Quashing of ITC Block Order: High Court Demands Transparency from GST Authority

• The petitioner filed a writ petition seeking a Writ of Mandamus against the Assistant Commissioner of Income-tax for blocking Input Tax Credit (ITC) without reasons and notice.

• Arguments were heard from both the petitioner's counsel and the Senior Standing Counsel for CBIC representing the respondent Department.

• The petitioner, a supplier of goods registered under GST, faced ITC blocking due to alleged irregularities in utilizing ITC based on invoices from non-existing firms.

• The petitioner responded to the notice but received an order blocking ITC without any written order or notice, leading to claims of illegality and violation of natural justice.

• The petitioner argued that the blocking was unlawful as the authority failed to provide reasons as mandated by Rule 86A of the Central Goods and Services Tax Rules, 2017.

• The petitioner contended that their responses to the initial notice were not considered, and the order lacked any subsequent show cause notices or hearings, violating principles of natural justice.

• The court reviewed Rule 86A, emphasizing the need for specific reasons for blocking ITC and highlighted the lack of such reasons in the presented documents.

• Despite the respondent-Department producing records, the court found no specific order issued for blocking ITC or any subsequent actions following the petitioner's responses.

• The court referred to the Central Board of Indirect Taxes and Customs' policy decisions and noted the necessity of an objective determination and recording of reasons for blocking ITC.

• Citing a Gujarat High Court case, the court stressed the importance of post-decisional or remedial hearing for affected parties and the mandatory nature of recording reasons in writing.

• The court referred to a recent Supreme Court decision, reinforcing the burden on the purchasing dealer to prove the genuineness of transactions for claiming ITC.

• Upon examining documents, the court found insufficient material to justify the blocking of ITC, highlighting the lack of a specific order and proper recording of reasons by the authority.

• The court declared the action of blocking ITC arbitrary, illegal, and in violation of natural justice, setting it aside and remitting the matter back to the authority for a fresh decision.

• The respondent No. 2 was instructed to issue a fresh notice of personal hearing to the petitioner for a fair reconsideration of the blockage of ITC within three weeks.

• The writ petition was allowed to this extent, and no costs were imposed. Miscellaneous petitions, if any, were to stand closed. Sri Krishna Enterprises Vs. Superintendent of Central Tax.