ITC cannot be blocked when no order is issued u/s 74 of the CGST Act or Rule 86A of the CGST Rules

The Telangana High Court has ruled that Input Tax Credit (ITC) cannot be blocked if the notice issued is not in accordance with Section 74 of the CGST Act or Rule 86A of the CGST Rules. In a case involving M/s. A.S.E. India, the court found the notice for blocking ITC to be illegal and set it aside. The judgement clarifies that such blocking actions are only permissible under specific legal provisions, which were not met in this instance.

The Hon'ble Telangana High Court in the case of M/s. A.S.E. India v. Union of India[Writ Petition No. 4756 of 2023 dated November 6, 2023]the Impugned Notice, being in contravention of the provisions of the Central Goods and Services Act, 2017 ("the CGST Act") and Telangana Goods and Services Act, 2017 ("the TNGST Act"), is set aside, thereby holding that, it would be difficult to sustain the Impugned Notice issued for blocking of ITC when it is neither an order under Section 74 of the CGST Act nor under Rule 86A of the Central Goods and Services Tax Rules, 2017 ("the CGST Rules").

Facts

M/s. A.S.E. India ("the Petitioner") filed a writ petition for setting aside of Notice dated December 12, 2022 ("the Impugned Notice") issued by the Revenue Department ("the Respondent") for blocking the account and ITC contending that the action of the Respondent being in contravention of Rule 86A of the CGST Rules, is illegal, without jurisdiction and contrary to the provisions of the Constitution of India and the CGST Act. 

Issue:

Whether ITC can be blocked when no order is issued under Section 74 of the CGST Act or Rule 86A of the CGST Rules?

Held

The Hon'ble Telangana High Court in the case of Writ Petition No. 4756 of 2023 held as under 

• Noted that, Impugned notice issued is pertaining to the blocking of electronic credit ledger of the Petitioner under Rule 86A of the CGST Rules.  Also, nowhere it has been stated that the Impugned Notice is an intimation pertaining to proceedings initiated under Section 74 of the TNGST Act. 
• Opined that, the Impugned Notice issued is not an order of attachment of the ITC account of the Petitioner. Also, it would be difficult to sustain the Impugned Notice issued for blocking of ITC when the Impugned Notice issued is neither an order under Section 74 of the CGST Act nor under Rule 86A of the CGST Rules. 
• Held that, the Impugned Notice, being in contravention with the provisions of the CGST Act and the TNGST Act, is set aside.