Gujarat HC in the case of Nipun A Bhagat, Proprietor of Steel Kraft Industries Versus State of Gujarat

Case Covered:

Nipun A Bhagat, Proprietor of Steel Kraft Industries

Versus

State of Gujarat

Facts of the Case:

By this writ application under Article 226 of the Constitution of India, the writ applicant has prayed for the following reliefs;

“a) Pending the admission, hearing and final disposal of this petition, to release the amount of input Tax Credit available to the Petitioner.

b) to quash and set aside the action of the Respondent No.2 in blocking the Input Tax Credit.

c) any other and further relief deemed just and proper be granted in the interest of justice;

d) to provide for the cost of this petition.”

The writ applicant seeks to challenge the action of the respondent No.2 in blocking the input tax credit in exercise of power under Rule 86A of the Central Goods & Service Tax Rules, 2017 (for short “the Rules, 2017”) to the tune of Rs.17,94,723/- allegedly towards effecting the recovery of dues under the Gujarat Value Added Tax Act, 2003 (for short “the GVAT Act”) in the case of one Dolphin Metals (India) Ltd.

Observations:

Having heard the learned counsel appearing for the parties and having gone through the materials on record, the only question that falls for our consideration is whether the respondent No.2 could have exercised power under Rule 86A of the Rules, 2017 for the purpose of blocking the input tax credit available in the credit ledger account of the writ applicant for the purpose of recovering the dues of Dolphin Metals (India) Limited.

At the outset, we reject the first contention raised by Mr. Dave, the learned AGP, as regards Section 18 of the Act, 1956. Section 18 of the Act, 1956 specifically talks about “Private Company”. Indisputably, Dolphin Metals (India) Limited is a Public Limited Company. There is a specific averment in this regard in the memorandum of the writ application which has not been denied or disputed. The moot question to be determined is whether Rule 86A could have been invoked for blocking the input tax credit available in the electronic credit ledger of the writ applicant to recover the dues of Dolphin Metals (India) Ltd? In our opinion, the answer has to be in negative. Rule 86A can be invoked only if the conditions stipulated therein are fulfilled. In other words, it is only if the Commissioner or an officer authorized by him has reasons to believe that the credit of input tax available in the electronic credit ledger has been fraudulently availed or is ineligible for the reasons stated in Rule 86A(1)(a) to (d) that the authority would get the jurisdiction to exercise the power under Rule 86A of the Rules. We fail to understand how Rule 86A could have been invoked in the present matter. In our opinion, the issue, as such, stands squarely covered by three decisions of this High Court, i.e, (i) Mr. Choksi vs. the State of Gujarat (SCA No.243 of 1991) (ii) Different Solution Marketing Private Ltd. vs. the State of Gujarat (SCA No.19949 of 2015) and (iii) Paras Shantilal Savla vs. State of Gujarat (SCA No.7801 of 2019).

The Decision of the Court:

In view of the aforesaid, we are left with no other option but to allow this writ application, and the same is hereby allowed. Respondent No.2 is directed to unblock the input tax credit available in the credit ledger account of the writ applicant at the earliest. We clarify that this order shall not preclude the department from recovering the dues of Dolphin Metals (India) Ltd. by any other mode of recovery permissible in law.

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