Facts of the Case

The petitioner, Latta Innovations Private Limited, a taxable person registered under the Taxpayer Services Circle, Nattika, Thrissur, approached the High Court of Kerala under Article 226 challenging the blocking of its Input Tax Credit (ITC) by the Joint Commissioner, Taxpayer Services, Thrissur. An investigation report forwarded by the Deputy Commissioner, Inter Administrative Coordination Cell & Nodal Officer of the AFI drive, Thiruvananthapuram, revealed that M/s Group K Enterprises, a supplier from whom the petitioner had claimed ITC, was a fake entity whose declared place of business was not functioning, and which had raised invoices and passed on fake ITC to several recipients. Fake ITC amounting to Rs.26,16,426/- was traced to the petitioner, of which Rs.21,42,172/- was blocked under Rule 86A(1)(a) of the CGST/KGST Rules, 2017 from utilisation against any liability under Section 48 of the CGST/KGST Act, 2017, vide Ext.P1 order dated 11.10.2023. The petitioner was afforded an opportunity to file a representation before the Joint Commissioner but instead directly approached the High Court seeking to declare the blocking action ultra vires and unconstitutional and to quash Ext.P1.

Issues Involved

  1. Whether the blocking of Input Tax Credit under Rule 86A of the CGST/SGST Rules, 2017, on the ground that the credit originated from a non-existent supplier, was ultra vires and unconstitutional.
  2. Whether the writ petition was maintainable when the statutory remedy of filing a representation before the Joint Commissioner, Taxpayer Services, had not been availed by the petitioner.

Petitioner's Arguments

  • The blocking of ITC by invoking Rule 86A of the CGST/SGST Rules, 2017 was ultra vires and unconstitutional, and directions were sought to unblock the ITC.
  • The Ext.P1 order of the Joint Commissioner ought to be quashed by a writ of certiorari.
  • The purchase transactions with the supplier, M/s Group K Enterprises, were supported by genuine e-way bills, tax invoices and bank statements evidencing payment, as reflected in the various exhibits placed on record.

Respondent's Arguments

  • An investigation had established that M/s Group K Enterprises was a non-existent entity whose registered place of business was not functioning, and that it had passed on fake ITC to several recipients including the petitioner.
  • Blocking of the ITC under Rule 86A(1)(a) was a legitimate exercise of power given the fake nature of the credit passed on by a non-existent supplier.
  • The petitioner had been given an opportunity to file a representation before the Joint Commissioner, Taxpayer Services, Thrissur, but had chosen to bypass this remedy and approach the writ court directly.

Court Order/Findings

  • The Court observed that the petitioner had made only a "feeble challenge" to the vires of Rule 86A and had, in substance, sought quashing of the Ext.P1 blocking order.
  • Instead of availing the opportunity already granted to file a representation before the Joint Commissioner, Taxpayer Services, Thrissur, the petitioner had prematurely approached the Court.
  • The Court found no ground to entertain the writ petition and dismissed it, while granting the petitioner liberty to file a representation before the Joint Commissioner within ten days, with a direction that the Joint Commissioner pass a reasoned order after hearing the petitioner.
  • The Court did not adjudicate the merits of whether the fake ITC allegation against the petitioner was correct, leaving that determination to the departmental authority.

Important Clarification

Where an alternate statutory remedy of filing a representation against a Rule 86A blocking order exists and has not been exhausted, the High Court will decline to entertain a writ petition on a mere feeble challenge to the rule's vires, and will instead relegate the taxpayer to the departmental remedy, with a direction for a speaking order after hearing.

Sections Involved

  • Rule 86A of the CGST Rules, 2017 / KGST Rules, 2017 – conditions of use of amount available in electronic credit ledger.
  • Section 48 of the CGST Act, 2017 – provisions relating to goods and services tax practitioners referenced in the blocking order.
  • Article 226 of the Constitution of India, 1950 – writ jurisdiction invoked by the petitioner.

Decision – In Favour of

The decision effectively favours the Department. The writ petition challenging the blocking of ITC was dismissed as premature, though the Court preserved the petitioner's right to pursue a representation before the Joint Commissioner, keeping the underlying dispute over the genuineness of the ITC open for departmental adjudication rather than resolving it on merits.

Related Case Laws

No directly on-point case notes are currently published on this site.

Case Details

  • Court: High Court of Kerala at Ernakulam
  • Case No.: WP(C) No.42111 of 2023
  • CNR: Not available
  • Coram: Justice Dinesh Kumar Singh
  • Decision Date: 18 December 2023
  • Disposal Nature: Writ petition dismissed with liberty to file representation

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