Facts of the Case

The petitioner, M/s Ashapura Steel Metal, a proprietorship of Velaram Viraji Choudhary based in Pune and holding GSTIN 27AFKPC7447N1ZX, challenged before the Bombay High Court an order dated 10.03.2023 passed by the State Tax Officer, Pune, blocking its input tax credit under Rule 86-A of the CGST and MGST Rules, 2019. The block covered Rs.23,76,520.88 under the CGST Act and an equal amount under the MGST Act, totalling Rs.47,53,041.76, on the ground that the petitioner had fraudulently availed this credit during 2021-22 and 2022-23 from three vendors. After the impugned order itself invited objections, the petitioner sent a detailed email dated 28.03.2023 raising objections with supporting documents; the department's response — a roznama order dated 10.04.2023 — rejected the objections without addressing them on merits and instead pointed the petitioner to the appellate remedy under Section 107(1).

Issues Involved

  1. Whether a State Tax Officer, appointed under the MGST Act, has jurisdiction to block input tax credit under Rule 86-A of the CGST Rules, which restricts the power to officers "not below the rank of an Assistant Commissioner."
  2. Whether the roznama order dated 10.04.2023, rejecting the petitioner's objections without engaging their substance, was legally sustainable.

Petitioner's Arguments

  • Rule 86-A(1) of the CGST Rules confines the blocking power to the Commissioner or an officer not below the rank of Assistant Commissioner; a State Tax Officer does not hold that rank and therefore lacked jurisdiction to invoke Rule 86-A under the CGST Act.
  • Relied on a Nagpur Bench decision, Guru Storage Batteries v. State of Maharashtra (WP No.5645 of 2022), which held that Rule 86-A does not permit delegation of the blocking power to an officer below Assistant Commissioner rank.
  • On merits, the impugned order itself offered an opportunity to submit objections and be heard, but the petitioner's detailed 28.03.2023 email raising objections with documents was never genuinely considered — the subsequent roznama order simply redirected the petitioner to the Section 107(1) appellate remedy without dealing with the substance.

Respondent's Arguments

  • The State Tax Officer is competent under Rule 86-A of the CGST Rules by virtue of Section 6 of the CGST Act, which authorises State-appointed officers as "proper officers" for CGST purposes, read with Section 5 of the MGST Act.
  • Relied on a Government Gazette notification dated 24.01.2020 delegating the Commissioner's Rule 86-A powers under the MGST Rules to Deputy Commissioners, Assistant Commissioners and State Tax Officers.
  • Sections 5 and 6 of the MGST Act being pari materia with Sections 5 and 6 of the CGST Act, the two statutes must be read harmoniously; Guru Storage Batteries was distinguishable since the 24.01.2020 notification was never brought to that Bench's notice.

Court Order/Findings

  • Accepted the State's harmonious-reading submission: Section 6 of the CGST Act authorises State-appointed officers as proper officers for CGST purposes, and read with Section 5 of the MGST Act and the Commissioner's 24.01.2020 delegation, a State Tax Officer is competent to act under Rule 86-A of both the CGST and MGST Rules — rejecting the jurisdictional challenge.
  • On merits, held the roznama order dated 10.04.2023 could not be sustained: it neither engaged with the petitioner's objections and documents furnished by email on 28.03.2023, nor was it communicated to the petitioner, contrary to Rule 86-A(2), which contemplates a genuine opportunity to show the grounds for blocking no longer survive.
  • Quashed the 10.04.2023 order and directed a fresh hearing on the 28.03.2023 objections, with the petitioner to appear on 27.10.2023, and a reasoned order to follow by 10.11.2023, all contentions kept open.

Important Clarification

  • A State Tax Officer can validly block input tax credit under Rule 86-A of the CGST Rules — not just the MGST Rules — where the State Commissioner has delegated Rule 86-A powers under Section 5 of the MGST Act read with Section 6 of the CGST Act; a bare jurisdiction challenge fails once such a delegation notification exists.
  • Rule 86-A(2) requires the blocking authority to genuinely consider an assessee's objections and lift or maintain the block by a reasoned, communicated order — a cryptic entry redirecting the assessee to the statutory appeal without engaging the merits will not survive review.
  • Check both the existence of a valid delegation notification and whether the officer's response to objections engages the substance — the latter proved the stronger ground here.

Sections Involved

  • Rule 86-A, CGST Rules, 2017 — conditions for blocking use of amounts in the electronic credit ledger where credit is believed to be fraudulently availed or ineligible.
  • Rule 86-A, MGST Rules, 2017 — the corresponding State-law mirror provision.
  • Section 5, MGST Act, 2017 — powers of officers and the Commissioner's power to delegate.
  • Section 6, CGST Act, 2017 — authorises officers of State/UT tax as "proper officers" for CGST purposes.
  • Section 107(1), CGST Act, 2017 — appellate remedy against an order of a proper officer.

Decision – In Favour of

Disposed of with directions, in part in favour of the Assessee — the jurisdictional challenge to the State Tax Officer's competence to invoke Rule 86-A of the CGST Rules was rejected, favouring the Department on that point; but the specific order rejecting the petitioner's objections was quashed and a fresh, reasoned hearing directed on the merits of the ITC block, with all contentions kept open.

Related Case Laws

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

Case Details

  • Court: High Court of Judicature at Bombay
  • Case No.: Writ Petition No.8630 of 2023
  • CNR: Not available on record
  • Coram: Hon'ble Justice G.S. Kulkarni and Hon'ble Justice Jitendra Jain
  • Decision Date: 17-10-2023
  • Disposal Nature: Petition disposed of; jurisdictional challenge rejected, objection-rejection order quashed and fresh hearing directed

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