Facts of the Case

The petitioner, Sai Kripa Confectioneries, approached the Bombay High Court challenging the actions of the GST authorities, including provisional attachment of bank accounts, blocking of Input Tax Credit (ITC), and consequential non-processing of its Customs refund application. During the proceedings, the Commissioner who had passed the impugned orders filed an affidavit admitting that an error had occurred while passing the orders and tendered an unconditional apology before the Court. The authorities also informed the Court that the provisional attachment orders had already been withdrawn and communications had been issued to the concerned banks as well as to the Maharashtra State GST authorities for unblocking the petitioner's ITC. However, despite such communication, the ITC remained blocked. Additionally, the Customs Department had withheld the petitioner's refund application on account of an "Alert" generated in the system identifying the petitioner as a risky exporter based on information received from the GST authorities.

Issues Involved

  1. Whether the GST authorities were justified in continuing the blockage of the petitioner's ITC after withdrawing the provisional attachment orders.
  2. Whether the Customs Department could continue withholding the refund application solely on the basis of an alert generated by GST authorities.
  3. Whether arbitrary actions of tax authorities without following due process are sustainable in law.
  4. Whether the GST authorities are entitled to investigate alleged wrongful ITC claims while complying with principles of natural justice and statutory procedure.

Petitioner's Arguments

  • The petitioner contended that despite withdrawal of the provisional attachment orders, the blocked ITC had not been restored.
  • It was argued that the Customs refund application was being unnecessarily withheld due to the alert generated by the GST authorities.
  • The petitioner denied availing any illegal or ineligible Input Tax Credit from vendors.
  • It was submitted that the transaction relating to one vendor had already been reversed under protest at considerable financial loss and therefore should not continue to prejudice the petitioner.
  • The petitioner sought restoration of its statutory rights and removal of the arbitrary restrictions imposed upon its business.

 

Respondent's Arguments

  • The Commissioner admitted that an error had occurred while passing the impugned orders and tendered an unconditional apology before the Court.
  • The respondents informed the Court that the provisional attachment orders had already been withdrawn and appropriate communications had been issued to the concerned banks.
  • It was further stated that a communication had been sent to the Maharashtra State GST authorities requesting immediate unblocking of the petitioner's ITC.
  • The Customs Department submitted that the refund application remained pending because of an alert identifying the petitioner as a risky exporter based upon information received from the CGST authorities.
  • The respondents also asserted that intelligence inputs suggested the petitioner had availed illegal and ineligible ITC from certain vendors and therefore investigation was still required.

Court Order / Findings

The Bombay High Court accepted the unconditional apology tendered by the Commissioner for the error committed while passing the impugned orders.

The Court directed that the petitioner's blocked ITC amounting to ₹24,26,371 be unblocked within twenty-four hours after receipt of the communication.

Observing that the provisional attachment orders had already been withdrawn, the Court held that the alert inserted into the Customs system should also be treated as withdrawn. Consequently, the Customs authorities were directed to process the petitioner's refund application within two weeks in accordance with law, without expressing any opinion on the merits of the refund claim.

The Court clarified that although the GST authorities are free to investigate allegations regarding wrongful availment of ITC, such investigation must strictly follow the procedure established by law. The Court emphatically observed that arbitrary actions by tax authorities cannot be sustained and judicial intervention would be warranted whenever due process is violated. The writ petition was accordingly disposed of without any order as to costs.

Important Clarification

  • Admission of error by a GST Commissioner can be considered by the Court while granting appropriate relief.
  • Withdrawal of provisional attachment should ordinarily be followed by restoration of consequential benefits such as blocked ITC.
  • Customs authorities cannot indefinitely withhold refund applications merely because an alert was generated when the underlying GST action has already been withdrawn.
  • Tax authorities retain the power to investigate suspected fraudulent ITC claims but must exercise such powers strictly in accordance with law and without resorting to arbitrary measures.
  • Courts will interfere whenever statutory powers are exercised arbitrarily or in violation of due process.

Sections Involved

  • Section 83 of the Central Goods and Services Tax Act, 2017 – Provisional Attachment of Property
  • Section 54 of the Central Goods and Services Tax Act, 2017 – Refund
  • Section 16 of the Central Goods and Services Tax Act, 2017 – Eligibility and Conditions for Availment of Input Tax Credit

Link to Download the Order

https://www.mytaxexpert.co.in/uploads/1785391409_2304compressed.pdf

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