GST - Punjab and Haryana High Court: Input Tax Credit ledger cannot be blocked under Rule 86A without independent application of officer’s mind that can constitute reasons to believe that credit is fraudulently availed – Impugned Order is liable to set aside.
Order Date: 31 May 2022
- The Petitioner, M/s Rajnandi Metals Limited, was engaged in manufacturing of copper wire rod and submersible winding wire.
- The respondents blocked Input Tax Credit amounting to Rs.1.9 Crore lying in Electronic Credit Ledger on 02 September 2021 as per Rule 86A of the CGST Rule.
- The basis to block credit ledger was that Show Cause Notice was issued to one of the supplier of Petitioner viz. M/s Bhagwati Metals for cancellation of registration on 05 February, 2021, the same was however dropped vide order dated 23 February 2021. However, on 01 July 2021, the proceedings against the said M/s Bhagwati Metals were again initiated and the GSTIN was thereafter cancelled on 27 July 2021.
- Respondent vide order dated 17 December 2021 rejected the representation of the petitioner seeking unblocking of its Input Tax Credit.
- Whether the petitioner was guilty of fraudulent transaction or was ineligible under Section 16 of the CGST Act?
- The Court found that the reason to invoke the power conferred under Rule 86A of CGST Rules against the petitioner was an intelligence report received from Principal Chief Commissioner, Central Excise and Central Tax, Vadodara Zone regarding a racket of firms indulging in fake judicial and passing of illicit ITC.
- There was no reason recorded by the Authority for exercising power under Rule 86A of the CGST Act, 2017 which would show independent application of mind that can constitute reasons to believe which is sine qua non for exercising power under Rule 86A of the CGST Rules.
- From reading of the order, the HC held that it is evident that it is bereft of any material or 'reason to believe' that the petitioner was guilty of fraudulent transaction or was ineligible under Section 16 of the CGST Act.
- Therefore, the writ petition is allowed and the impugned order is set aside.