Case Law Details
Padmavathi Electrometals (P) Limited Vs Assistant Commissioner of Commercial Taxes (Karnataka High Court)
In a significant legal victory, the Karnataka High Court recently ruled in the case of Padmavathi Electrometals (P) Limited vs Assistant Commissioner of Commercial Taxes regarding the blocking of Input Tax Credit (ITC) under GST rules. The court’s decision centered on the legality of such actions after the lapse of a one-year period.
The petitioner, Padmavathi Electrometals (P) Limited, contested the notice issued by the Assistant Commissioner of Commercial Taxes, Karnataka, dated April 21, 2023. The notice, along with subsequent actions in May and June 2023, blocked the company’s Credit Ledger under Rule 86A of CGST/IGST Rules, 2017. This blocking was purportedly due to concerns over the legitimacy of claimed ITC.
Under Rule 86A(3) of the GST rules, the blocking of ITC is permissible for a maximum period of one year. The petitioner argued against the legality of the action, stating that the one-year period had expired by the time of the court’s intervention.
The Karnataka High Court, in its order dated May 19, 2023, acknowledged the lapse of the one-year period and set aside the order to block ITC. Consequently, the Credit Ledger blocking actions taken on May 20, 2023, June 3, 2023, and June 5, 2023, were also annulled.
During the proceedings, the respondent indicated an intent to proceed with the cancellation of registration, although this was deferred pending the outcome of the present case. The petitioner’s counsel cited medical reasons for the delay in filing an affidavit but assured the court of the intention to comply with return filing requirements.
Based on the facts presented and the expiration of the one-year period stipulated under Rule 86A(3), the Karnataka High Court ruled in favor of Padmavathi Electrometals (P) Limited.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
The petitioner has sought for setting aside of the notice at Annexure-‘G’ dated 21.04.2023 as well as the notices at Annexures-‘H’ and ‘H1’, both issued in Form GST ASMT-10 in reference No.LGSTO-010/ASMT 10/BOGUS/23-24 dated 06.05.2023. The petitioner has also sought for setting side of the order at Annexure-‘K’ dated 19.05.2023.
2. The case of the petitioner is that the respondent has resorted to blocking of Input Tax Credit (ITC) in exercise of power under Rule 86A of CGST/IGST Rules, 2017 [‘the Rules’ for short].
3. The said order has come into effect from 19.05.2023. Pursuant to such proceedings, the Credit Ledger has been blocked in terms of Annexures-‘L’, ‘L1’ and 1L21 dated 20.05.2023, 03.06.2023 and 05.06.2023 respectively.
4. It is to be noticed that under Rule 86A(3) of the said Rules, the blocking of ITC is only for a period of one year.
5. Sri K. Hema Kumar, learned Additional Government Advocate appearing for the respondents submits that the proceedings have been initiated for cancellation of registration, which however has been deferred in light of the petitioner making reference to the present proceedings.
6. Learned counsel for the petitioner submits that due to medical reasons, the petitioner is not in a position to file Affidavit in writing to that effect and however on instructions, the learned counsel submits that the petitioner intends to file the returns.
7. Said submission is taken note of.
8. In view of admitted facts as notice hereinabove and the period of one year having lapsed, the blocking of ITC at Annexure-‘K’ dated 19.05.2023 has been set aside and consequently, the blocking of Credit Ledgers at Annexures-‘L’, ‘L1’ and ‘L2’ dated 20.05.2023, 03.06.2023 and 05.06.2023 are set aside.
The petition is accordingly disposed off.
HC set aside blocking of ITC as ITC cannot be blocked for more than i-ne year
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