Case Law Details
Rameswar Metal House Vs Assistant Commissioner (ST) (Madras High Court)
Introduction
The case of Rameswar Metal House Vs Assistant Commissioner (ST) recently heard by the Madras High Court has garnered attention for its implications on the Input Tax Credit (ITC) under the Tamil Nadu Goods and Services Tax (TNGST) Rules 2017. The ruling deals with the legality of blocking ITC and provides an intriguing perspective on the applicability of Rule 86A of the TNGST Rules.
The Background
Rameswar Metal House, a wholesale dealer in stainless steel items, found its Input Tax Credit amounting to Rs. 67,75,144 blocked by the State GST authorities under Rule 86A of the TNGST Rules. This action came after the credit was unblocked by the CGST authorities earlier.
Points of Contention
The crux of the matter lay in the petitioner’s assertion that the blocking of ITC was incorrect. The counsel for the petitioner relied on a decision by the Punjab and Haryana High Court in the Rajnandini Metal Limited case. However, the Madras High Court found this reference distinguishable due to the specific circumstances of Rameswar Metal House’s case, including involvement with a trader, M/s. Kiran Distributors, found to have passed on ineligible ITC.
The Madras High Court’s Stance
The court held that there was no merit in interfering with the blocked ITC as it was availed on the strength of invoices from a trader later found to be a non-existing entity engaged in passing on ineligible ITC. The court also mentioned that the petitioner had the liberty to challenge the impugned order before the Appellate Authority.
Rule 86A and Input Tax Credit
The case brings into focus Rule 86A of the TNGST Rules, which allows authorities to block ITC in certain circumstances. The court suggested that blocking of ITC in this case was warranted due to the alleged fraudulent transactions involving M/s. Kiran Distributors.
Conclusion
The case of Rameswar Metal House Vs Assistant Commissioner (ST) highlights the complexities involved in the governance of Input Tax Credits under the TNGST Rules. The Madras High Court’s ruling aligns with the stringent measures intended to combat fraudulent ITC claims. The verdict indicates the court’s cautious approach in such matters, underlining the necessity for traders to exercise diligence in ensuring the legitimacy of their Input Tax Credits. This case serves as a warning to businesses and as a precedent for future adjudications involving similar disputes.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
Mrs. E. Ranganayaki, learned Special Government Pleader takes notice on behalf of the respondents.
2. The petitioner, a wholesale dealer in stainless steel items appears to have purchased steel products from M/s. Kiran Distributors and resorted to have passed on ineligible Input Tax Credit to numerous tax payers including the petitioner.
3. Therefore, input tax credit lying in the Electronic Credit Ledger to the extent of Rs.18,49,230/- of the petitioner was blocked twice by the CGST authorities on 16.01.2020 and thereafter on 15.04.2022. The credit was unblocked on 04.05.2023 at the expiry of the period. Meantime, the petitioner had also filed W.P.No.17408 of 2020. The said writ petition was withdrawn as the credit was unblocked on 04.05.2023 by the CGST authorities under the Central Goods and Services Tax (CGST) Act, 2017.
4. Now, the State GST authorities, the respondents herein have invoked some provision namely Rule 86A of the Tamil Nadu Goods and Services Tax (TNGST) Rules, 2017 and have blocked a sum of Rs.67,75,144/- vide impugned intimation dated 26.06.2023 under Rule 86-A(1)(a) and (c) of the TNGST Rules, 2017.
5. The case of the petitioner is that blocking of the Input Tax Credit is incorrect as the petitioner is being denied the utilization of input tax credit availed on the purchases made from various buyers for discharging tax liability.
6. The learned counsel for the petitioner has placed reliance on the decision of the Punjab and Haryana High Court in Rajnandini Metal Limited Union of India, [2022] 140 taxmann.com 325 (Punjab and Haryana).
7. A specific reference was made to Paragraph 11 from the said decision, which reads as under:-
“11.The impugned order in the present case when tested on the touchstone of the provision contained in rule 86A and the law referred to herein above, we find that the reason to invoke the power conferred under rule 86A of CGST Rules against the petitioner is an intelligence report received from Principal Chief Commissioner, Central Excise and Central Tax, Vadodara Zone regarding a racket of firms including in fake judicial and passing of illicit ITC. Merely by recording that some investigation is going-on a drastic far-reaching action under Rule 86A of the CGST Rules cannot be sustained. There is 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. It is trite law that a speaking order has to be self sustainable and respondents at this stage cannot be allowed to justify the same by adding reasons to it by filing additional affidavits. From the reading of the order it is evident that it is bereft of any material or ‘reason to believe’ that the petitioner is guilty of fraudulent transaction or is ineligible under section 16 of the CGST Act.”
8. Prima facie, there is no case made out for interfering with the steps taken by the respondents blocking the Input Tax Credit amounting to Rs.67,75,144/- as the petitioner appears to have availed Input Tax Credit on the strength of invoices of the trader/supplier namely M/s. Kiran Distributors, why is not having any business that was reportedly engaged in passing on ineligible input tax credit to various/numerous tax payers including the petitioner.
9. The decision of the Punjab and Haryana High Court in Rajnandini Metal Limited case (referred to supra) is distinguishable in the facts of the present case as the intimation issued to the petitioner categorically states that the Office of the respondents has received report that the trader/supplier namely M/s. Kiran Distributors was non-existing entity and had not conducted any business activity at the address for which, registration was obtained and found to have passed on ineligible input tax credit to numerous tax payers.
10. Considering the same, I do not find any merits to interfere with the impugned order. However, liberty is given to the petitioner to challenge the impugned order before the Appellate Authority. Meanwhile, the respondents are directed to initiate appropriate proceedings under Section 73 or 74 of the Act as the case may be to recover the ineligible input tax credit availed by the petitioner.
11. This Writ Petition is dismissed with the above observations. No costs. Consequently, connected Writ Miscellaneous Petition is closed.
