2022-TIOL-238-HC-MUM-GST
Dee Vee Projects Ltd Vs Govt. of Maharashtra Department of GST
GST - Petitioner submits that the credit amount available in the ECL is the property of the petitioner and the blocking of the ECL of the petitioner amounts to illegal provisional attachment of the property of the petitioner under Section 83 of the CGST Act -Petitioner further submits that such attachment can be done only if any proceeding is pending or initiated under any of sections such as sections 62, 63, 64, 67, 73 and 74 - The petitioner further submits that there is no proceeding whatsoever pending under any of these sections and, therefore, there cannot be any provisional attachment of the petitioner's property -Petitioner further submits that the only authority for making such attachment is the Commissioner, as provided under sub-section (24) of section 2 of the CGST Act but, there is no order of provisional attachment passed under section 83 of the CGST Act and no procedure whatsoever, as required under law has been followed - It is also submitted that there is no provision in the CGST Act authorising any authority to freeze or block the ECL - Petitioner has termed this action “unconstitutional” -Petitioner also submits that power to attach the ECL which is the result of the blocking of ECL, cannot be exercised without quantifying the amount of wrong availment of credit in ECL as per the provisions of rule 86-A.
Held:
Penumbral issues
(in that they do not really cast any shadow on the core issues involved here)
Maintainability of petition
Maintainability of this petition, there being an alternate remedy available under section 107 of the CGST Act, as contended by the respondent nos.1 and 4. The second issue is as regards the power of respondent no.1, a Deputy Commissioner, to pass the order of blocking of ECL without having any authority, a contention raised by the petitioner. [para 18]
++ Appeal under section 107(1) can be filed against a decision or order passed under Central GST Act or State GST Act or the Union Territory GST Act by an adjudicating authority. It is also clear that this provision does not include any decision or order passed under the Rules framed under Central GST Act or any other Rules. In this case, the respondents maintain that the impugned order and action has been passed and taken under rule 86-A of the Rules, 2017,therefore, Bench finds that no appeal remedy could have been available to the petitioner under this provision. [para 20]
++ Revisional power conferred upon the Commissioner is in respect of an order passed by an adjudicating authority and the expression, “adjudicating authority”, as defined in section 2(4) excludes the “Revisional Authority” from its ambit - It is, therefore, clear that the petitioner could not have filed any revision petition before the Commissioner under section 107(2) of the CGST Act. [para 22]
++ Thus, neither under sub-section (1) nor under sub-section (2) of section 107, the petitioner could have found any succour for resolution of its grievance and, therefore, Bench rejects the contention of the respondents that this petition is not maintainable due to availability of an alternate remedy. [para 23]
Jurisdiction
Petitioner has contended that the impugned order of blocking the ECL could not have been passed by an authority like the Deputy Commissioner i.e. respondent no.1 and ought to have been passed, if at all, by the Commissioner as per rule 86-A.
Held: No merit in the contention as this rule itself shows that the power can be exercised not only by the Commissioner but also by an officer authorised by him in this behalf and only restriction is that the delegate of the Commissioner cannot be an officer who is below the rank of an Assistant Commissioner - a Deputy Commissioner holding the rank above an Assistant Commissioner, was duly authorised by the Commissioner to initiate action under rule 86-A of the CGST Act, therefore, contention is rejected. [para 24]
Main Issues -
(i) Whether blocking of Electronic Credit Ledger (ECL) under Rule 86-A of the Central Goods and Services Tax Rules, 2017 amounts to provisional attachment of property under section 83 of the Central Goods and Services Act, 2017 and if so, whether it could have been done without following conditions and procedure prescribed in section 83 of the Central Goods and Services Tax Act, 2017?
(ii) Whether rule 86-A of Rules, 2017 permits blocking of the ECL, and if yes, to what extent?
(iii) Whether the order of blocking of Electronic Credit Ledger (ECL) is arbitrary and illegal?
(iv) Whether, in the facts and circumstances of this case, the respondents are justified in blocking Electronic Credit Ledger (ECL) under rule 86-A of Central Goods and Services Tax Rules, 2017?
Held:
Question 1 [para 26, 27, 28]
++ Impugned order has been passed under rule 86-A of the Rules 2017. Rule 86-A enables the Competent Authority or the Commissioner to not allow utilization of the amount of credit available in Electronic Credit Ledger for discharge of any liability for payment of tax, interest, penalty.
+ The effect of the power exercised under this provision of law, is that of an embargo placed upon utilisation of the amount of credit or refund of the unutilised amount of credit.
+ In attachment of property, the custody of the property is, actually or symbolically, taken over by the department with a view to protect the property from being transferred or altered in character, so that it can be appropriated, if the need arises, for realising tax dues. But, in case of blocking of ECL under rule 86-A, the custody of the property remains with the tax prayer but disability is created on his capacity to utilise it or receive the refund of unutilised credit.
+ The power of provisional attachment of the property under section 83 of the CGST Act can be exercised only after initiation of any proceeding under Chapters XII, XIV and XV, which relate to assessment, inspection, search, seizure, arrest and demands and recovery of tax not paid or shortly paid or erroneously paid. For invoking the power under rule 86-A, it is not necessary that proceeding under any of the said Chapters is initiated and it can be exercised, when conditions prescribed therein are met.
+ It is thus clear that the power under rule 86-A is quite distinct from the power under section 83 and, therefore, any order passed under rule 86-A cannot be treated as the order amounting to the provisional attachment of property under section 83 of CGST Act.
+ Therefore, further question regarding following of the procedure prescribed in section 83 would not arise. - Case law of Radha Krishan Industries distinguished
Question 2 & 3
+ Disallowing debit of an amount to the ECL is nothing but blocking of the ECL. But, such blocking of the ECL cannot be for an amount which is more than the amount found to be fraudulently or wrongly availed of. [para 31]
+ Rule 86-A has two pre-requisites to be fulfilled. The first pre-requisite is of the Competent Authority or the Commissioner having been satisfied on the basis of material available before him that blocking of ECL for the afore-stated reasons is necessary. The second pre-requisite is of recording the reasons in writing for such an exercise of the power. From the language used in rule 86-A it becomes very clear that unless both these pre-requisites are fulfilled, the authority cannot disallow the debit of the determined amount to the ECL or cannot block the ECL even to the extent of amount found to be fraudulently or wrongly availed of. [para 32]
+ The power under rule 86-A is an administrative power with quasi-judicial huesand has civil consequences for a taxpayer in the sense. Any administrative power having quasi-judicial shades, which brings civil consequences for a person against whom it is exercised, must answer the test of reasonableness. It would mean that the power must be exercised fairly and reasonably by following the principles of natural justice. [para 33]
+ Power under rule 86-A cannot be exercised unless there is a subjective satisfaction made on the basis of objective material by the authority. [para 34]
+ The power conferred upon the Commissioner under rule 86-A has civil consequences though for a limited period not exceeding one year and has an element of urgency which perhaps explains why the rule does not expressly speak of any show cause notice or opportunity of hearing before the ECL is blocked.
+ Of course, in order to guard against arbitrary exercise of power, post decisional or remedial hearing would have to be granted to the person affected by blocking of his ECL. [para 35]
+ The second pre-requisite of rule 86-A is of recording of reasons in writing. It comes with the use of the word "may", which, needs to be construed as conveying an imperative command of the rule maker, and that means, reasons must be recorded in writing in each and every case.
+ Right to know the reasons behind an administrative order having civil consequences is a well embedded principle forming part of doctrine of fair play which runs like a thread through the warp and weft of the fabric of our Constitutional order made up by Articles 14 and 21 of the Constitution of India. [para 36]
+ The power under rule 86-A is of enabling kind and it is conferred upon the Commissioner for public benefit and, therefore, it is in the nature of a public duty. Essential attribute of a public duty is that it is exercised only when the circumstances so demand and not when they do not justify its performance [para 37]
+ Provisions made in rule 86-A would require the Competent Authority to first satisfy itself, on the basis of objective material, that there are reasons to believe that credit of input tax available in ECL has been fraudulently or wrongly utilised and secondly to record these reasons in writing before the order of disallowing debit of requisite amount to the ECL or requisite refund of unutilised credit, is passed or otherwise the order of blocking the ECL under rule 86-A would be unsustainable in the eye of law. [para 38]
+ The impugned order is just a two liner and it reads as follows:-
"Blocked by Shri/Mr/Ms Vrushali Sukumar Mandape, Deputy Commissioners of State Tax, MIDC-Nagpur-502 Admn.State."
This order does not give any reasons and, therefore, there is no question of any reflection therein of the authority passing the order on being satisfied about the necessity of passing it. When the first requirement of rule 86-A is of, "having reasons to believe" and it has manifestly been not followed, the impugned order would have to be treated as bad in law. The second requirement regarding recording of reasons in writing, it is obvious, is also followed in breach. The impugned order is, therefore, an instance of arbitrary exercise of the power under rule 86-A and so it is illegal. [para 39]
+ The impugned order is illegal for another reason, as well. It does not specify the amount to the extent to which the ECL has been blocked.
+ The disallowance has to be restricted to only such amount which is equivalent to the amount found to be fraudulently or erroneously availed of in respect of which the credit has accumulated in the ECL, and it is only debit of this amount to the ECL which can be forbidden and not the debit of the entire amount lying in credit in the ECL. The impugned order has the effect of imposing complete ban on utilisation of any credit amount and not just the credit amount found to be fraudulently or erroneously and, therefore, it is illegal for this additional reason. [para 40]
+ Exercise of power under rule 86-A made by respondent no.1 was not because she was independently satisfied about the need for blocking the ECL but, was due to the fact that she felt compelled to obey the command of her superior. In other words, the order was passed virtually by respondent no.3. This is not the manner in which the law expects the power under rule 86-A to be exercised. This is one more reason to hold that the impugned order is arbitrary and illegal.[para 41]
+ The impugned order of blocking of the ECL of the petitioner is quashed and set aside. The respondents are at liberty to consider invocation of power under rule 86-A of the Central Goods and Service Tax Rules, 2017, afresh in accordance with law. [para 42, 46]
- Petition partly allowed: BOMBAY HIGH COURT
- Assessee's writ petition dismissed: CALCUTTA HIGH COURT |
