Gujarat HC refuses to give directions to GST Authority for returning the credit of ITC during investigation

Gujarat HC refuses to give directions to GST Authority for returning the credit of ITC during investigation

The Gujarat High Court (HC) granted six weeks and refused to direct the Goods and Services Tax (GST) Authority to return the Input Tax Credit (ITC) during an inquiry or investigation

M/s S.S. Industries (applicant) filed an application before the HC for seeking the ruling on the issues first, whether the concerned GST Authority (respondent) was empowered to retain any amount deposited by a registered person during any inquiry or investigation in the absence of any confirmed liability against the assessee. Second, whether the amount can be retained by the GST Authority without the issuance of a show-cause notice (SCN) and assessment/adjudication order imposing any tax liability on the assessee.

It was contended on behalf of the applicant that the mandatory procedure prescribed under Section 74(1) of the Central Goods and Services Act (CGST Act) was not complied with, as no show-cause notice was issued. It was further submitted that no order was passed under Section 74(9) of the CGST Act, to determine the short payment of tax that resulted in wrongfully availing of ITC.

It was argued on behalf of the respondent that according to the newly inserted Rule 86A the power was conferred upon them to block the ITC if they prima facie found any fraudulent transactions.

The matter was listed before the division bench of the HC headed by Chief Justice Vikram Nath and J.B. Pardiwala. They concluded that the issues raised are highly disputed questions of fact that is regarding the debit of the ITC from the electronic credit ledger and the investigation is in progress. It further stated that a prima facie case could be said to have been made out against the writ applicants.

The HC stated that the inquiry or investigation could not be continued for an indefinite time period. It was more than a year that the said investigation was going on and the concerned authorities must have drawn some conclusion by now.

The HC further emphasized on the Rule 86A that specifically prescribes a time period of one year. It was directed by the Court to the respondent to complete the investigation within four weeks from the date of the order. It was further directed that the respondent should take an appropriate decision whether or not any case has been made out of the issue related to SCN under Section 74 of the CGST Act.

The HC stated, "At the fag end of the investigation, we do not deem fit and reasonable to pass an order in exercise of our writ jurisdiction directing the respondents to give back the credit of the ITC to the writ applicant and permit them to avail the same. Therefore, we are saying that let the investigation be completed within six weeks and an appropriate decision shall be taken and communicated to the writ applicant".

The question regarding the constitutional validity of Rule 86A was kept open and it shall be discussed independently by the HC at a later stage.