The Karnataka High Court has held that the (Input Tax Credit) ITC cannot be blocked merely on the Enforcement Authority’s Report without any cogent reasons to believe.
The bench of Justice S.R.Krishna Kumar has observed that since no pre-decisional hearing was provided/granted by the respondents before passing the order, coupled with the fact that the order invoking Section 86A of the CGST Rules by blocking of the ITC of the petitioner does not contain independent or cogent reasons to believe except by placing reliance upon the reports of Enforcement authority which is impermissible in law.
Table of Contents
Background
The Input Tax Credit (ITC) of the petitioner was blocked by the order by invoking Rule 86A of the Central Goods and Services Tax Rules, 2017.
The petitioner submitted that the material on record in order to point out that before passing the order, pre-decisional hearing was not provided to the petitioner nor does the impugned order contain any reason to believe as to why it was necessary to block the ITC.
The assessee relied on the decision of K-9-Enterprises Vs. State of Karnataka reported in W.A.No.100425/2023 and connected matters in which it was held that the power of disallowing debit of amount from electronic credit ledger must not be exercised in a mechanical manner and careful examination of all the facts of the case is important to determine case(s) fit for exercising power under rule 86A.The remedy of disallowing debit of amount from electronic credit ledger being, by its very nature, extraordinary, has to be resorted to with utmost circumspection and with maximum care and caution.
As pet the decision in the case of K-9-Enterprises it was held that the officer should apply his mind as to whether there are reasons to believe that the input tax credit availed by the registered person has either been fraudulently availed or is ineligible, as per conditions/ grounds mentioned in rule 86A (1) and whether disallowing such debit of electronic credit ledger of the said person is necessary for restricting him from utilizing/passing on fraudulently availed or ineligible input tax credit to protect the interests of department. Such “Reasons to believe” shall be duly recorded by the concerned officer in writing on file, before he proceeds to disallow debit of amount from electronic credit ledger of the said person.
Conclusion – ITC cannot be blocked
The court while allowing the appeal noted that in the order except stating that “a registered person/s who has been found non-existent or not to be conducting any business from any place for which registration has been obtained in contravention of the above provisions”, no other reasons are forthcoming in the order.
The court directed the department to unblock the ITC of the petitioner immediately upon the receipt of copy of the order, so as to enable the petitioner to file returns forthwith.
Read More: Know Procedure And Conditions For Closure Of Proceedings Under Amnesty Scheme: CBIC
FAQs
Can the GST ITC Be Blocked Merely On Enforcement Authority’s Report?
No. The Karnataka High Court has held that the (Input Tax Credit) ITC cannot be blocked merely on the Enforcement Authority’s Report without any cogent reasons to believe.
Can ITC be blocked in GST?
According to Section 17(5) of the CGST Act, Input Tax Credit (ITC) is not allowed.
Case Details
Case Title: M/S Travacore Minerals And Transport Company V/S State Of Karnataka
Case No.: Writ Petition No. 26693 Of 2024 (T-Res)
Date: 30/09/2024
Counsel For Petitioner: Sri. Bharath Kumar V.
Counsel For Respondent: Sri. Hema Kumar K
