Parity Infotech Solutions Pvt. Ltd VS Government Of National Capital Territory Of Delhi

The petitioner is challenging a notice issued to them, which required payment by April 30, 2022. Additionally, the petitioner is contesting the instructions dated March 8, 2022, from the Department of Trade & Taxes (Policy Branch) of the Government of NCT of New Delhi, which are referred to as the ‘impugned instructions.’

The central issue involves the blocking of the petitioner’s Input Tax Credit (ITC) in their Electronic Credit Ledger (ECL) on November 26, 2020, under Rule 86A of the Central Goods & Services Tax Rules, 2017. The ITC remained blocked for a significant period, and despite the expiry of the stipulated one-year period, the respondents did not unblock it until March 30, 2022. On this date, they appropriated the blocked ITC against a tax demand created simultaneously. The petitioner argues that this tax demand was artificially generated to prevent the utilization of the ITC that should have been available upon unblocking. This action, according to the petitioner, was in compliance with the impugned instructions, which the petitioner believes are unlawful.

Furthermore, the petitioner contends that the ITC was blocked without substantial evidence or valid reasons, based solely on instructions from another authority, which the petitioner deems impermissible.

In summary, the case revolves around the legality and procedural correctness of blocking and subsequently appropriating ITC, and whether such actions align with the statutory provisions and the instructions issued by the Department of Trade & Taxes.

In the legal matter at hand, the petitioner contests a demand for payment related to the fiscal year 2020-21, which was due by April 30, 2022. Additionally, the petitioner challenges certain instructions issued by the Department of Trade & Taxes (Policy Branch), Government of NCT of New Delhi, on March 8, 2022. These instructions are referred to as the “impugned instructions.”

Key issues revolve around the Input Tax Credit (ITC) available in the petitioner’s Electronic Credit Ledger (ECL), which was blocked on November 26, 2020, under Rule 86A of the Central Goods & Services Tax Rules, 2017. Despite the rule stipulating a one-year period for such blocks, the respondents did not unblock the ITC immediately upon the expiry of this period. The ITC was unblocked on March 30, 2022, but was then appropriated against a tax demand created on the same date. The petitioner alleges that this tax demand was fabricated to prevent the petitioner from utilizing the ITC, which would have been accessible once unblocked. The petitioner argues that this action was in accordance with the impugned instructions, which they claim are legally invalid.

The petitioner also asserts that the blocking of the ITC was executed without any substantial evidence or valid reasons, and was based solely on directions from another authority, which they contend is not permissible.

The petitioner, facing issues with the block of their Input Tax Credit (ITC), initially sought clarification and resolution through formal channels. Despite sending a detailed letter to the relevant authorities, the petitioner received no response. To address the issue further, the petitioner sent several follow-up emails on January 4, January 7, and January 25, 2021, requesting information on why the ITC was blocked and guidance on how it could be unblocked. Unfortunately, these emails did not yield any satisfactory responses.

As a result of the ITC blockage, the petitioner was unable to file statutory returns on time. The petitioner then sent another email on February 15, 2021, detailing their difficulties in filing the GSTR-3B returns for the period from December 2020 to January 2021, due to the blocked ITC. In response, the authorities informed the petitioner that since their GST registration fell under state jurisdiction, their email had been forwarded for necessary action.

The petitioner continued to actively pursue the issue by sending additional emails and visiting jurisdictional officers in person. During these visits, the petitioner submitted copies of GST returns and system-generated statements of inward supplies in Form GSTR-2A. Despite these efforts, the authorities did not provide any reasons for the ITC block, leading to a continued inability to utilize the ITC.

Ultimately, faced with no effective resolution and ongoing ITC blockage, the petitioner had no option but to deposit ₹36,49,074/- to comply with tax obligations and mitigate further complications.

The petitioner faced a situation where its Input Tax Credit (ITC) was blocked, which had significant repercussions on its ability to comply with statutory return filings. Initially, the petitioner attempted to resolve the issue by sending a letter requesting information on how to unblock the ITC, but this letter went unanswered. In subsequent efforts to understand and rectify the situation, the petitioner sent several emails dated January 4, January 7, and January 25, 2021, seeking details about the reason for the ITC block and guidance on how to have it unblocked. However, these emails did not receive satisfactory responses.

Due to the ITC being blocked, the petitioner was unable to file its statutory returns on time. The petitioner made further attempts to address the issue by sending an email on February 15, 2021, explaining the difficulty it faced with filing GSTR-3B returns for the period from December 2020 to January 2021 because the system was not allowing the filing due to the blocked ITC. The response to this email informed the petitioner that since its GST registration fell under the jurisdiction of the State, the email had been forwarded for necessary action.

Despite ongoing efforts to resolve the matter, including sending additional emails and personally visiting the jurisdictional officers to submit copies of GST returns and system-generated statements, the petitioner did not receive a satisfactory resolution. Consequently, due to the unresolved ITC block, the petitioner was compelled to deposit ₹36,49,074 in cash to cover its liability for December 2020 and filed the GSTR-3B return without utilizing the blocked ITC.

On February 28, 2022, the Sales Tax Officer Class II issued a show cause notice to the petitioner, requesting a response along with supporting documents. Although the notice allowed for a personal hearing, the details of the hearing were marked as ‘NA’. The petitioner also received a summary show cause notice on the same day, which accused it of wrongly availing or utilizing ITC from a non-existent firm, referencing a letter dated September 28, 2020, from the Commissioner of Central Tax, GST. This notice included a table showing an IGST amount of ₹27,88,200 for the period from April 2020 to March 2021.

In response, the petitioner submitted a letter on March 27, 2022. Shortly thereafter, on March 30, 2022, the Sales Tax Officer issued an order under Section 74 of the GST Act, 2017, demanding payment of ₹27,88,200. Subsequently, the petitioner’s Electronic Credit Ledger (ECL) showed that the demanded amount had been debited.

The petitioner faced a situation where their Input Tax Credit (ITC) was blocked without any explanation or resolution. Despite sending several emails on January 4, January 7, and January 25, 2021, requesting information on the reasons for the ITC blockage and how to resolve it, the petitioner did not receive any satisfactory response. The inability to use the blocked ITC led to delays in filing statutory returns. On February 15, 2021, the petitioner expressed difficulty in filing the GSTR-3B returns because the system did not allow filing due to the blocked ITC amount. The response from authorities at that time was to forward the issue for necessary action, but no effective resolution was provided.

The petitioner continued their efforts by sending additional emails and visiting jurisdictional officers in person, submitting copies of GST returns and system-generated statements. Despite these efforts, the ITC remained blocked, prompting the petitioner to pay ₹36,49,074 in cash to meet their December 2020 tax liability without utilizing the blocked ITC.

On February 28, 2022, the Sales Tax Officer issued a show cause notice demanding a response with supporting documents. This notice was accompanied by a summary show cause notice alleging that ITC had been wrongly availed from a non-existent firm, referencing a letter from the Commissioner of Central Tax dated September 28, 2020. The summary notice also indicated an IGST amount of ₹27,88,200 for the period from April 2020 to March 2021.

The petitioner responded to the show cause notice on March 27, 2022. However, by March 30, 2022, the Sales Tax Officer issued an order under Section 74 of the GST Act demanding payment of ₹27,88,200. The petitioner’s Electronic Credit Ledger (ECL) reflected that this amount had been debited as per the order.

The petitioner’s counsel challenged the show cause notice, arguing that it lacked specific details and was issued based on an investigation into fake invoices, unrelated to the petitioner’s transactions. The petitioner had previously clarified their non-involvement with the entities mentioned in the summons dated August 17, 2020. The counsel argued that the procedure adopted by the authorities to issue the order under Section 74 immediately before unblocking the ITC was intended to circumvent Rule 86A(3) of the GST Rules, which prohibits the blocking of the ECL for more than twelve months.

The counsel also contended that the instructions given to officers were to create a demand by disallowing ITC in cases where ITC had been blocked, leading to the creation of a demand just before unblocking ITC to sidestep the rule limiting the blocking period.

The petitioner faced issues with the blocking of their Input Tax Credit (ITC) and the subsequent administrative actions that led to their difficulties in filing statutory returns. Initially, the petitioner attempted to resolve the issue by sending letters and emails to the relevant authorities to inquire about the reasons for the ITC blockage and how to unblock it. Despite these efforts, the petitioner did not receive a satisfactory response.

As a result of the blocked ITC, the petitioner was unable to file their statutory returns on time, which in turn caused problems with their ability to file GSTR-3B returns for the period from December 2020 to January 2021. The petitioner made repeated attempts to resolve the issue by sending additional emails and personally visiting the jurisdictional officers, providing necessary documents and statements of inward supplies in Form GSTR-2A. The petitioner claimed that the authorities wrongfully blocked the ITC without providing adequate reasons or effective responses. Consequently, the petitioner had to deposit ₹36,49,074 in cash to cover their December 2020 liability and filed the GSTR-3B return without utilizing the blocked ITC.

On February 28, 2022, the Sales Tax Officer issued a show cause notice to the petitioner, requesting a response and supporting documents related to their claim. This notice indicated that the petitioner’s ITC was blocked due to allegations of it being wrongly availed or utilized from a non-existent firm, based on a letter received from the Commissioner of Central Tax. The petitioner responded to this notice, but shortly thereafter, an order under Section 74 of the GST Act was issued, demanding the payment of ₹27,88,200. This amount was immediately debited from the petitioner’s Electronic Credit Ledger (ECL).

The petitioner challenged the show cause notice on the grounds that it lacked particulars and that their ECL had been blocked due to an investigation into fake invoices. Despite clarifying that they had no dealings with the parties involved in the investigation, the authorities issued the show cause notice and subsequently the demand order without unblocking the ITC. The petitioner argued that this process was a tactic to circumvent the provisions of Rule 86A(3) of the GST Rules, which limits the period for which the ECL can be blocked.

The grievance of the petitioner centers on the wrongful blocking of ITC and the appropriation of the blocked amount to satisfy the demand raised by the impugned order. Rule 86A of the GST Rules outlines the conditions under which the ITC in the ECL can be blocked, such as if the credit was fraudulently availed or if it was obtained through invoices from non-existent or non-operational businesses.

The petitioner faced a significant issue with its Input Tax Credit (ITC) being blocked. Initially, the petitioner sent a letter seeking information on how to unblock the ITC, but received no response. Following this, the petitioner sent several emails on January 4, January 7, and January 25, 2021, requesting details on the reasons for the blockage and guidance on resolving the issue, yet these inquiries went unanswered satisfactorily.

Due to the ITC blockage, the petitioner was unable to file its statutory returns on time. On February 15, 2021, the petitioner sent another email highlighting the difficulties in filing the GSTR-3B returns as the system would not permit submission for the period from December 2020 to January 2021 due to the blocked ITC. The response received indicated that since the petitioner’s GST registration fell under the jurisdiction of the State, the email was forwarded for necessary action.

Despite these efforts, the petitioner continued to face problems and had to deposit ₹36,49,074 in cash for December 2020 liabilities, as it could not utilize the blocked ITC. The return was filed without availing the ITC.

Subsequently, on February 28, 2022, a show cause notice was issued by respondent no. 4, asking the petitioner to provide a response with supporting documents. This notice also indicated the petitioner could appear for a personal hearing, but the relevant details for this hearing were marked as ‘NA’. Additionally, a summary show cause notice was issued on the same date, alleging that the ITC had been wrongly availed from a non-existent firm. This notice was based on a letter from the Commissioner of Central Tax, GST, which included a table showing an IGST of ₹27,88,200 for the period from April 2020 to March 2021.

The petitioner responded to this notice on March 27, 2022, and shortly after, on March 30, 2022, the impugned order under Section 74 of the GST Act, 2017, was issued, demanding payment of ₹27,88,200. The petitioner’s Electronic Credit Ledger (ECL) was then debited for the said amount as per this order.

The petitioner’s counsel argued that the show cause notice lacked specifics and that the blockage of the ITC was based on an investigation into fake invoices, with which the petitioner had no involvement. The petitioner had previously clarified its non-involvement in response to a summons about fake invoices. Despite this, the authorities issued the notice and order without addressing the petitioner’s clarifications.

The petitioner contended that the process adopted by the authorities aimed to bypass Rule 86A(3) of the GST Rules, which restricts the blocking of ITC to a maximum of twelve months. The petitioner alleged that the authorities were intentionally creating a demand by disallowing ITC, rather than unblocking it after the prescribed period.

The case revolves around the proper application of Rule 86A of the GST Rules, which governs the conditions under which ITC can be blocked and how long such restrictions can last. This rule allows the Commissioner or an authorized officer to block ITC if it is believed to be fraudulently availed or ineligible. However, such a blockage should cease to be effective after one year from its imposition. The petitioner’s grievance primarily concerns the blocking of its ITC and the subsequent demand made based on this blockage.

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