Bhavani Oxides and others Vs State of Telangana and others. (Telangana High Court)
Summary: The Telangana High Court considered a batch of writ petitions involving blocking of electronic credit ledgers under Rule 86A of the CGST Rules, 2017. The matters were heard and decided together because they involved similar questions.
The petitioners included proprietorship firms engaged in business activities and registered under the GST authorities of Telangana. In W.P.No.10390 of 2024, the petitioner claimed to be a bona fide purchaser of inputs and stated that it possessed tax invoices, e-way bills and weighment slips. On 14.03.2024, the State Tax Officer purportedly exercised the power under Rule 86A and blocked the petitioner’s electronic credit ledger by mentioning that the supplier’s registration had been cancelled. According to the petitioners, the ledger was blocked without a show cause notice, while necessary details and reasons forming the foundation for the action were not disclosed.
The petitioners contended, among other things, that proceedings under Section 74 of the CGST Act had already been initiated in W.P.No.10390 of 2024 and remained pending. They submitted that the Department should have proceeded in accordance with that notice and followed the prescribed procedure before reaching a final decision. Reliance was placed on the Telangana High Court decisions in M/s. Laxmi Fine Chem v. Assistant Commissioner and M/s. Sri Krishna Enterprises v. The Superintendent of Central Tax, as well as the Gujarat High Court decision in Samay Alloys India Pvt. Ltd v. State of Gujarat. The petitioners also relied upon Circular No. CBEC-20/16/05/2021-GST/1552 dated 02.11.2021, contending that the Department itself had recognised that Rule 86A was an extraordinary power which should not be exercised mechanically.
