Telangana High Court
Cemetrix It Services Private Limited vs The Commissioner on 26 June, 2024
*THE HON'BLE SRI JUSTICE SUJOY PAUL
AND
*THE HON'BLE SRI JUSTICE NAMAVARAPU RAJESHWAR RAO
+WRIT PETITION Nos.10390, 10425, 10459 and 12733 of 2024
% 26-06-2024
# M/s. Bhavani Oxides and others. ...Petitioners
vs.
$The State of Telangana and others. ... Respondents
!Counsel for the Petitioners: Sri M. Uma Shankar.
Sri M. Naga Deepak.
^Counsel for Respondents: Sri Swaroop Oorilla, learned Special
Government Pleader for State Tax.
<Gist :
>Head Note :
? Cases referred
1. 2024 (5) TMI 509
2. 2023 (11) TMI 957
3. 2022 (2) TMI 843
4. 1977 (2) SCC 777
5. 2022 SCC OnLine Cal 4544
6. (2002) 4 SCC 638
7. (2019) 5 SCC 119
8. (2009) 2 SCC 1
9. AIR 1959 SC 422
10. AIR 1955 SC 830
11. AIR 1952 SC 324
12. (1924) AC 185
13. AIR 1961 SC 1549
14. AIR 1976 SC 1697
15. AIR 1953 SC 10
16. AIR 1979 SC 193
17. (1993) 1 SCC 78
18. (1997) 3 SCC 486
19. (2008) 14 SCC 151
20. (2011) 13 SCC 733
21. AIR 1968 SC 647
22. (2003) 2 SCC 111
2
SP, J & RRN, J
wps_10390_2024 & batch
IN THE HIGH COURT FOR THE STATE OF TELANGANA
HYDERABAD
****
WRIT PETITION Nos.10390, 10425, 10459 and 12733 of 2024
(Per Hon'ble Sri Justice Sujoy Paul)
Between:
M/s. Bhavani Oxides and others.
...Petitioners
vs.
The State of Telangana and others.
... Respondents
JUDGMENT PRONOUNCED ON: 26.06.2024
THE HON'BLE SRI JUSTICE SUJOY PAUL
THE HON'BLE SRI JUSTICE NAMAVARAPU RAJESHWAR RAO
1. Whether Reporters of Local newspapers
may be allowed to see the Judgments? :
2. Whether the copies of judgment may be
Marked to Law Reporters/Journals? :
3. Whether His Lordship wishes to
see the fair copy of the Judgment? :
___________________
SUJOY PAUL, J
_____________________________________
NAMAVARAPU RAJESHWAR RAO, J
3
SP, J & RRN, J
wps_10390_2024 & batch
THE HONOURABLE SRI JUSTICE SUJOY PAUL
AND
THE HONOURABLE SRI JUSTICE NAMAVARAPU RAJESHWAR RAO
WRIT PETITION Nos.10390, 10425, 10459 AND
12733 OF 2024
COMMON ORDER:
(Per Hon'ble Justice Sujoy Paul)
Regard being had to the similitude of the questions involved
on the joint request of the parties, the matters were analogously
heard and decided by this common order.
Facts:-
2. The facts are taken from W.P.No.10390 of 2024. The
petitioner is a proprietorship firm engaged in the manufacture and
supply of zinc oxide and duly registered with Goods and Service
Tax (GST) authorities of Telangana State. The petitioner claims
itself as bona fide purchaser of inputs from various suppliers and
has been receiving proper tax invoices, e-way bills and maintained
weighment slips under the provisions of Central Goods and
Service Tax (CGST) Act, 2017 (Act) and Telangana State Goods
and Service Tax (SGST) Act, 2017.
3. It is submitted that on 14.03.2024, the State Tax Officer in
purported exercise of power under Rule 86A i.e., Conditions of use
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of amount available in electronic credit ledger of the CGST Rules,
2017 (Rules), blocked the credit ledger of the petitioner by
mentioning 'Registration of supplier has been cancelled'. The
ledger is blocked without issuing any show cause notice. No
detailed reasons and necessary facts were disclosed, which
became foundation for such blocking by the respondent. Because
of the blocking, the electronic credit ledger reflects the closing
balance as zero. This action of blocking is subject matter of
challenge in these petitions filed under Article 226 of the
Constitution.
Petitioners' contention:
4. Sri M. Uma Shankar, learned counsel for the petitioners in
W.P.Nos.10390, 10425 and 10459 of 2024, submits that in
W.P.No.10390 of 2024, the respondents have issued notice to the
petitioner therein and one of the suppliers under Sections 73/74
of the Act and the said proceeding is still pending. In all fairness,
the department should have proceeded as per the said show cause
notice and after following the procedure could have taken a final
decision. Instead, the draconian Rule 86A is enforced, which
resulted in total stoppage of business of the petitioner. The
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petitioner is not able to file his monthly return. If ultimately, the
aforesaid action is found to be illegal, still the petitioner may be
required to pay late fee, penalty etc., for the intervening period.
Both the learned counsel for the petitioners placed reliance on two
judgments of Telangana High Court passed in the case of M/s.
Laxmi Fine Chem v. Assistant Commissioner 1 and in the case
of M/s. Sri Krishna Enterprises v. The Superintendent of
Central Tax 2, to bolster the submissions: (1) the impugned
drastic action of blocking the electronic credit ledger is arbitrary
and runs contrary to the principles of natural justice, more so,
when it is taken without issuing show cause notice. (2) As per
clause 3.1.3 of Circular No. CBEC-20/16/05/2021-GST/1552
dated 02.11.2021 issued by the Ministry of Finance, Department
of Revenue, Central Board of Indirect Taxes and Customs, GST
Policy Wing, Government of India, it is clear that the department
itself was conscious that the power under Rule 86A cannot be
exercised in routine manner, instead, it must be exercised
sparingly and with utmost circumspection. (3) The point involved
is no more res integra, as the Gujarat High Court in the case of
2024 (5) TMI 509
2023 (11) TMI 957
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Samay Alloys India Pvt. Ltd v. State of Gujarat 3 has already
considered the above draconian provision and set aside similar
action. (4) The impugned document does not contain necessary
details i.e., the details of the supplier whose registration is
cancelled, the date when such cancellation has taken place etc.
Therefore, there is no material whatsoever on the strength of
which the 'satisfaction' is arrived at or in other words "reasons to
believe" was recorded.
5. Sri M. Naga Deepak, learned counsel for the petitioner in
W.P.No.12733 of 2024, submitted that the language employed in
Rule 86A makes it clear that even if, the Input Tax Credit available
in the e-credit ledger has been fraudulently availed or one is
ineligible, the debit of amount equivalent to 'such credit' can be
subject matter of blocking, but the impugned action is beyond
that amount which is contrary to Rule 86A. Sri M. Naga Deepak,
in his case urged that blocking is not confined to the 'such'
amount only. By placing reliance on the judgment in the case of
State of Kerala v. K.T. Shaduli Yusuff 4, it is urged that the
principles of natural justice are to be read into Rule 86A. During
2022 (2) TMI 843
1977 (2) SCC 777
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the course of hearing, it was pointed out that in W.P.Nos.10425,
10459 and 12733 of 2024, the respondents have directly blocked
the electronic credit ledger and no notice under Section 74 of the
Act was given.
Stand of Revenue:-
6. Per contra, Sri Swaroop Oorilla, learned Special Government
Pleader for State Tax for respondents, supported the impugned
action and urged that constitutionality of Rule 86A is not subject
matter of challenge and hence, said Rule must be read as such.
The Rule is totally silent about following the principles of natural
justice. Thus, the impugned action cannot be held to be illegal
merely because it is taken without following the principles of
natural justice. Reliance is placed on the judgment of Calcutta
High Court in the case of Basanta Kumar Shaw v. Assistant
Commissioner of Revenue 5.
7. The Government Pleader further urged that the impugned
action in W.P.No.10390 of 2024 clearly shows that the blockage is
made applicable to the extent Input Tax Credit was fraudulently
claimed and the entire amount is not blocked. If the petitioner
2022 SCC OnLine Cal 4544
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replenishes the said amount, he can file the return electronically.
Furthermore, it is submitted that the petitioners are not remedy
less. As per Sub-rule 2 of Rule 86A, the petitioners can prefer an
application/representation before the Commissioner, who upon
being satisfied that conditions for disallowing the debit of
electronic credit ledger no longer exists, may allow such debit.
The petitioners may avail such remedy.
8. The parties have confined their arguments to aforesaid
extent and not pressed any other point.
9. We have heard the learned counsel for the parties at
length and perused the record.
FINDINGS:
Statutory alternative remedy:
10. The learned Government Pleader has taken pains to contend
that Rule 86A(2) of the Rules provides a statutory alternative
remedy, and for this reason, the petitioners should be relegated to
avail the said remedy. We do not see any merit in this contention
for the simple reason that Sub-rule (2) nowhere prescribes any
mode of preferring any application, appeal or representation. The
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statutory remedy lies when there exists an express right of
preferring an appeal, application, etc., and a corresponding duty
on the competent authority to entertain and decide the same (see
Director of Settlements, A.P. v. M.R.Apparao 6 and Municipal
Corporation of Greater Mumbai v. Rafiqunnisa M.Khalifa 7). In
absence of any such provision of preferring such application and
corresponding duty on the authority, the objection of learned
Government Pleader deserves to be rejected.
11. Even if for the sake of argument, it is accepted that under
Sub-rule 2 of Rule 86A any application/representation is
entertainable, the person intending to prefer such
application/representation must be equipped with necessary
details on the strength of which he can effectively challenge the
action of the department. Putting it differently, the impugned
action does not disclose necessary details and factual background
which can be met/attacked by the petitioners by preferring an
application/representation under Sub-rule 2. Thus, we find no
reason to relegate the petitioners to avail so called remedy
available to them under Rule 86A (2) and instead deem it proper
(2002) 4 SCC 638
(2019) 5 SCC 119
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to decide the matter in exercise of power under Article 226 of the
Constitution.
Previous Orders:
12. This Court in M/s. Laxmi Fine Chem and M/s. Sri Krishna
Enterprises (both cited supra) considered the judgment of the
Gujarat High Court in the case of Samay Alloys India Pvt. Ltd
(cited supra) dealing with Rule 86A of Rules. The para No.5 of
judgment in the case of M/s. Laxmi Fine Chem (cited supra) is
worth recording and the same is reproduced as under:
"5. Today, the learned Standing Counsel for the State submits
that upon instructions he has been informed to state that the
impugned action of blocking the input tax credit was without
issuance of any show cause notice. Thus the said action
on the part of the respondents in passing the order of
blocking the input tax credit to the tune of
Rs.50,06,000/- by making a negative credit in the
electronic credit ledger of the petitioner is per se bad in
law and violative of principles of natural justice. As
regards the second ground, there is a recent decision of the
Division Bench of the Gujarat High Court, in the case of
Samay Alloys India Pvt.Ltd. vs. State of Gujarat decided on
03.02.2022, dealing with the aspect of Rule 86(A) of the CGST
Rules 2017, wherein in paragraph Nos.38 to 44 and 57 has
held as under..."
(Emphasis Supplied)
Department's Circular:
13. The relevant clauses of Circular dated 02.11.2021, on which
heavy reliance is placed by Sri Uma Shankar, learned counsel for
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the petitioners in W.P.No.10390 of 2024 and batch reads as
under:
"3.1.3 The Commissioner, or an officer authorised by him, not
below the rank of Assistant Commissioner, must form an
opinion for disallowing debit of an amount from electronic
credit ledger in respect of a registered person, only after
proper application of mind considering all the facts of the
case, including the nature of prima facie fraudulently availed
or ineligible input tax credit and whether the same is covered
under the grounds mentioned in sub-rule (1) of rule 86A, as
discussed in para 3.1.2 above; the amount of input tax credit
involved; and whether disallowing such debit of electronic
credit ledger of a person is necessary for restricting him from
utilizing/ passing on fraudulently availed or ineligible input
tax credit to protect the interests of revenue.
3.1.4 It is reiterated that the power of disallowing debit of
amount from electronic credit ledger must not be exercised in
a mechanical manner and careful examination of all the facts
of the case is important to determine case(s) tit for exercising
power under rule 86A. The remedy of disallowing debit of
amount from electronic credit ledger being, by its very nature,
extraordinary, has to be resorted to with utmost
circumspection and with maximum care and caution. It
contemplates an objective determination based on intelligent
care and evaluation as distinguished from a purely subjective
consideration of suspicion. The reasons are to be on the basis
of material evidence available or gathered in relation to
fraudulent availment of input tax credit or ineligible input tax
credit availed as per the conditions/ grounds under sub-rule
(1) of Rule 86A."
(Emphasis Supplied)
14. The circular dated 02.11.2021 clearly shows that the
department is conscious of the impact of invoking Rule 86A of the
Rules in a mechanical manner. Therefore, a word of caution is
communicated to the authorities to deal with such matters with
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utmost care, caution and sensitivity. Pertinently, the emphasis is
laid for existence of reasons which must be based on material
evidence regarding fraudulent availment of Input Tax Credit. The
'reasons' must be discernible and whenever required must be
disclosed. In the instant case, in the fitness of the case, it was
expected that the name of the supplier, date of cancellation of his
registration and other necessary details should have been
disclosed to the petitioner to enable him to put forth his defence in
an effective manner.
Section 74 and Rule 86 : Principles of Natural Justice.
15. The matter may be viewed from another angle. The purpose
behind bringing Section 74 of the Act and Rule 86A of the Rules in
the statute book is to ensure that the benefit of Input Tax Credit,
etc., cannot be enjoyed fraudulently. The relevant portions of both
the provisions are reproduced in a tabular form in order to
examine the provisions in juxta position.
Section 74:- Rule 86A:-
Determination of tax not paid or short Conditions of use of amount
paid or erroneously refunded or input tax available in electronic credit
credit wrongly availed or utilized by ledger.
reason of fraud or any willful-
misstatement or suppression of facts:
(1) Where it appears to the proper officer (1) The Commissioner or an
that any tax has not been paid or short officer authorised by him in this
paid or erroneously refunded or where behalf, not below the rank of an
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input tax credit has been wrongly availed Assistant Commissioner, having
or utilised by reason of fraud, or any reasons to believe that credit of
wilful-misstatement or suppression of input tax available in the
facts to evade tax, he shall serve notice electronic credit ledger has
on the person chargeable with tax which been fraudulently availed or is
has not been so paid or which has been ineligible in as much as-
so short paid or to whom the refund has
erroneously been made, or who has a) the credit of input tax has
wrongly availed or utilised input tax been availed on the strength of
credit, requiring him to show cause as to tax invoices or debit notes or
why he should not pay the amount any other document prescribed
specified in the notice along with interest under rule 36:-
payable thereon under section 50 and a
penalty equivalent to the tax specified in i. issued by a registered
the notice. person who has been
found non-existent or not
(2) The proper officer shall issue the to be conducting any
notice under sub-section (1) at least six business from any place
months prior to the time limit specified for which registration has
in sub-section (10) for issuance of order. been obtained; or
ii. without receipt of goods
(3) Where a notice has been issued for or services or both; or
any period under sub-section (1), the
b) the credit of input tax has
proper officer may serve a statement,
been availed on the strength of
containing the details of tax not paid or
tax invoices or debit notes or
short paid or erroneously refunded or
any other document prescribed
input tax credit wrongly availed or
under rule 36 in respect of any
utilised for such periods other than
supply, the tax charged in
those covered under sub-section (1), on
respect of which has not been
the person chargeable with tax.
paid to the Government; or
(4) to (8) xxx
c) the registered person availing
the credit of input tax has been
(9) The proper officer shall, after
found non-existent or not to be
considering the representation, if any,
conducting any business from
made by the person chargeable with tax,
any place for which registration
determine the amount of tax, interest
has been obtained; or
and penalty due from such person and
issue an order.
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
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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.
(Emphasis Supplied)
16. A plain reading of Section 74 of the Act shows that it also
talks about determination of Input Tax Credit wrongly availed or
utilized by reason of fraud or any willful misstatement or by
suppression of facts. In the event of any such condition being
available, Sub-section (1) provides service of notice on the person
chargeable with tax. Sub-section (2) prescribes the time limit for
issuance of notice under Sub-section (1). Sub-section (3) makes it
clear that proper officer needs to serve a statement containing
necessary details relating to Input Tax Credit wrongly availed or
utilized. In turn, the person chargeable may file his response in
the manner provided in other sub-sections. Sub-section (9)
enables the proper officer to consider the representation and
determine the amount of tax, interest and penalty due from such
person. Thus, principles of natural justice are statutorily codified
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in Section 74. The person chargeable is not only required to be
put to notice, there is a statutory mandate that necessary details
in the shape of a statement containing the details of tax not paid
or short paid or wrongly refunded or Input Tax Credit wrongly
availed or utilized must be furnished.
17. Rule 86A of the Rules is silent about the observance of
principles of natural justice. The parties were at loggerheads on
the question of applicability of principles of natural justice when
power is being exercised under Rule 86A. This is an interesting
conundrum which deserves serious consideration.
18. A conjoint reading of Section 74 and Rule 86A leaves no
room for any doubt that the intention and object behind insertion
of those provisions is to deprive the person chargeable from a
benefit which is wrongly or fraudulently claimed and enjoyed. A
'Section' in a statute is always on a higher footing than the 'Rule'
made under the Act. As noticed, Section 74 statutorily recognizes
and mandates that principles of natural justice are to be followed.
Rule 86A, on the other hand, is totally silent on the aspect of
applicability of principles of natural justice. Thus, if Rule 86A is
implemented without following the principles of natural justice, it
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may cause hardship, inconvenience and injustice. It is difficult to
accept that the law makers intended not to follow principles of
natural justice while inserting Rule 86A in the statute book. If we
interpret Rule 86A in the manner suggested by learned
Government Pleader, it will have an impact that although Section
74, a substantive provision of the Act recognizes the principles of
natural justice, the Rule made under the Section says total
goodbye to principles of natural justice. Hence, we are unable to
persuade ourselves with this line of argument.
19. It is trite that if the grammatical construction leads to some
absurdity or some repugnance or inconsistency with the rest of
the instrument, it may be departed from so as to avoid that
absurdity, and inconsistency (see para 101 of Mahmadhusen
Abdulrahim Kalota Shaikh v. Union of India 8). Similarly, a
construction giving rise to anomalies should be avoided (see
Veluswami Thevar v. G.Raja Nainar 9. Where the language of a
statute, in its ordinary meaning and grammatical construction,
leads to a manifest contradiction of the apparent purpose of the
enactment, or to some inconvenience or absurdity, hardship or
(2009) 2 SCC 1
AIR 1959 SC 422
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injustice, presumably not intended, a construction may be put
upon it which modifies the meaning of the words, and even the
structure of the sentence (see Tirath Singh v. Bachittar Singh 10).
20. In Shamrao v. District Magistrate, Thana 11, the Apex
Court opined that the object of the construction of a statute being
to ascertain the will of the Legislature, it may be presumed that
neither injustice nor absurdity was intended. If, therefore literal
interpretation would produce such a result, and the language
admits of an interpretation which would avoid it, then such an
interpretation may be adopted.
21. In order to avoid inconsistency, injustice, anomaly and
hardship and also in order to iron out the creases between Section
74 of the Act and Rule 86A of the Rules, we deem it proper to
interpret it by holding that principles of natural justice must be
observed while taking an action under Rule 86A of the Rules.
22. The aforesaid course must be adopted to avoid uncertainty
and friction in the system which the statute purports to regulate.
AIR 1955 SC 830
AIR 1952 SC 324
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This principle has been stated by LORD SHAW in the following
words in Shannon Realities Ltd. v. St. Michel (Ville De) 12:
"Where words of a statute are clear, they must, of course, be
followed but where alternative constructions are equally open
that alternative is to be chosen which will be consistent with
the smooth working of the system which the statute purports
to be regulating; and that alternative is to be rejected which
will introduce uncertainty, friction or confusion into the
working of the system".
(Emphasis Supplied)
23. The said principle enunciated by LORD SHAW was accepted
with profit while construing Section 193 of the Sea Customs Act,
1878 by SUBBARAO, J., in Collector of Customs v. Digvijaya
Singhji Spinning & Weaving Mills Ltd. 13. In State of Gujarat v.
Chaturbhuj Maganlal 14, the Apex Court opined that a contrary
conclusion from a provision can be avoided so that it would not
impede the efficacy of the provision and introduce inconvenience,
friction, confusion and artificiality in the working of the provision.
24. S.R.DAS, J., in State of Punjab v. Ajaib Singh 15 observed
that if two constructions are possible then the court must adopt
that which will ensure smooth and harmonious working of the
Constitution and eschew the other which will lead to absurdity or
(1924) AC 185
AIR 1961 SC 1549
AIR 1976 SC 1697
AIR 1953 SC 10
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give rise to practical inconvenience or make well-established
provision of existing law nugatory.
25. In Chief Justice of Andhra Pradesh v. L.V.A. Dikshitulu 16,
it was prominently held as under:
"where two alternative constructions are possible, the court
must choose the one which will be in accord with the other
parts of the statute and ensure its smooth, harmonious
working and eschew the other which leads to absurdity,
confusion or fiction, contradiction and conflict between its
various provisions, or undermines or tends to defeat or destroy
the basic scheme and purpose of the enactment."
(Emphasis Supplied)
26. Considering the common string available in the above
judgments of the Apex Court, we have no hesitation to hold that
principles of natural justice are to be read into Rule 86A of the
Rules.
27. The principles of natural justice are not expressly required to
be followed in certain taxing statutes, yet in certain judgments,
the Apex Court opined that the said principles must be read into
the relevant provision. It is apposite to consider following
judgments in this regard.
AIR 1979 SC 193
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28. In the case C.B. Gautam v. Union of India and Others 17,
the Apex Court held as under:
"26. The next question to which we propose to address
ourselves is whether the provisions of Chapter XX-C are bad
in law as there is no provision for giving the concerned parties
an opportunity of being heard before an order is passed under
the provisions of Section 269-UD of the said Chapter for the
purchase by the Central Government of an immovable
property agreed to be sold in an agreement of sale. In this
regard a plain reading of the provisions of the said Chapter
clearly shows that they do not contain any provision for giving
the concerned parties an opportunity to be heard before an
order for compulsory purchase of the property by the Central
Government is made. In connection with the requirement of
opportunity of being heard before an order for compulsory
purchase is made we find that somewhat similar questions
have been considered by this Court on a number of occasions.
In the case of Union of India v. Col. J.N. Sinha [(1970) 2 SCC
458 : (1971) 1 SCR 791, 794-795] the facts were that the first
respondent who was in the class I service of the Survey of
India and rose to the position of Deputy Director, was
compulsorily retired by an order under Rule 56(j) of the
Fundamental Rules, no reasons were given in the order.
Respondent 1 challenged the order on the ground that it
violated principles of natural justice and no opportunity had
been given to the first respondent to show cause against his
compulsory retirement. A Division Bench of this Court in its
judgment in that case observed as follows: (SCC pp. 460-61,
para 8)
'Rules of natural justice are not embodied rules nor can they be
elevated to the position of fundamental rights. As observed by
this Court in Kraipak, A.K. v. Union of India [(1969) 2 SCC 262 :
AIR 1970 SC 150] 'the aim of rules of natural justice is to secure
justice or to put it negatively to prevent miscarriage of justice.
These rules can operate only in areas not covered by any law
validly made. In other words they do not supplant the law but
supplement it'. It is true that if a statutory provision can be
read consistently with the principles of natural justice, the
courts should do so because it must be presumed that the
(1993) 1 SCC 78
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Legislatures and the statutory authorities intend to act in
accordance with the principles of natural justice. But if on
the other hand a statutory provision either specifically or by
necessary implication excludes the application of any or all the
principles of natural justice then the court cannot ignore the
mandate of the Legislature or the statutory authority and read
into the concerned provision the principles of natural justice.
Whether the exercise of a power conferred should be made in
accordance with any of the principles of natural justice or not
depends upon the express words of the provision conferring the
power, the nature of the power conferred, the purpose for which
it is conferred and the effect of the exercise of that power.'
28. It must, however, be borne in mind that courts have
generally read into the provisions of the relevant sections a
requirement of giving a reasonable opportunity of being heard
before an order is made which would have adverse civil
consequences for the parties affected...
30. In the light of what we have observed above, we are clearly
of the view that the requirement of a reasonable opportunity
being given to the concerned parties, particularly, the intending
purchaser and the intending seller must be read into the
provisions of Chapter XX-C. In our opinion, before an order for
compulsory purchase is made under Section 269-UD, the
intending purchaser and the intending seller must be given a
reasonable opportunity of showing cause against an order for
compulsory purchase being made by the appropriate authority
concerned... In our view, therefore, the requirement of an
opportunity to show cause being given before an order for
purchase by the Central Government is made by an
appropriate authority under Section 269-UD must be read
into the provisions of Chapter XX-C. There is nothing in the
language of Section 269-UD or any other provision in the said
Chapter which would negate such an opportunity being given.
Moreover, if such a requirement were not read into the
provisions of the said Chapter, they would be seriously open to
challenge on the ground of violations of the provisions of Article
14 on the ground of non-compliance with principles of natural
justice. The provision that when an order for purchase is made
under Section 269-UD -- reasons must be recorded in writing
is no substitute for a provision requiring a reasonable
opportunity of being heard before such an order is made."
(Emphasis Supplied)
SP, J & RRN, J
wps_10390_2024 & batch
29. In the case of FAG Precision Bearings v. Sales Tax Officer
(I) and Another 18, the Apex Court opined as under:
"10. ... We take the view that, in the circumstances, the power
under Rule 37-A may not be exercised by the Commissioner
without first giving to the assessee notice to show cause why
his assessment proceedings should not be stayed for a stated
period. The notice should set out what the reasons and
circumstances are which, according to the Commissioner,
necessitate such stay so that the assessee has the opportunity
of meeting the same. This is a requirement of natural justice
that, having regard to the scope of Rule 37-A, requires to be
read into it."
(Emphasis Supplied)
30. In the case of Sahara India (Firm), Lucknow v.
Commissioner of Income Tax, Central-I and Another 19, the
Apex Court, while referring the decision in C.B. Gautam (supra),
ruled as under:
"32. The upshot of the entire discussion is that the exercise of
power under Section 142(2-A) of the Act leads to serious civil
consequences and, therefore, even in the absence of express
provision for affording an opportunity of pre-decisional hearing
to an assessee and in the absence of any express provision in
Section 142(2-A) barring the giving of reasonable opportunity to
an assessee, the requirement of observance of principles of
natural justice is to be read into the said provision.
Accordingly, we reiterate the view expressed in Rajesh Kumar
case [(2007) 2 SCC 181 : (2006) 287 ITR 91]."
(Emphasis Supplied)
(1997) 3 SCC 486
(2008) 14 SCC 151
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31. In the case of Kesar Enterprises Limited v. State of Uttar
Pradesh and Others 20, the Apex Court held as under:
"30. Having considered the issue, framed in para 16, on the
touchstone of the aforenoted legal principles in regard to the
applicability of the principles of natural justice, we are of the
opinion that keeping in view the nature, scope and
consequences of direction under sub-rule (7) of Rule 633 of the
Excise Manual, the principles of natural justice demand that a
show-cause notice should be issued and an opportunity of
hearing should be afforded to the person concerned before an
order under the said Rule is made, notwithstanding the fact
that the said Rule does not contain any express provision for
the affected party being given an opportunity of being heard."
(Emphasis Supplied)
32. The learned counsel for the respondents placed reliance on
the Division Bench judgment of Calcutta High Court in the case of
Basanta Kumar Shaw (cited supra). It is submitted that Rule 86A
has been interpreted by the Calcutta High Court and the Court
has taken a different view than the view taken by the Gujarat High
Court in Samay Alloys (cited supra) case.
33. We have gone through the judgment in the case of Basanta
Kumar Shaw (cited supra). A plain reading of the judgment
shows that the question whether the principles of natural justice
are to be read into Rule 86A was not subject matter of discussion.
(2011) 13 SCC 733
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The Calcutta High Court opined that Input Tax Credit is a
concession and not a vested right. In our view, Rule 86A neither
expressly nor by necessary implication excludes the principles of
natural justice, the principles of natural justice for the detailed
reasons given hereinabove must be read into the provision. The
judgment of the Calcutta High Court in the case of Basanta
Kumar Shaw (cited supra) is not an authority on the aforesaid
aspect. It is trite that precedent is what is actually decided by the
Court and not what is logically following from it (see State of
Orissa v. Sudhansu Sekhar Misra 21). It is equally settled that a
singular different fact may change the precedential value of the
judgment (see Bhavnagar University v. Palitana Sugar Mill (P)
Ltd 22).
34. In view of foregoing analysis, the impugned action cannot be
countenanced. The action of blocking the electronic credit ledger
of the petitioners without following the principles of natural justice
and without assigning adequate reasons cannot sustain judicial
scrutiny. Thus, the impugned action in all the Writ Petitions is set
AIR 1968 SC 647
(2003) 2 SCC 111
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aside. The liberty is reserved to the Department to proceed
against the petitioners in accordance with law.
35. The Writ Petitions are allowed to the extent indicated above.
There shall be no order as to costs. Miscellaneous applications, if
any pending in all the Writ Petitions, shall stand closed.
_______________________
JUSTICE SUJOY PAUL
____________________________________________
JUSTICE NAMAVARAPU RAJESHWAR RAO
Date: 26.06.2024
Note: L.R is marked.
B/o. GVR/TJMR
