Bombay High Court
Ashapura Steel Metal Through ... vs Union Of India on 17 October, 2023
Bench: G. S. Kulkarni, Jitendra Shantilal Jain
2023:BHC-AS:31087-DB
3.WP8630_2023.DOC
Vidya Amin
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO. 8630 OF 2023
Ashapura Steel Metal, through ... Petitioner
Velaram Viraji Choudhary
Having office at CTS No. 5196, S.No. 103/2
Near Indian Oil Petrol Pump
Pimpri Waghere, Haveli
Pune - 411 018.
Versus
1. Union of India, through the Revenue Secretary ...Respondents
Ministry of Finance Department of Revenue
2. State of Maharashtra, through the Secretary, Ministry
of Finance, Finance Department, Mantralaya
3. State Tax Officer, PUN-VAT-C-131, Nodal Division-1,
Yerwada, Pune - 06.
4. Joint Commissioner of State Tax, Nodal Division - 1
Yerwada, Pune - 06.
Mr. Bharat Raichandani a/w. Mr. Prathamesh Gargate for the petitioner.
Ms. Shruti D. Vyas, AGP for the State.
______________________
CORAM: G. S. KULKARNI &
JITENDRA JAIN, JJ.
DATED: 17 October, 2023
_______________________
Oral Judgment (Per. G. S. Kulkarni, J.)
1. Rule, made returnable forthwith. Respondents waive service. By
consent of the parties, heard finally.
2. This petition under Article 226 of the Constitution of India primarily
challenges the order dated 10 March, 2023 passed by the State Tax Officer
whereby the petitioner's input tax credit (ITC) has been blocked under the
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Central Goods and Service Tax Act (for short "CGST Act") and under the
Maharashtra Goods and Service Tax Act (for short "MGST Act"). Such credit
has been blocked exercising authority under Rule 86-A of the CGST / MGST
Rules 2019 namely, an amount of Rs.23,76,520.88 under the CGST Act and
an equivalent amount under the MGST Act, totalling to Rs.47,53,041.76.
3. The reasons for blocking of the petitioner's credit as available in the
credit ledger, is on the ground that the petitioner had availed such input tax
credit fraudulently during the period from 2021-22 and 2022-23 and the same
was apparent from the records. The impugned order records that there were
substantive reasons to believe the blocking of the said credit. In regard to the
issues as raised in the petition, the relevant extract of the said order is required
to be noted, which reads thus:
"Therefore, as you have not fulfilled the conditions for utilizing the credit of
following amount of credit available in your credit ledger, and in order to
safeguard Government Revenue, it is hereby directed that no debit of an
amount, equivalent to such credit in electronic credit ledger for discharge of
any liability under section 49 or for claim of refund of any unutilized amount
of input tax credit.
Name of vendor GST No. Total Taxable IGST CGST Act, MGST Act, Total Tax
value Act, 2017 2017
2017
JAI BHAVANI 27BAWPP7812E1Z7 6082820.00 0.00 547453.80 547453.80 1094907.60
TRADING
M/s. NESA 27AARFN2859FIZT 16845730.00 0.00 1516115.70 1516115.70 3032231.40
PROJECTS &
LOGISTICS
LLP
M/s. Salphon 27ASLPC7495CIZK 3477237.50 0.00 312951.38 312951.38 625902.76
Traders
TOTAL 2376520.88 2376520.88 4753041.76
Page 2 of 15
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The restriction shall remain in force for a period of one year from the date
of this order or till removal of such restriction by competent authority,
whoever is earlier.
(D) If you have any grievance against this Order, you may submit your
reply electronically on Common Portal and electronically, through E-mail
at in anytime, in support of your claims. Accordingly, you will be heard
and after recording reasons if your claim found valid that is eligibility to
use such blocked credit, this order will be withdrawn either partially or
fully, depending on the evidence produced by you. Also depending on
changes in factual matrix in electronic records on common portal, suo-
moto modification in this order will be executed as may be found
needful.
ORDER
M/s. ASHAPURA STEEL METAL (VELARAM VIRAJI
CHOUDHARY) holding GSTN27AFKPC7447NIZX has availed input
tax credit fraudulently during the period of 2021-22 & 2022-23 and the
same is apparent on the records. Therefore, Input Tax credit availed
fraudulently at Rs.23,76,520.88 under the CGST and Rs.23,76,520.88
availed under head SGST is blocked under the provisions of Section 86A
of CGST/MGST Act, 2017.
4. Mr. Raichandani, learned counsel for the petitioner in assailing the
impugned order has mounted a two fold challenge. The first challenge is on
the ground that the "State Tax Officer" (Respondent No.2) who is an officer
under the State machinery and appointed under the MGST Act would not
have jurisdiction to block the credit under the CGST Act, as he would have
jurisdiction only under the MGST Act. In support of such contention, Mr.
Raichandani has placed reliance on the provisions under which such blocking
of the credit has been resorted, namely, Rule 86-A of the CGST Rules, 2017.
To appreciate such challenge, we may note the provisions of Rule 86-A of the
CGST Rules, which reads thus:
86-A Conditions of use of amount available in electronic credit ledger -
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(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 any
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 unutilized 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."
5. Rule 86A of the MGST Rule, 2017 is a similar provision which reads
thus:-
86A : 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 State Tax Officer, having reasons to believe that credit of input tax available
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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 unutilized 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."
6. Mr. Raichandani referring to Rule 86-A(1) of the CGST Rules would
submit that the said Rule itself is clear when it mandates that the
Commissioner or an officer authorized by him in this behalf, "not below the
rank of an Assistant Commissioner", can be the only officer who can take an
action under Rule 86-A, having reasons to believe, that the credit of input tax
has been fraudulently availed or is ineligible, inter alia being the condition as
set out in the said Rule. It is thus Mr. Raichandani's contention that ex-facie
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the State Tax Officer had no jurisdiction to block the input tax credit under the
CGST Act as it would be contrary to Rule 86-A of the CGST Rules, as the
State Tax Officer certainly is not an officer below the rank of an Assistant
Commissioner.
7. Countering such submissions, Ms. Vyas, learned counsel for the State /
MGST authorities would submit that the State Tax Officer would be the
competent officer to exercise powers not only under Rule 86-A of the CGST
Rules which are to be implemented by the State Authority, but also the
equivalent Rules framed under the MGST Rules, namely Rule 86A of the
MGST Rules. To buttress such submission, Ms. Vyas has drawn our attention
to an order dated 24 January, 2020 passed by the Commissioner of State Tax in
exercise of the powers conferred by sub-section (1) and (3) of Section 5 of the
MGST Act, 2017, whereby the Commissioner of State Tax has delegated the
powers and duties conferred or imposed upon the Commissioner to all the
Deputy Commissioners of State Tax, to all the Assistant Commissioners of
State Tax and to all the State Tax Officers, for carrying out the purposes under
sub-rule (1) and (2) of Rule 86A of MGST Rules, 2017. It would be necessary
to extract the said order which is notified in the Government Gazette dated 24
January, 2020, which reads thus:
"O R D E R
MAHARASHTRA GOODS AND SERVICES TAX ACT, 2017
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No. D.C.(A&R)-2/GST/PWR/Section/2017-18/ADM-8. - In
exercise of the powers conferred by sub-section (1) and (3) of Section 5
of the Maharashtra Goods and Services Tax Act, 2017 (Mah.XLIII of
2017), the Commissioner of State Tax, Maharashtra State, hereby
pleased to delegate the powers and duties conferred or imposed upon
the Commissioner, to all the Deputy Commissioners of State Tax, to all
the Assistant Commissioners of State Tax and to all the State Tax
Officers, for carrying out the purposes under sub-rule (1) and (2) of
Rule 86A of Maharashtra Goods and Services Tax Rules, 2017.
The powers and duties delegated under this order shall be exercised
within their jurisdiction subject to such conditions and restrictions as
the Commissioner may impose from time to time.
sd/-
Commissioner of State Tax
Maharashtra State, Mumbai."
8. Ms. Vyas would also submit that the contention as urged on behalf of
the petitioner that the State Tax Officer would not have jurisdiction to block
the credit under the CGST Act would not be correct, also in view of the clear
provisions of Section 6 of the CGST Act, which provides for "Authorization of
officers of State Tax or Union Territory Tax, as proper officer in certain
circumstances". We may note the provisions of Section 6 of the CGST Act,
which reads thus:
Section 6 - Authorisation of officers of State tax or Union territory tax as
proper officer in certain circumstances:
(1) Without prejudice to the provisions of this Act, the officers appointed
under the State Goods and Services Tax Act or the Union Territory Goods
and Services Tax Act are authorised to be the proper officers for the purposes
of this Act, subject to such conditions as the Government shall, on the
recommendations of the Council, by notification, specify.
(2) Subject to the conditions specified in the notification issued under sub-
section (1),-
(a) where any proper officer issues an order under this Act, he shall also
issue an order under the State Goods and Services Tax Act or the Union
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Territory Goods and Services Tax Act, as authorised by the State Goods
and Services Tax Act or the Union Territory Goods and Services Tax
Act, as the case may be, under intimation to the jurisdictional officer of
State tax or Union territory tax;
(b) where a proper officer under the State Goods and Services Tax Act
or the Union Territory Goods and Services Tax Act has initiated any
proceedings on a subject matter, no proceedings shall be initiated by the
proper officer under this Act on the same subject matter.
(3) Any proceedings for rectification, appeal and revision, wherever
applicable, of any order passed by an officer appointed under this Act shall
not lie before an officer appointed under the State Goods and Services Tax
Act or the Union Territory Goods and Services Tax Act."
9. Ms. Vyas has also drawn our attention to the provisions of Section 5 of
the MGST Act, which provides for "Powers of Officers". Sub-section (1) of
Section 5 provides that subject to such conditions and limitations as the
Commissioner may impose, an Officer of State Tax may exercise powers and
discharge duties conferred or imposed on him under the said Act. Sub-section
(2) provides that an officer of State tax may exercise the powers and discharge
the duties conferred or imposed under this Act or any other officer of State tax
who is subordinate to him. Sub-section (3) is relevant in the present context,
which provides that the Commissioner may, subject to such conditions and
limitations as may be specified in this behalf by him, delegate his powers to any
officer who is subordinate to him. It would be relevant to note the provisions
of Section 5 of MGST Act, which reads thus:
Section 5 - Powers of Officers
(1) Subject to such conditions and limitations as the Commissioner may impose, an
officer of State tax may exercise the powers and discharge the duties conferred or
imposed on him under this Act.
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(2) An officer of State tax may exercise the powers and discharge the duties
conferred or imposed under this Act on any other officer of State tax who is
subordinate to him.
(3) The Commissioner may, subject to such conditions and limitations as may be
specified in this behalf by him, delegate his powers to any other officer who is
subordinate to him.
(4) Notwithstanding anything contained in this section, an Appellate Authority
shall not exercise the powers and discharge the duties conferred or imposed on any
other officer of State tax."
10. Ms. Vyas has also drawn our attention to the provisions of Section 6 of
the MGST Act, which provides for "Authorization of Officers of central tax as
proper officer in certain circumstances", which is a mirror provision equivalent
to what Section 6 of the CGST Act would provide in respect of State officers.
11. Thus, referring to the aforesaid provisions, Ms. Vyas would contend that
the State tax officer would be the officer with appropriate jurisdiction to pass
an order under Rule 86-A of the CGST Rules as also the MGST Rules.
12. We find much substance in the contention urged by Ms. Vyas, for the
reason that in regard to the powers being conferred on the Officers either
under the CGST Act or the MGST Act, the provisions of both these Acts as
noted by us, are required to be read in conjunction and not in a manner which
is destructive to each other. The entire regime of the Goods and Service Tax,
to be levied falls under the scheme of parallel enactments, namely, the CGST
Act and the MGST Act. This is clear from the plain reading of the substantive
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provisions of Section 6 of the CGST / MGST Acts as noted by us
hereinabove, insofar as such provision confers powers/authority on the officers
of the Central Tax or of the State Tax or Union Territory as Officer under the
said enactments being Officers authorized to exercise appropriate powers.
13. We cannot read Rule 86-A of the CGST Rules to override the powers
which are conferred on the Commissioner under Section 5 of the MGST Act.
We also cannot read Rule 86-A of the CGST Rules to be contrary to the
provisions of Section 6 of the CGST Act. We further cannot read that Section
5 of the MGST Act to be contrary or in conflict him the provisions of Section
6 of the CGST Act. The legislature is clear in its intention, when the
provisions of sub-section (1) of Section 6 of the CGST Act itself mandates that
the officers appointed under the State Goods and Services Tax Act or the
Union Territory Goods and Services Tax Act are authorized to be the proper
officers for the purpose of CGST Act. The latter part of sub-section (1) which
provides that subject to such conditions as the Government shall, on the
recommendations of the Council, by notification specify, would not defeat the
earlier part of the provision, which categorically authorizes the officers
appointed under the State Goods and Services Tax Act to be the proper
officers for the purposes of the CGST Act.
14. It is also quite clear that the provisions of Section 5 and Section 6 of the
CGST Act are pari materia to the provisions of Sections 5 and 6 of the MGST
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Act. For that matter, the substantive implication of Rule 86-A of the CGST
and the MGST Rules is also not different when it provides the conditions for
use of amounts available in electronic ledger, which would permit the officer
to block the input tax credit in a given situation. It would bring about an
incongruity if the State Tax Officer is not recognized to exercise powers under
Rule 86-A of the CGST Rules when he is permitted to do so under Rule 86 A
of the MGST Rules.
15. Thus, on a cumulative reading of the statutory scheme as brought about
by these provisions and rules, in our opinion such provisions as conferring
powers on the State Officers under the CGST Act are required to be read
harmoniously. It cannot be conceived that the intention in framing Rule 86-A
of the CGST Rules would be to denude the powers which are conferred on the
State Tax Officer to exercise powers under Rule 86A as permitted by Section 5
of the MGST Act read with a clear authorization under Section 6 of the CGST
Act.
16. For the above reasons, we are unable to persuade ourselves to agree with
Mr. Raichandani when he contends that the State tax officer did not have the
jurisdiction to pass the impugned order invoking Rule 86-A of the CGST
Rules.
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17. In such context, Mr. Raichandani has also brought to our notice the
orders of the Division Bench of this Court, Bench at Nagpur in Writ Petition
N0. 5645 of 2022 (Guru Storage Batteries vs. State of Maharashtra) in which
the Court in the facts of the case has held that Rule 86-A of the CGST Rules
would not permit delegation of power to an officer who is below the rank of
the Assistant Commissioner. However, in citing such orders Mr. Raichandani
would fairly submit that the mandate of the substantive provisions of Section 5
of the MGST Act as also Section 6 of the CGST Act were not brought to the
notice of the Court. In any event, in the context in hand, what is starring at
the petitioner is the clear mandate of the provisions of Section 6 of the CGST
Act and Section 5 of the MGST Act which the Court can neither overlook nor
disregard when a question of authority of the officer is posed before the Court.
Also as pointed out by Ms. Vyas in such case there was no challenge, either to
the notification dated 24 January, 2020 issued by the Commissioner of State
Tax in exercise of powers conferred by sub-section (1) and (3) of Section 5 of
MGST Act, conferring powers on the Sales Tax Officer to pass orders under
Rule 86A.
18. Insofar as Mr. Raichandani's contention on the merits of the order dated
10 March, 2023 is concerned, we find that the State tax officer in paragraph
(D) of the order, as noted by us, has recorded that if the petitioner has any
grievance against such order, a reply may be submitted electronically on
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common portal and electronically, through e-mail at anytime and accordingly,
on such reply, the petitioner would be heard and after recording reasons if the
claim of the petition is found valid and appropriate, an action to unblock
credit can be taken. Mr. Raichandani has brought to our notice that after such
order was passed by the State tax officer, the petitioner had addressed a
detailed e-mail dated 28 March, 2023 to the State Tax Officer raising
objections in regard to the blocking of the petitioner's input tax credit by the
impugned order. The petitioner had set out grounds as to why such order was
required to be reversed / withdrawn along with supporting documents. It
appears from the reply affidavit as filed on behalf of the respondent that by
roznama order dated 10 April, 2022 (sic 10 April, 2023), the State Tax officer
has purportedly considered such objection of the petitioner, however such
order was not communicated to the petitioner. On a perusal of such order, it
appears that none of the contentions of the petitioner on merits have been
addressed by the State Tax Officer. In fact what the State Tax Officer has
observed is that the petitioner has a remedy of appeal under section 107(1) of
the CGST/MGST Act if the petitioner was to be aggrieved by the decision of
the State Tax Officer on the orders passed under Rule 86A of the
CGST/MGST Rules, 2017.
19. In our opinion, the order as passed by the State Tax Officer is neither in
consonance with the observations as made by the very officer in the impugned
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order providing for an opportunity to the petitioner to make out a case against
such blocking of input tax credit, as also the same would be contrary to the
provisions of Rule 86-A (2) of the CGST / MGST Rules, which itself provides
that the Commissioner or the Officer authorized by him under sub-rule (1)
may, upon being satisfied that conditions for disallowing debit of electronic
credit ledger, no longer exist, allow such debit. Sub-rule (2) of Rule 86-A
therefore certainly provides for a window or an opportunity available to the
assessee to make out a case against the action of the department to disallow the
benefit of credit to the assessee.
20. For the aforesaid reasons, we are of the clear opinion that the roznama
order dated 10 April, 2023 passed by the State Tax Officer in rejecting the
petitioner's objection cannot be sustained and it would be required to be set
aside. We, accordingly dispose of this petition by the following order:
ORDER
i) The order dated 10 April, 2023 passed by the State Tax officer,
being roznama order, rejecting the petitioner's objection is
quashed and set aside;
(ii) The State tax officer is directed to hear the petitioner on the
contentions as raised by the petitioner against blocking of the
petitioner's input tax credit under the impugned order dated 10
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March, 2023, on the basis of the documents as submitted by the
petitioner by its email dated 28 March, 2023. After according an
opportunity of a hearing to the petitioner, a detailed order be
passed by the State Tax Officer in accordance with law.
(iii) All contentions in that regard are expressly kept open.
(iv) The petitioner is directed to appear before the State Tax Officer in
the first instance on 27 October, 2023 at 3 p.m.
(iv) The State Tax Officer shall make an endeavour to hear the
petitioner as expeditiously as possible and in any event pass
appropriate order on or before 10 November, 2023.
(v) Needless to observe that the petitioner may avail an opportunity
of placing on record of the State Tax Officer additional
submissions and documents.
(JITENDRA JAIN, J.) (G. S. KULKARNI , J.)
Signed by: Vidya S. Amin 17 October, 2023
Designation: PS To Honourable Judge
Date: 18/10/2023 13:53:07
