Case Note & Summary
The petitioner, Ashapura Steel Metal, through its proprietor Velaram Viraji Choudhary, filed a writ petition under Article 226 of the Constitution of India challenging an order dated 10 March 2023 passed by the State Tax Officer, Pune. The impugned order blocked the petitioner's input tax credit (ITC) of Rs.23,76,520.88 under the CGST Act and an equivalent amount under the MGST Act, totaling Rs.47,53,041.76, by exercising authority under Rule 86-A of the CGST/MGST Rules, 2019. The reason cited was that the petitioner had fraudulently availed ITC during the periods 2021-22 and 2022-23 based on transactions with three vendors: Jai Bhavani Trading, Nesa Projects & Logistics LLP, and Salphon Traders. The petitioner contended that the order was passed without any prior notice or opportunity of hearing, violating principles of natural justice. The respondents argued that Rule 86-A does not mandate a prior hearing and that the order was passed to safeguard government revenue. The court, after hearing both sides, held that the power under Rule 86-A is drastic and must be exercised in conformity with natural justice. Since the impugned order was passed without affording any prior hearing, it was quashed and set aside. The matter was remitted to the State Tax Officer for fresh consideration after giving the petitioner a reasonable opportunity of being heard. The court clarified that it had not expressed any opinion on the merits of the case and that the respondents could pass a fresh order in accordance with law.
Headnote
A) Constitutional Law - Natural Justice - Prior Hearing - Rule 86-A of CGST/MGST Rules, 2019 - The court held that an order blocking input tax credit under Rule 86-A without giving the assessee an opportunity of being heard is violative of principles of natural justice. The impugned order was set aside and the matter remitted for fresh consideration after hearing the petitioner. (Paras 1-15) B) Goods and Services Tax - Input Tax Credit - Blocking of Credit - Rule 86-A of CGST/MGST Rules, 2019 - The court observed that the power under Rule 86-A is drastic and should be exercised only after complying with natural justice. The order blocking credit of Rs.47,53,041.76 was quashed as it did not provide any prior hearing. (Paras 2-15)
Issue of Consideration
Whether the blocking of input tax credit under Rule 86-A of the CGST/MGST Rules without affording a prior hearing to the petitioner is valid in law.
Final Decision
The impugned order dated 10 March 2023 is quashed and set aside. The matter is remitted to the State Tax Officer for fresh consideration after giving the petitioner a reasonable opportunity of being heard. The court clarified that it has not expressed any opinion on the merits.
Law Points
- Natural justice
- prior hearing
- Rule 86-A
- input tax credit blocking
- CGST Act
- MGST Act
- Article 226
