Karan Agencies Vs State of Maharashtra (Bombay High Court)
In this case, the Bombay High Court dealt with a batch of petitions challenging show cause and pre-intimation notices issued by the tax authorities proposing action, including blocking of Input Tax Credit (ITC). The department alleged that ITC was availed on the basis of bogus invoices, non-existent suppliers, or without actual movement of goods or services. The petitioners also challenged the constitutional validity of Section 16(2)(c) of the CGST Act, contending that it imposed an unreasonable burden on recipients and violated constitutional rights.
The Court observed that the CGST Act and Rules constitute a complete statutory framework governing such matters. While acknowledging that blocking of ITC has serious consequences on business operations, it held that such action must be assessed on a case-by-case basis to determine whether it is supported by tangible material and a rational basis. The Court also noted that fraudulent ITC claims cannot be permitted under the statutory scheme.
With respect to the show cause notices, the Court held that they must be adjudicated individually based on facts and evidence, and that it would not be appropriate to undertake a collective examination at this stage. It further held that entertaining a constitutional challenge to Section 16(2)(c) at the notice stage would be premature, as no final adjudication had yet taken place.
