Basanta Kumar Shaw, Propreitor Of M/S. N.M.D. Engineering Works VS The Assistant Commissioner Of Revenue

In this intra Court appeal, the petitioner challenges an order dated June 20, 2022, pertaining to WPA 9820 of 2022. The appeal contests an earlier order (No. 102, dated May 23, 2022) by the first respondent, which disallowed the debit of Integrated Goods and Services Tax (IGST) from the electronic credit ledger. This disallowance was made under Rule 86A of the Central Goods and Services Tax Rules, 2017 (CGST Rules) and the West Bengal Goods and Services Tax Rules, 2017 (WBGST Rules), specifically under Clause (a) (ii) of Sub-Rule (1) of the said Rule. The disallowance was for the discharge of any liability under Section 49 of the WBGST/CGST or for the claim of any refund of unutilized input tax credit.

The appellant received three show-cause notices, served on January 20, 2022, and January 28, 2022. These notices invoked Section 42(1)(a) of the WBGST/CGST Act, which mandates matching the details of every inward supply furnished by a registered person with the corresponding details of outward supply. It was alleged that there was a mismatch between the appellant’s input tax credit Form GSTR-2A (auto-populated) and the details of outward supplies furnished by the appellant’s suppliers in their respective GSTR-1 and GSTR-3B for various tax periods from April 2018 to March 2021. This mismatch was deemed inadmissible under the provisions of the WBGST/CGST Act, 2017.

The intra Court appeal discussed in this summary pertains to a writ petition filed by the appellant challenging an order passed by the first respondent disallowing the debit of Integrated Goods and Services Tax (IGST) from the electronic credit ledger under Rule 86A of the Central Goods and Services Tax Rules, 2017, and the West Bengal Goods and Services Tax Rules, 2017. The order cited a discrepancy between the appellant’s input tax credit Form GSTR-2A and the outward supplies furnished by their suppliers, advising the appellant to furnish an explanation or pay the assessed tax amount with applicable interest. Despite making a partial payment, the appellant failed to submit a reply within the stipulated time. Consequently, the first respondent, exercising power under Rule 86A, disallowed the debit of IGST from the electronic credit ledger. The appellant subsequently submitted representations requesting an extension of time and the revocation of the order blocking the electronic credit ledger. Additionally, the appellant filed a reply to the show-cause notices. However, before the reply was filed, the appellant approached the Court via a writ petition, which was disposed of by directing the first respondent to consider the appellant’s reply expeditiously. The appeal challenges this order, seeking relief from the disallowance of IGST debit and requesting a reconsideration of the case.

This intra Court appeal revolves around a writ petition filed by the appellant challenging an order dated 20th June, 2022, related to a dispute regarding the disallowance of debiting Integrated Goods and Services Tax (IGST) from the electronic credit ledger. The initial order, dated 23.05.2022, was issued by the first respondent, disallowing the debit of IGST in accordance with Rule 86A of the Central Goods and Services Tax Rules, 2017 (CGST Rules) and the West Bengal Goods and Services Tax Rules, 2017 (WBGST Rules). This disallowance was for the discharge of any liability under Section 49 of the WBGST/CGST or the claim of any refund of unutilized input tax credit.

The appellant received three show-cause notices on 20.01.2022 and 28.01.2022, which highlighted a mismatch between the appellant’s input tax credit Form GSTR-2A and the details of outward supplies furnished by their suppliers in their respective GSTR-1 and GSTR-3B for various tax periods. They were advised to furnish an explanation or pay the assessed tax amount along with applicable interest. Despite making a partial payment of Rs. 10 lakhs on 30.03.2022, the appellant did not submit their reply within the stipulated time.

The first respondent, on 23.05.2022, disallowed the debit of IGST from the electronic credit ledger in accordance with Rule 86A of the WBGST Rules. Subsequently, the appellant submitted representations requesting an extension of time and the revocation of the order blocking the electronic credit ledger. The appellant also filed a reply to the show-cause notices on 13.06.2022, after approaching the Court and filing the writ petition on 6th June, 2022.

The writ petition was disposed of on 20.06.2022, directing the first respondent to consider the appellant’s reply to the show-cause notices expeditiously and preferably within 3 weeks. The Court also instructed to pass a reasoned order after providing an opportunity for a hearing, with the possibility of revoking the blocking of the electronic credit ledger if the appellant made a compelling case.

In the appeal, Mr. Ankit Kanodia, representing the appellant, argued that the impugned order should be quashed as the first respondent initiated proceedings under Section 73 of the CGST/WBGST Act without proper adjudication. It was contended that Rule 86A allows blocking of credit only to the extent available in the electronic credit ledger, which was not the case at the time of the order. Moreover, it was argued that negative blocking of the electronic credit ledger would result in the permanent recovery of alleged ineligible input tax credit before the conclusion of adjudication, which is unjust.

The appellant’s stance emphasizes the procedural and substantive irregularities in the blocking of the electronic credit ledger and seeks relief from the Court against the adverse decision.

The intra-court appeal discussed pertains to an order dated June 20, 2022, issued in response to WPA 9820 of 2022. This appeal challenges the order of disallowing the debit of Integrated Goods and Services Tax (IGST) from the electronic credit ledger, as per Rule 86A of the Central Goods and Services Tax Rules, 2017 (CGST Rules) and the West Bengal Goods and Services Tax Rules, 2017 (WBGST Rules), for the discharge of any tax liability or refund claim of unutilized input tax credit.

The appellant, upon receiving three show-cause notices in January 2022, was informed of a mismatch between their input tax credit (Form GSTR-2A) and outward supplies declared by their suppliers in their respective returns. They were given an opportunity to respond by February 4, 2022, or pay assessed tax amounts. Despite making a partial payment of Rs. 10 lakhs on March 30, 2022, the appellant did not submit a reply within the stipulated time. Subsequently, on May 23, 2022, the first respondent disallowed the debit of IGST from the electronic credit ledger under Rule 86A.

The appellant, however, made representations for an extension of time and revocation of the order blocking their electronic credit ledger. They filed a reply to the show-cause notices on June 13, 2022, after approaching the court on June 6, 2022, leading to the disposal of the writ petition on June 20, 2022. The court directed the first respondent to consider the appellant’s reply expeditiously and revoke the blocking if warranted.

In the appeal, Mr. Ankit Kanodia, representing the appellant, argued that the impugned order should be quashed as it amounted to recovery without proper adjudication under Section 73 of the CGST/WBGST Act. He contended that Rule 86A only permits blocking credit if it’s available in the ledger, which was not the case during the order’s issuance. Moreover, he argued against “negative blocking,” stating it prematurely recovers allegedly ineligible input tax credit before adjudication.

He cited the Gujarat High Court’s decision in Samay Alloys India Pvt. Ltd. vs. State of Gujarat, emphasizing that Rule 86A requires available credit in the ledger and recorded belief of fraudulent availment before invoking the rule.

In conclusion, the appellant seeks the quashing of the order and restoration of their electronic credit ledger, arguing that the blocking severely impacts their business operations and violates their vested rights. They urge adherence to Rule 86A’s conditions and proper adjudication before any credit blocking.

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