Dee Vee Project Ltd. Nagpur ... vs Govt. Of Maha. Dept. Of Goods And ...
2022 Latest Caselaw 1459 Bom

  wp2693.2021.doc                                                                  1



              IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                        NAGPUR BENCH, NAGPUR

                     WRIT PETITION NO. 2693 OF 2021


  Dee Vee Projects Ltd.
  A Public Limited Company, registered
  with the Registrar of Companies
  having registered Office at 1st Floor,
  Vikas Complex, PH Road,
  Korba - 495677 (Chattisgarh)
  [email protected]
  And place of business in Maharashtra
  at :
  Flat No.201, 2nd floor Shewalkar Lake
  view apartment Shubhash Nagar
  Nagpur - 440022
  [email protected]
  Through its Director
  Sumit Rajan Das So Bikash Ranjan Das.       ... PETITIONER

                    Versus

  1. The Government of Maharashtra,
     Department of Goods and Services Tax
     Through office of the Deputy
     Commissioner State Tax (E-006)
     Nagpur Division Ground Floor
     Room No.1 GST Bhavan Civil Lines
     Nagpur- 440001.
     through its Commissioner.

  2. Union of India, through Secretary Finance,
     3rd Floor, Jeevan Deep Building, Sansad Marg,
     New Delhi - 110 001 E-mail :[email protected]

  3. Additional Director, DGGI, NZU,
     2nd Floor, South Wing,
     New Secretariat Building,
     Civil Lines, Nagpur 440 035.

  4. Joint Commissioner of State Tax,
     Nagpur Division, Ground Floor,


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  Room No.1, GST Bhawan, Civil Lines,
  Nagpur 440 035.                              ... RESPONDENTS

                               ...

Shri Firdos Mirza, Advocate with Shri Anand Deshpande, Advocate for the petitioner.

Shri N.R.Patil, AGP for respondent nos.1 and 4.

Shri U.M. Aurangabadkar, ASGI for respondent no.2. Shri S.N. Bhattad, Advocate for respondent no.3.

...

CORAM : SUNIL B. SHUKRE & ANIL S. KILOR, JJ

DATE OF RESERVING THE JUDGMENT : 14.10. 2021.

DATE OF PRONOUNCING THE JUDGMENT : 11.02.2022.

ORAL JUDGMENT : (PER SUNIL B. SHUKRE, J.)

1. Heard.

2. Rule. Rule made returnable forthwith. Heard finally by

consent.

3. The petitioner is a public limited company. It is

engaged in infrastructure development and it contends that it has

presence in various states of India, including the State of

Maharashtra.

4. The petitioner company was registered under the

provisions of erstwhile State Sales Tax Act and after the Sales Tax

was subsumed into the Goods and Service Tax vide the Central

Goods and Services Tax Act, 2017 ("CGST Act" for short) which

came into force with effect from 12.4.2017, the company was

deemed to be registered under the CGST Act, by virtue of operation

of section 26 of the CGST Act. In the year 2020, there were certain

changes in the management of the company and, therefore, it

sought amendment to the registration certificate, which was granted

on 18.7.2020. Thereafter, the company changed its registered

address and again sought amendment to the registration certificate

as regards `change of address' which was granted on 2.11.2020.

5. The petitioner submits that after commencement of

GST regime, the petitioner regularly filed its returns till September

2020. Till that time, the petitioner further submits, it had also

availed of the credit available in it's Electronic Credit Ledger ("ECL"

for short) to the extent of Rs.48,79,61,446/- as permissible under

law.

6. The petitioner submits that operation of ECL went on

smoothly till 1.7.2021, despite initiation of some illegal action in

the nature of registration of a criminal case against the petitioner,

and it's investigation, which has been questioned for its legality and

validity by the petitioner by filing a Criminal Writ Petition

No.5/2020, which is pending for the present.

7. The petitioner submits that day of 1.7.2021 came as a

surprise for it when it noticed that its ECL was not operational and

the portal showed that the ECL was blocked by the Deputy

Commissioner, State Sales Tax, MIDC, Nagpur. According to the

petitioner, when the official of the Company opened the portal on

1.7.2021 it's screen showed that petitioner's ECL was blocked.

Blocking of the ECL, according to the petitioner, had its own adverse

impact on the functioning of the petitioner as the petitioner was

unable to update its ECL, could not avail of the credit therein to

discharge its liability to pay the CGST and could not file its returns.

8. The 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. The

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. The 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.

9. The petitioner submits that it sent representation on

2.7.2021, protesting against the unlawful attachment of its property

and blocking of ECL and also sent a reminder on 14.7.2021 with a

request to unblock the ECL. The petitioner submits that the

representation, however, was rejected by respondent no.1 for

reasons not earlier recorded. The petitioner further submits that it

was at this time that the petitioner learnt about the fact that

blocking of petitioner's ECL was done under rule 86-A of the Central

Goods and Service Tax Rules, 2017 (for short "Rules, 2017"). The

petitioner maintains that the procedure prescribed in rule 86-A,

however, was not followed.

10. The petitioner further submits that such an action on

the part of the respondents is illegal and contrary to the provisions

of section 83 of the CGST Act and also 86-A of Rules, 2017. The

petitioner has termed this action "unconstitutional" although, there

is no prayer made for declaring rule 86-A of Rules, 2017 as

ultra vires the Constitution or any substantive provision of the CGST

Act. The 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.

11. On these grounds, the petitioner has prayed for

quashing of action of blocking of ECL and has also prayed for

issuance of a direction to respondent no.2 - Union of India to come

out with proper guidelines for responsible exercise of power under

rule 86-A of the Rules, 2017, as in the opinion of the petitioner,

provisions of rule 86-A of the Rules, 2017, are being misused with

detrimental effect on the business of assessees like the petitioner.

12. Respondent nos.1 and 4 have filed one reply and

respondent no.3 has filed a separate reply. Both the replies strongly

oppose the petition and contend that the action taken against the

petitioner is strictly in accordance with law inasmuch as during the

investigation carried on by respondent no.3, it was found that the

petitioner had fraudulently availed of credit in its ECL as the

petitioner company was not found to be in existence in Maharashtra

and was not carrying on its business in the State of Maharashtra. It

has been stated, in particular by respondent no.3, that the principal

place of business shown by the petitioner and reflected in the

registration certificate was fraudulent as the investigation made by

respondent no.3 disclosed that the petitioner company never existed

at this address and that the petitioner did not occupy these premises

for conducting its business. Respondent no.3 has further stated that

it was found that one document uploaded on the CGST portal in

proof of address of principal place of business of the petitioner, a

rental agreement dated 3.10.2017, was in respect of different

address and showed that the name of the owner was not correctly

written. Respondent no.3 submits that invoices and e-bills prepared

online by company disclosed an address from where the company

never operated. Respondent no.3 further submits that this

investigation ultimately has showed that the petitioner company has

availed of credit to the extent of Rs.49.19 crore in the ECL during

the period from July 2017 to September 2020 fraudulently and

illegally and, therefore, it is liable to be recovered along with

interest and consequential penalties. It is also submitted by

respondent no.3 that as there was no facility available for blocking

ECL at the central level, recommendation was made to respondent

nos.1 and 4 for blocking of the same. Respondent nos.1 and 4 have

also on their part submitted that as it was desired by respondent

no.3 that ECL be blocked, it was blocked by them by invoking the

power under rule 86-A of the Rules, 2017.

13. Shri Mirza, learned counsel for the petitioner submits

that the entire action of respondents is arbitrary, illegal and contrary

to express provisions of CGST Act and Rules, 2017 made thereunder.

He submits that there is no provision in the Act or Rules, which

enables the authorities to block or freeze the ECL. He further

submits that the illegal blocking of ECL has resulted into attachment

of the property of the petitioner, which cannot be done without

following the provisions made under section 83 of the CGST Act. He

further submits that in any case section 83 of the CGST Act is not

applicable here. He further submits that even the procedure

prescribed under rule 86-A of the Rules, 2017 has not been been

followed in the present case in the sense that there is no order

passed by respondent no.1 to the effect that upon consideration of

some material before it, it was satisfied that there was fraudulent

availment of the credit in ECL account or such credit was availed of

even though the petitioner was not eligible for the same. He further

submits without such an order recording reasons in writing,

blocking of the ECL of the petitioner could not have been done, and

even if there was any order, the blocking could have been only to the

extent of the amount of credit determined to be fraudulently or

wrongly availed and specifically stated therein. He further submits

that there is a tendency on the part of the authorities to arbitrarily

invoke the provisions of rule 86-A and, therefore, it is necessary that

respondent no.2 comes out with proper guidelines regulating the

exercise of power under this provision of law by the authority.

14. Shri Neeraj Patil, learned AGP defending the action of

respondent nos.1 and 4 submits that it is perfectly within four

corners of law and there is no scope for making any interference

with the action taken by the authorities. According to him, the

action impugned herein is justifiable under rule 86-A of the Rules,

2017, as the provisions made therein are wide enough in their

connotation to convey the existence of power to block the ECL.

15. The learned AGP further submits that indepth

investigation has been carried out in this case by respondent no.3

and the investigation has revealed that the petitioner company

misrepresented that it carried on its business from the address

shown in the registration certificate during the period from July

2017 to September 2020 and that the petitioner company uploaded

a false document as address proof because of which it has been

rightly concluded by respondent no.3 that the petitioner company

was not in existence at the address shown in the registration

certificate during the said period and, therefore, availment of the

credit in the ECL account by the petitioner was fraudulent. He

further submits that such fraudulent availment of credit in its ECL by

the petitioner was to the extent of Rs.49 crore and odd and this

amount is liable to be recovered with penalty from the petitioner.

16. The learned AGP further submits that there is a

delegation of authority by the Commissioner in favour of respondent

no.1 regarding exercise of the power under rule 86-A of the Rules,

2017 and, therefore, there is no substance in the argument that in

this case, the power has been exercised by respondent no.1 without

any jurisdiction. He further submits that in any case, the blocking of

ECL is only for a temporary period of one year and this blocking is

not equivalent to attachment of the property and at the most it

amounts to imposing a restriction on the capacity of the petitioner to

use credit available in its ECL. The learned AGP further submits that

rule 86-A of the Rules, 2017 itself contains conditions without

fulfillment of which power thereunder cannot be exercised, and

therefore, there is no need for this Court to issue any direction to

respondent no.2 for prescribing any guidelines regulating any

procedure for such invocation. He also submits that this petition is

not maintainable as alternate remedy of appeal is available under

Section 107 of CGST Act.

17. Shri Bhattad, learned counsel for respondent no.3

submits that the action of respondent no.1 is based upon sound

reasons provided by what was revealed in the investigation carried

out by respondent no.3. He further submits that this is not a case of

different address or even a case of any mistake having been

committed by the petitioner in stating the correct address of its

principal place of business but, a case based upon documentary

evidence clearly showing that the petitioner was not operating its

business from any place mentioned in the registration certificate

during the period from July 2017 to September 2020 and, therefore,

no error could be found in the action of blocking of ECL of the

petitioner by respondent no.1. He also submits that the petitioner

having been registered with the State authorities and there being no

facility available at the central level for blocking of ECL, request was

made to respondent no.4 for blocking the same which was actually

done by respondent no.1 at the request of respondent nos.3 and 4

and that too, only after being satisfied about the need for doing the

same. He also submits that rule 86-A of the Rules, 2017, does not

require any hearing to be granted but, it requires reaching of

satisfaction by the authority to invoke the power under rule 86-A,

and in this case, the material provided by respondent no.3 was

sufficient for respondent no.1 to entertain such satisfaction to find

that it was necessary for her to block the ECL of the petitioner. He

also submits that there is no need for issuing any direction to the

Union of India for framing of guidelines to regulate exercise of

power under rule 86-A by the authorities as the rule itself regulates

it. On these grounds, he urges that the petition be dismissed.

18. Before we advert to the main issues involved in this

petition, we feel it necessary to deal with the issues which lie at the

periphery of the core issues. We have preferred to call them

penumbral issues considering the fact that they do not really cast

any shadow on the core issues involved here. The first issue is about

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.

19. Under section 107(1), any person aggrieved by any

decision or order passed under the CGST Act or the State GST Act or

the Union Territory GST Act by an adjudicating authority may

appeal to such Appellate Authority as may be prescribed within

three months from the date on which the said decision or order is

communicated to such person. To have more clarity, it is reproduced

thus:-

"107 Appeals to Appellate Authority - (1) Any person aggrieved by any decision or order passed under this Act or the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act by an adjudicating authority may appeal to such Appellate

Authority as may be prescribed within three months from the date on which the said decision or order is communicated to such person".

20. Reading the provision, we can see that 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, we find that

no appeal remedy could have been available to the petitioner under

this provision.

21. Under section 107(2), a power is conferred upon the

Commissioner to revise, on his own motion, or upon a request from

the Commissioner of State Tax or the Commissioner of Union

territory tax, any order passed by an adjudicating authority. For the

sake of clarity, this provision of law is reproduced thus:-

"Section 107 (2): The Commissioner may, on his own motion, or upon request from the Commissioner of State tax or the Commissioner of Union territory tax, call for and examine the record of any proceedings in which an adjudicating authority has passed any decision or order under this Act or the State Goods

and Services Tax Act or the Union Territory Goods and Services Tax Act, for the purpose of satisfying himself as to the legality or propriety of the said decision or order and may, by order, direct any officer subordinate to him to apply to the Appellate Authority within six months from the date of communication of the said decision or order for the determination of such points arising out of the said decision or order as may be specified by the Commissioner in his order".

22. A careful perusal of the provision would show that the

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, as rightly submitted by Shri

Mirza, learned counsel for the petitioner. 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. In any case, no

authority, Commissioner here, can be a revisional authority against

his own order, though he can be a reviewing authority against his

own order, if power of review is expressly conferred upon him.

23. Thus, neither under sub-section (1) nor under sub-

section (2) of section 107, the petitioner could have found any

succour for resolution of it's grievance and, therefore, we reject the

contention of the respondents that this petition is not maintainable

due to availability of an alternate remedy.

24. The petitioner has raised an issue of jurisdiction

contending 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. We find 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. In this case, there is no dispute about the fact that

respondent no.1, a Deputy Commissioner holding the rank above an

Assistant Commissioner, was duly authorised by the Commissioner

to initiate action under section 86-A of the CGST Act. The

contention is, therefore, rejected.

25. Now, let us consider the main issues involved in the

petition. These issues, in our opinion, raise following questions:

(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?

26. Let us proceed to answer the first question. The answer

would lie in the nature of the impugned order. The 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 and other amounts under section 49 of the Central GST Act

or to refuse the request for refund of any unutilised credit in ECL.

27. 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. It is quite like

maintaining status quo in respect of the amount of credit available

in the ECL. This effect is not akin to seizure of the credit amount for

it's consequent appropriation for realisation of tax dues as would

happen in the case of attachment of property. While amount of

credit lying in the ECL could be considered to be the property of the

tax payer, if viewed from perspective of ownership or entitlement of

the tax payer over the same, not allowing use of such property for

discharging liability to pay tax, penalty etc. under section 49 of the

Central GST or not permitting its refund to the tax payer cannot

seen as seizure or attachment of the property. 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.

28. For the aforestated reasons, the argument made by

learned counsel for the petitioner that the impugned order is no less

than an order for provisional attachment under section 83 is

rejected and the first question is answered in terms that the

impugned order could not be understood as the order amounting to

provisional attachment of property under section 83 of the CGST

Act and, therefore, further question regarding following of the

procedure prescribed in section 83 would not arise.

29. The learned counsel for the petitioner has relied upon

the case of Radha Krishan Industries Vs. State of Himachal Pradesh

and others (2021)6 SCC 771 to support his argument that the

procedure prescribed in section 83 must be followed and that the

exercise of power under section 83 must be preceded by formation

of opinion of the Commissioner that it is necessary for him so to do

for the purpose of protecting the interest of the Government

which is not reflected in the impugned order. However, as we have

found that the impugned order could not be considered as the one

passed in exercise of power under section 83 of the CGST Act, in

our respectful submission, the case of Radha Krishan Industries

(supra) would render no assistance to the petitioner.

30. Coming to the second and third questions, which can be

answered together, we are of the view that a closure examination of

the provisions made in rule 86-A would throw much required light

on these questions. Rule 86-A is reproduced thus:

"Rule 86-A. Conditions of use of amount available in electronic credit ledger. -

(1) The Commissioner or an officer authorised by him in this behalf, not below the rank of an Assistant Commissioner, having reasons to believe that credit of input tax available in the electronic credit ledger has been fraudulently availed or is ineligible in as much as-

(a) the credit of input tax has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36-

(i) issued by a registered person who has been found non-existent or not to be conducting any business from any place for which registration has been obtained; or

(ii) without receipt of goods or services or both; or

(b) the credit of input tax has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36 in respect of any supply, the tax charged in respect of which has not been paid to the Government; or

(c) the registered person availing the credit of input tax has been found non-existent or not to be conducting any business from any place for which registration has been obtained; or

(d) the registered person availing any credit of input tax is not in possession of a tax invoice or debit note or any other document prescribed under rule 36, may, for reasons to be recorded in writing, not allow debit of an amount equivalent to such credit in electronic credit ledger for discharge of any liability under section 49 or for claim of any refund of any unutilised amount.

(2) The Commissioner, or the officer authorised by him under sub-rule (1) may, upon being satisfied that conditions for disallowing debit of electronic credit ledger as above, no longer exist, allow such debit.

(3) Such restriction shall cease to have effect after the expiry of a period of one year from the date of imposing such restriction."

31. A careful perusal of the above referred provisions would

show that there is no specific mention therein about the blocking of

the ECL and what is stated is that the Competent Authority may not

allow debit of an amount equivalent to an amount determined or

found to be fraudulently or wrongly shown as credit available in the

ECL for discharge of any liability under Section 49 or any equivalent

refund of an unutilised amount of credit in the ECL. 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. The answer to the second question, therefore, is that rule 86-A of

Rules, 2017 does permit dis-allowance of debit of an amount to the

electronic credit ledger only to the extent of fraudulent or wrong

availment of credit in the ECL and such disallowance can be done

through blocking of the ECL to the extent of the amount

fraudulently or wrongly shown as lying in credit in the ECL.

32. Coming to the third question, we would say that rule

86-A has two pre-requisites to be fulfilled before the power of

disallowing of debit of suitable amount to the Electronic Credit

Ledger or blocking of ECL to the extent of the amount fraudulently

or wrongly availed of is exercised. 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.

33. It must be noted that the power under rule 86-A which

in effect is the power to block ECL to the extent stated earlier is

drastic in nature. It creates a disability for the tax payer to avail of

the credit in ECL for discharge of his tax liability, which he is

otherwise entitled to avail. Therefore, all the requirements of rule

86-A would have to be fully complied with before the power

thereunder is exercised. When this rule requires arriving at a

subjective satisfaction which is evident from the use of words, "must

have reasons to believe", the satisfaction must be reached on the

basis of some objective material available before the authority. It

cannot be made on the flights of ones fancies or whims or

imagination. The power under rule 86-A is an administrative power

with quasi-judicial hues exhibited in aforestated twin pre-requisites

and has civil consequences for a tax payer in the sense, it acts as an

obstruction to right of a tax payer to utilise the credit available in his

ECL. 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.

34. In the case of Maneka Gandhi Vs. Union of India : AIR

1978 SC 597, it was held that the principle of reasonableness which

legally as well as philosophically, is an essential element of equity or

non-arbitrariness and it pervades Article 14 like a brooding

omnipresence and the procedure contemplated by Article 21 must

answer the test of reasonableness in order to be in conformity with

Article 14. Fair and reasonable exercise of power would be there

only when the power is exercised in the manner prescribed in the

provision of law conferring the power and for the purpose for

achievement of which it exists. This would underline the

importance of existence of reasons to believe that there is fraudulent

or erroneous availment of credit standing in the ECL. In other

words, the power under rule 86-A cannot be exercised unless there

is a subjective satisfaction made on the basis of objective material by

the authority.

35. As regards the following of principles of natural justice, the

law is now well settled. In cases involving civil consequences, these

principles would be required to be followed although, the width,

amplitude and extent of their applicability may differ from case to

case depending upon the nature of the power to be exercised and

the speed with which the power is to be used. Usually, it would

suppose prior hearing before it's exercise (See Swadeshi Cotton Mills

Vs. Union of India : (1981) 1 SCC 664 and Nirma Industries Limited

and another Vs. Securities and Exchange Board of India : (2013) 8

SCC 20). But, it is not necessary that such prior hearing would be

granted in each and every case. Sometimes, the power may be

conferred to meet some urgency and in such a case expedition

would be the hallmark of the power. In such a case, it would be

practically impossible to give prior notice or prior hearing and here

the rule of natural justice would expect that at least a post decisional

hearing or remedial hearing is granted so that the damage done due

to irrational exercise of power, if any, can be removed before things

get worse. In Smt. Maneka Gandhi (supra), it was laid down that

where there is an emergent situation requiring immediate action,

giving of prior notice or opportunity to be heard may not be

practicable but a full remedial hearing would have to be granted.

The power conferred upon the Commissioner under rule 86-A is one

of such kind. It 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, the

rule creates certain checks which are found in the twin requirements

explained by us earlier. But, in our view, that may not be enough,

given the nature of power, and what settled principles of law tell us

in the matter. They would, in such a case, require this Court to read

into the provisions of rule 86-A something not expressly stated

therein, and so, we find that post decisional or remedial hearing

would have to be granted to the person affected by blocking of his

ECL. We may add that such post decisional hearing may be granted

within a reasonable period of time which may not be beyond two

weeks from the date of the order blocking the ECL. After such

hearing is granted, the authority may proceed to confirm the order

for such period as may be permissible under the rule or revoke the

order, as the case may be.

36. 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,

in our opinion, 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. This is because of the

fact that any order which brings to bear adverse consequences

upon the person against whom the order is passed, must disclose

the reasons for it so that the person affected thereby would know

why he is being made to suffer or otherwise he would not be able to

seek appropriate redressal of his grievance arising from such an

order. 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. In the case of

Andhra Bank V/s. Official Liquidator : (2005) 3 SCJ 762, the Apex

Court has held that an unreasoned order does not subserve the

doctrine of fair play. It then follows that the word, "may" used

before the words, "for the reasons recorded in writing" signifies

nothing but a mandatory duty of the competent authority to record

reasons in writing.

37. There is another reason which we would like to state

here to support our conclusion just made. 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 (see Commissioner of Police, Bombay Vs. Gordhandas

Bhanji : AIR (39) 1952 Supreme Court 16). It would then mean

that justification for exercise of the power has to be found by the

authority by making a subjective satisfaction on the basis of

objective material and such satisfaction must be reflected in the

reasons recorded in writing while exercising the power.

38. Examined in the light of above principles of law, the

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. This is also the

view taken in the case of M/s HEC India LLP Vs. Commissioner of

GST and Central Excise Audit-II and another (WA No.2341 of 2021

dated 16.09.2021), which commends to us. Then, as stated earlier,

a remedial hearing followed by confirmation or revocation of the

order would be necessary.

39. Now, let us examine impugned order and the background

facts against which it has been passed on 1.7.2021. 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.

40. 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. As explained by us earlier, the power under rule

86-A does not enable the authority to impose a blanket prohibition

upon utilization of credit available in the ECL. It permits the

authority to disallow debit of only that amount which has been

found to be fraudulently or wrongly availed of and, therefore, if the

credit amount available in the ECL is more than the amount found

to be fraudulently or erroneously availed of, the entire credit amount

amount lying in the ECL cannot be subjected to the disability of

rule 86-A. 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.

41. The learned AGP for respondent nos.1, 2 and 4 and

learned counsel for respondent no.3 have placed reliance upon

certain correspondence between these authorities which revealed as

to what weighed with the authority for issuing a direction to

respondent no.1 via respondent no.4 for blocking of the ECL. These

communications are of dates 27.1.2021 and 25.6.2021. The

communication dated 27.1.2021 did not give any reasons as to why

the ECL of the petitioner was merited and it only said that as certain

material was found during the course of investigation made against

the petitioner, the blocking was found necessary. Therefore, this

communication would not help further the case of the respondents.

The communication dated 25.6.2021 does no better. By this

communication respondent no.4 directed respondent no.1 to take

necessary action at her end by blocking of ITC of listed tax payers as

per rule-86-A. Respondent no.1 complying with the direction,

passed the impugned order of blocking of the ECL on 1.7.2021. In

the reply filed by respondent no.1, it is admitted that the blocking of

ECL was done by her because there was direction received by her

from respondent no.3 via respondent no.4 regarding blocking of the

ECL as per rule 86-A. This admission shows that there was an

abdication of authority conferred upon respondent no.1 regarding

exercise of power under rule 86-A which ought to have been

exercised by her after applying her mind independently in the

matter, but that was not to be. The surrender of the authority made

by her was in favour of respondent no.3, although respondent no.3,

on its part had only recommended for blocking of the ECL. This

shows that 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. When a thing is directed to be done in a particular

manner, it must be done in that manner or not at all is the well

established principle of administrative law (see Chandra Kishor Jha

V/s. Mahavir Prasad, AIR 1999 SC 3558 and Dhananjay Reddy V/s.

State of Karnataka, AIR 2001 SC 1512), which has not been

followed here. This is one more reason for us to hold that the

impugned order is arbitrary and illegal.

42. For the reasons stated hereinabove, we find that the

impugned order is arbitrary and illegal and it must be quashed and

set aside. Question no.3 is answered accordingly.

43. As regards fourth question, we must say here that it is

not necessary for us to answer it in specific terms as the impugned

order itself has been found to be not worthy of upholding. The

necessity for examining justification for issuance of the impugned

order would have arisen, had it been held that the impugned order

is sustainable in law on the touchstone of due process but requires

consideration on merits, which is not the case here.

44. The petitioner has also sought issuance of direction to

the Union of India for coming out with appropriate guidelines for

exercise of the power available under rule 86-A. As of now, we do

not think that there is any need for this Court to issue a direction as

desired by the petitioner. We are of the opinion that rule 86-A has

been adequately framed by the rule making authority so as to take

care of any possible misuse of the power. The authority has ensured

that sufficient safeguards against the misuse of power are embedded

in rule 86-A itself and accordingly the rule has been framed. We

have already explained in detail the meaning, extent, necessity and

manner of operation of these safeguards and, therefore, we do not

think that anything more than what we have done here is required

to be done.

45. In the result, we are of the opinion that this petition

deserves to be partly allowed and it is partly allowed accordingly.

46. The impugned order of blocking of the ECL of the

petitioner is hereby 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 and in the light of the observations made hereinabove.

                 (ANIL S. KILOR, J)                   (SUNIL B. SHUKRE, J)




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