of the Rules, it is necessary for the concerned officer i.e., Commissioner or an officer authorized by him not below the rank of Assistant Commissioner, to record the reasons for blocking the ITC in writing.
• The respondents had no material to form any opinion that the ITC had been availed wrongly on account of any fraud or any wilful-misstatement or suppression of facts to evade tax. The impugned show cause notice is not in conformity with the provisions of Section 74 of the CGST Act and is, thus, without authority of law.
• It is also clear from a plain reading of the impugned instructions that it suggests that the exercise of issuing a show cause notice and creating a demand should be completed before unblocking the ITC notwithstanding that the period of one year has elapsed after the blocking of the ITC. This is contrary to the express provisions of Rule 86A(3) of the Rules.
• Hence the impugned show cause notice and the impugned order are set aside. The respondents are directed to forthwith restore the ITC appropriated pursuant to the demand created by the impugned order, to the ECL of the petitioner.