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Case Law Details

Case Name : Tvl. J.M. Traders Vs Deputy Commissioner (ST) (Madras High Court)
Appeal Number : W.P.No.1387 of 2024
Date of Judgement/Order : 08/02/2024
Related Assessment Year :

Tvl. J.M. Traders Vs Deputy Commissioner (ST) (Madras High Court)

The Madras High Court, in the case of Tvl. J.M. Traders Vs Deputy Commissioner (ST), has set a precedent on the procedural requirements under Rule 86A of the Tamil Nadu Goods and Services Tax Rules, 2017 (TNGST Rules) for blocking Input Tax Credit (ITC). The court’s decision emphasizes the necessity for authorities to communicate reasons in writing when exercising their powers to block ITC.

Background: Tvl. J.M. Traders approached the Madras High Court seeking directions to unlock their ITC ledger, which was blocked by the Deputy Commissioner (ST) through a text message on 11.12.2023, without providing any reasons. The petitioner argued that this action was in contravention of Rule 86A of the TNGST Rules, which mandates the communication of reasons in writing for such blocking.

Legal Analysis: Rule 86A empowers the Commissioner or an officer authorized by him to block the ITC in the electronic credit ledger if there is a reason to believe that the credit was fraudulently availed or the registered person was not eligible for such credit. However, the rule also implicitly requires that the reasons for such a belief be communicated in writing to the assessee.

The High Court, referencing the Gujarat High Court’s judgment in New Nalbandh Traders v. State of Gujarat, underscored that while Rule 86A does not explicitly demand a prior notice before blocking ITC, it does necessitate the communication of the reasons for such belief in writing to the assessee. This is to ensure that the assessee is afforded a fair opportunity to understand and contest the authorities’ actions.

Madras HC Orders Unblocking of ITC under Rule 86A for Lack of Written Reasons

Court’s Decision: The Madras High Court found that in the case of Tvl. J.M. Traders, the authorities had failed to provide written reasons for blocking the ITC, which was a breach of the procedural requirements under Rule 86A. Consequently, the court directed the first respondent to take necessary actions to remove the block on the ITC in the electronic credit ledger pertaining to the assessee. However, the court also allowed the authorities to initiate de novo action under Rule 86A, provided they comply with the terms thereof, including the communication of reasons in writing.

Conclusion: This judgment by the Madras High Court reinforces the legal principle that the exercise of administrative powers, especially those affecting the rights and interests of taxpayers, must be accompanied by transparency and fairness. By mandating the communication of reasons in writing for blocking ITC under Rule 86A, the court ensures that taxpayers are not left in the dark about the actions taken against them and are given an opportunity to contest such actions. This decision is a significant step towards safeguarding the procedural rights of taxpayers in the GST regime.

FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT

The petitioner seeks a direction to the first respondent to raise the block on Input Tax Credit (ITC) to the extent of Rs.9,90,126/-. The petitioner states that ITC to the extent specified above was blocked by the second respondent by issuing a text message on 11.12.2023. The present writ petition was filed in those circumstances.

2. Learned counsel for the petitioner submits that the respondent acted in contravention of Rule 86A of the Tamil Nadu Goods and Services Tax Rules, 2017 (TNGST Rules). He relies on the judgment of the Gujarat High Court in New Nalbandh Traders v. State of Gujarat and others  Manu/GJ.0631/2022 in this regard.

3. In response to these contentions, learned Government Advocate submits that a show cause notice was issued subsequently to the petitioner on 26.12.2023. She also submits that even prior to receipt of such show cause notice, the petitioner submitted an explanation on 20.12.2023. Therefore, she contends that no prejudice was caused to the petitioner and that the response of the petitioner is under consideration. Besides, she contends that if the petitioner is permitted to utilize the ITC, at this juncture, revenue would be put to

4. The matter hinges on Rule 86A of the TNGST Rules. The said Rule is set out below:

86A. Conditions of use of amount available in electronic credit ledger

(1) The Commissioner or an officer authorised by him in this behalf, not below the rank of an Assistant Commissioner, having reasons to believe that credit of input tax available in the electronic credit ledger has been fraudulently availed or is ineligible inasmuch as‑

(a) the credit of input tax has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36-

(i) issued by a registered person who has been found non-existent or not to be conducting any business from any place for which registration has been obtained; or

(ii) without receipt of goods or services or both; or

(b) the credit of input tax has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36 in respect of any supply, the tax charged in respect of which has not been paid to the Government; or

(c) the registered person availing the credit of input tax has been found non-existent or not to be conducting any business from any place for which registration has been obtained; or

(d) the registered person availing any credit of input tax is not in possession of a tax invoice or debit note or any other documents prescribed under rule 36, may, for reasons to be recorded in writing, not allow debit of an amount equivalent to such credit in electronic credit ledger for discharge of any liability under section 49 or for claim of any refund of any unutilised amount.

(2) The Commissioner, or the officer authorised by him under sub-rule (1) may, upon being satisfied that conditions for disallowing debit of electronic credit ledger as above, no longer exist, allow such debit.

(3) Such restriction shall cease to have effect after the expiry of a period of one year from the date of imposing such restriction.”

5. The power under Rule 86A may be exercised by any of the persons specified in sub-rule (1) thereof if such person has reasons to believe that the ITC available in the electronic credit ledger was fraudulently availed or that the registered person was not eligible for such credit. The text of Rule 86A indicates two requirements: the objective satisfaction of the officer concerned and the communication of reasons for so believing in writing to the assessee concerned. While Rule 86A does not stipulate a prior notice, the language thereof and the nature of power exercised by resort thereto require the contemporaneous communication of reasons in writing to the assessee. In the case at hand, apart from mentioning the name of the supplier in the electronic credit ledger, no reasons were provided. Therefore, the petitioner is entitled to the unblocking of ITC.

6. Hence, W.P.No.1387 of 2024 is disposed of by directing the first respondent to take necessary action to remove the block on the ITC in the electronic credit ledger pertaining to the assessee. It is, however, open to the respondents to initiate de novo action under Rule 86A by complying with the terms thereof. There shall be no order as to costs.

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