Case Law Details
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.
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