Gujarat High Court

Arraycom(India) Limited vs State Of Gujarat on 13 November, 2025

Author: Bhargav D. Karia

Bench: Bhargav D. Karia

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                        C/SCA/11979/2025                                    CAV JUDGMENT DATED: 13/11/2025

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                                                                          Reserved On   : 10/10/2025
                                                                          Pronounced On : 13/11/2025

                                   IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

                                    R/SPECIAL CIVIL APPLICATION NO. 11979 of 2025


                      FOR APPROVAL AND SIGNATURE:


                      HONOURABLE MR. JUSTICE BHARGAV D. KARIA

                      and
                      HONOURABLE MR. JUSTICE PRANAV TRIVEDI

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                                  Approved for Reporting                    Yes            No
                                                                                           ✓
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                                                   ARRAYCOM(INDIA) LIMITED
                                                            Versus
                                                   STATE OF GUJARAT & ORS.
                      ==========================================================
                      Appearance:
                      MR CHAITANYA S JOSHI(5927) for the Petitioner(s) No. 1
                      MS SHRUNJAL SHAH, AGP for the Respondent(s) No. 1,2
                      NOTICE SERVED for the Respondent(s) No. 2,3
                      NOTICE SERVED BY DS for the Respondent(s) No. 1
                      ==========================================================

                         CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
                               and
                               HONOURABLE MR. JUSTICE PRANAV TRIVEDI


                                                CAV JUDGMENT

(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)

1. Heard learned advocate Mr. Chaitanya

S. Joshi for the petitioner and learned

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Assistant Government Pleader Ms. Shrunjal

Shah for the respondents.

2. Rule returnable forthwith. Learned

Assistant Government Pleader Ms. Shrunjal

Shah waives service of notice of rule on

behalf of the respondent State.

3. By this petition under Article 226/227

of the Constitution of India, the

petitioner has prayed for the following

reliefs:

"a) Issue a writ of certiorari or mandamus or any other appropriate writ, order or direction quashing and setting aside the impugned order dated 07.02.2025 (Annexure

and holding that the ITC denied under Section 17(5) of the CGST Act is wrongly classified and fully admissible; &

(b) Issue a writ of mandamus or appropriate direction to quash and set aside the notice dated

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09.06.2025 (Annexure F) issued by Respondent No. 2 under S. 17(1)(c) to the Respondent No. 3 Bank and direct respondent no.3 bank to immediately release Rs. 1,72,884 held in the Petitioner's bank account; &

(c) During the pendency and final hearing of the present petition stay the operation and implementation of the impugned order dated 07.02.2025 (Annexure A) passed by the Respondent No.2 as well as direct respondent no.3 bank not to deposit the said amount with Government in compliance with aforesaid order; &

(d) Pass such other and further orders as may be deemed just and proper in the interest of justice."

4. Brief facts of the case are that the

petitioner Arraycom (India) Limited which

is registered under the Central Goods and

Services Tax Act, 2017 and Gujarat Goods

and Services Tax Act, 2017 is having

business divisions such as (i) Thick film

material- manufacturing conductive paste,

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resistor paste, insulation paste etc.;

(ii) Solar Power Division: installation of

Roof top solar systems for Residential,

industrial and commercial purposes and

(iii) System Integration: in the field of

professional electronics encompassing

satellite communications, terrestrial

communication, broadcast engineering,

signals intelligence etc.

5. For the Financial Year 2020-2021, the

petitioner filed returns and claimed Input

Tax Credit (ITC) in accordance with the

law. One such claim was for Input Tax

Credit (ITC) availed on the premium paid

towards an insurance policy taken from

United India Insurance Co. Ltd., covering

the stock-in-trade and the business

premises of the petitioner.

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6. An intimation dated 25.10.2024 in Form

DRC-01A under section 73(3) of GGST ACT,

2017 read with CGST ACT 2017 was issued by

the respondent No.2. Subsequently

adjudication was initiated and show cause

notice in Form DRC-01 under section 73(1)

was issued on 13.11.2024.

7. It is the case of the petitioner that

the demand was primarily based on the

disallowance of ITC against the premium

paid to United India Insurance Co. Ltd.

for stock and premises insurance policy

which was mistakenly classified as motor

vehicle insurance, allegedly falling under

the ineligible category of Section 17(5)

of the GST Act.

8. The petitioner submitted a detail

reply in Form DRC-06 dated 22.11.2024

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enclosing the insurance policy and

invoices, stating that the policy covers

stock-in-trade and business premises, not

motor vehicles, hence, the ITC was availed

lawfully and reflected appropriately in

returns in Forms GSTR-3B and 2A and there

was no over-claim or mismatch between

returns filed and invoices.

9. It is the case of the petitioner that

the said two policies dated 26.10.2020

issued by United India Insurance Co. Ltd.

vide policies nos. 0607001120P108360334

and 0607001120P108360122 are both standard

fire and special peril policies wherein it

is specifically mentioned that the risk

covered under the said policies is in

respect of 'Electronic Goods

Manufacturing/Assembly'.

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10. It is the case of the petitioner that

while all other proposed demands in the

show cause notice in issued in Form DRC-01

were dropped regarding under declaration

of output tax and scrutiny of interest

due to late payment, however, the

department confirmed the demand of

Rs.1,72,884/- [Tax Rs.85,692/- CGST

Rs.42,846/- + SGST Rs.42,846/-], Interest

of Rs.67,192/-, Penalty of Rs.20,000/-

solely on the alleged ineligible ITC under

Section 17(5) of the CGST Act.

passed an order under Section 73 of the

CGST Act uploaded on the GST portal in

Form DRC-07, disallowing the said ITC by

classifying the insurance premium as

relating to motor vehicles, and

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accordingly applying Section 17(5) of the

CGST Act, 2017.

12. It is the case of the petitioner that

pursuant to the DRC-07 order, and without

affording any further hearing or

clarification, the respondent No.2

initiated coercive recovery by issuing

communication to the respondent no.3 Bank

on 09.06.2025 under Section 79(1)(c) of

the Act, attaching and withholding a sum

of Rs.1,72,884/- from the petitioner's

cash credit Account bearing No.

30677485708 and further directing the

respondent no.3 bank to pay the said sum

of amount to Government forthwith.

13. It is the case of the petitioner that

that after the impugned order was passed

on 07.02.2025, petitioner could have

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availed the statutory remedy of filing

appeal under Section 107 of the CGST Act

within a period of 90 days that is till

06.05.2024 and additional grace period of

one month elapsed on 06.06.2025, however,

as the responsible officer of the

petitioner company was on leave and due to

his personal reasons, the said order could

not be challenged and once he resumed duty

in first week of May 2025, the petitioner

company sought legal advice as to the

possible recourse against the said order.

However, till then the limitation period

as well as the grace period for

approaching the appellate authority had

already lapsed. Thus, the statutory remedy

became unavailable to the petitioner due

to the lapse of the maximum condonable

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limitation period of four months ending on

07.06.2025.

14. Thereafter, the petitioner company was

informed about the aforementioned coercive

recovery action of respondent no.2 of

withholding of the disputed amount from

the account of petitioner by telephonic

communication on 07.07.2025.

15. It is the case of the petitioner that

in the third week of July 2025, the

petitioner again sought legal advice as to

the possible course of action that can be

adopted challenging the impugned order as

well as the recovery action. The

petitioner received the legal opinion from

concerned advocate in the fourth week of

July 2025 that it is a fit case for

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challenging before this Court under writ

jurisdiction. Thereafter some time was

spent in preparation of the present

petition and accordingly the same has been

filed thereafter.

16. Learned advocate Mr. Chaitanya Joshi

for the petitioner submitted that the

insurance policy was taken by the

petitioner for securing stock in trade and

business premises and not the motor

vehicle and therefore, the respondent

could not have invoked the provisions of

section 17(5)(b) of the GST ACT.

17. Learned advocate Mr. Joshi referred to

the provisions of section 17(5) which

clearly provides that only in cases where

input tax credit has been sought in

respect of motor vehicle, credit is not

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allowable where as in facts of the case,

the insurance policy was for stock in

trade and premises and therefore, the

impugned order is bad in law.

18. It was submitted that the appellate

remedy available to the petitioner has

expired and therefore, this writ petition

is filed as the respondent no.2 has

attached the bank account of the

petitioner without resorting to the remedy

available under Rule 145 of the CGST

Rules, 2017 and without quantifying

whether any demand is sustainable post

clarification. It was therefore, submitted

that the attachment order dated 09.06.2025

of the bank account of the petitioner is

arbitrary and liable to be quashed and set

aside as the dispute revolves around an

interpretative issue and the quantum of

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input tax credit is modest and therefore,

no coercive action ought to have been

taken by the respondent authorities.

19. On the other hand, learned Assistant

Government Pleader Ms. Shrunjal Shah for

the respondent State could not controvert

the fact that the respondent authorities

have wrongly interpreted the provisions of

section 17(5)(b) of the GST Act

considering the insurance policy of motor

vehicle which is admittedly for stock and

premises of the petitioner.

20. Having heard the learned advocates for

the respective parties and considering the

facts of the case and on perusal of the

insurance policy placed on record at

Annexure-E from page nos. 69 to 75 of the

paper book, it is found that insurance

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policies are for stock and premises of the

petitioner for STFI cover and earthquake

and not for motor vehicle. The description

of the property mentioned in the

insurance policy also refers to the

manufacturing equipment.

21. Provision of section 17(5) of the GST

Act reads as under:

"5) Notwithstanding anything contained in sub- section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely:-

[(a) motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver)...."

22. It is clear from the above provision

that it is applicable only in cases where

input tax credit has been sought in

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respect of motor vehicle. The findings

given by the respondent in the impugned

order reads as under:

"2.2.3(iii) Findings:

On the basis of submission made, and verification carried out of the available facts and informa- tion, the findings are as follows:

Observation of this office: Tax- payer in his reply submitted that he has not claimed any ITC per- taining to Motor Vehicle Insurance Service or Airlines travel. It has been stated that the said con- tention can also be verified from the short availment of ITC in GSTR 3B compared to GSTR 2A. The tax- payer has also furnished ITC availment statement of the rele- vant period to justify the claim. Submitted reply by taxpayer has been examined. Upon verification of the ITC availment statement of the taxpayer for the relevant tax period furnished by him, it has been noted that he has availed in- eligible ITC of Motor Vehicle In- surance of one invoice pertaining to the month of October 2020 from the supplier namely UNITED INDIA INSURANCE COMPANY LIMITED in the tune of 85692/-(Rs. 42846/- for

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CGST and 42846/- for GGST). In view of the same, demand order in form DRC-07 is proposed for the recovery of Excess claim of ineli- gible ITC u/s 17(5) in the tune of Rs. 85692/- (Rs. 42846/- for CGST and 42846/- for GGST) along with applicable interest of Rs. 67192/- u/s 50 and penalty of Rs.20000/- under section 73(8) & (9)."

23. From the above findings, it is clear

that the respondent has not considered the

insurance policy of the petitioners which

is for stock and the property and not for

motor vehicle.

24. In such circumstances, the above

findings are contrary to the facts and

hence liable to be quashed and set aside.

25. It is pertinent to note that only the

addition in respect of input tax credit on

the insurance premium paid by the

petitioner is made in the impugned order