Facts of the Case

Prabha Energy Private Limited, registered under the Goods and Services Tax Act, 2017, was inspected on 1st December 2018 and asked to furnish documents under Section 71 of the JGST Act. It furnished purchase registers, invoices and vendor-wise GST credit details, contending its ONGC/IOCL project was still at installation stage with no revenue generated. It nevertheless received a show cause notice alleging excess ITC for July 2017–September 2018 and a summary order in Form GST DRC-07 confirming tax, interest and penalty of Rs. 1.09 crore. On 28.09.2019 the petitioner filed a rectification application under Section 161 with reconciliation statements showing no mismatch and an ITC balance of Rs. 4.06 lakh in its favour. The application remained undecided, while Rs. 74.20 lakh of ITC lay blocked in its Electronic Credit Ledger since 16.02.2020, beyond the one-year limit under Rule 86A. It approached the Jharkhand High Court for quashing of the DRC-07 order and unblocking of the ITC.

Issues Involved

  1. Whether the DRC-07 demand of Rs. 1.09 crore, issued without proper hearing, could be assailed in writ after the appeal limitation had expired.
  2. Whether ITC blocked under Rule 86A beyond the one-year outer limit, with the Section 161 rectification application still undecided, was sustainable.
  3. Whether the Supreme Court's COVID limitation-extension orders applied to the six-month period for deciding a Section 161 application.

Petitioner's Arguments

  • The Section 73 order was passed summarily without following prescribed procedure or hearing, relying on NKAS Service Pvt. Ltd. v. State of Jharkhand.
  • The rectification application dated 28.09.2019, backed by reconciliation showing no mismatch and Rs. 4.06 lakh ITC in its favour, had been left undecided.
  • Rs. 74.20 lakh of ITC had remained blocked since 16.02.2020 — far beyond the one-year limit under Rule 86A.

Respondent's Arguments

  • Procedure was duly followed; petitioner attended proceedings but did not file a statutory appeal within three months, which expired before the COVID lockdown.
  • Rectification under Section 161 cannot review a Section 73 order; it is confined to errors apparent on record.
  • The six-month period for deciding the rectification application had already lapsed, precluding a decision now.

Court Order / Findings

  • The six-month Section 161 period would have expired 27.03.2020, but the Supreme Court's Suo Motu W.P.(C) No. 3/2020 order, extended to 28.02.2022, excluded this period for both filing and deciding proceedings.
  • The department wrongly assumed itself barred from deciding; since the delay was not attributable to the petitioner, the department was directed to decide the rectification application expeditiously.
  • The challenge to the Section 73 order itself was not entertained in writ, since the appeal limitation had genuinely expired before the writ was filed, per Glaxo Smith Kline Consumer Health Care Ltd.
  • Respondents directed to decide on unblocking the Electronic Credit Ledger within six weeks, the ITC having stayed blocked over two years.

Important Clarification

  • The Supreme Court's COVID limitation-extension order covers not just filing of proceedings but the outer time-limits within which authorities must decide them, including the Section 161 six-month period.
  • A department cannot invoke expiry of its own decision-making timeline to justify sitting on a rectification application where the delay is not the assessee's fault.
  • Where the appeal limitation has genuinely lapsed before the writ is filed, the High Court will not decide the underlying demand on merits, even while granting relief on connected grievances like ITC blocking.

Sections Involved

  • Section 73, CGST Act, 2017 — determination of tax not paid/short paid or ITC wrongly availed (non-fraud cases).
  • Section 161, CGST Act, 2017 — rectification of errors apparent on record.
  • Rule 86A, CGST Rules, 2017 — conditions for blocking Input Tax Credit.
  • Rule 142(5), CGST Rules, 2017 — summary of order in Form GST DRC-07.

Decision – In Favour of

Disposed of with directions, in part in favour of the Assessee — the department was directed to decide the pending rectification application and ITC-unblocking request on a fixed timeline, while the challenge to the underlying demand was left to the statutory remedy, with no opinion expressed on its merits.

Related Case Laws

  • M/s NKAS Service Pvt. Ltd. v. State of Jharkhand, W.P.(T) No. 2444 of 2021 — proper show cause notice requirement under Section 73.
  • Assistant Commissioner (CT) LTU v. Glaxo Smith Kline Consumer Health Care Ltd., 2020 SCC OnLine SC 440 — writ maintainability after appeal limitation expires.

Case Details

  • Court: High Court of Jharkhand at Ranchi
  • Case No.: W.P.(T) No. 3247 of 2020
  • Coram: Hon'ble Mr. Justice Aparesh Kumar Singh and Hon'ble Mr. Justice Deepak Roshan
  • Date of Order: 08.03.2022

Link to Download the Order

https://mytaxexpert.co.in/uploads/1787073702_4575compressed.pdf

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