Facts of the Case

The petitioner, M/s. Bizzare Ispat Pvt. Ltd., a private limited company registered under the OGST/CGST Act (GSTIN 21AAKCB5795L1Z8), sought a direction to the Commissioner of CT & GST, Cuttack (opposite party No.2) to unblock its Electronic Credit Ledger and withdraw all proceedings relating thereto. The department, invoking Rule 86A of the OGST/CGST Rules, 2017, had blocked Input Tax Credit of Rs. 5,96,250/- (CGST Rs. 2,98,125/- + SGST Rs. 2,98,125/-) available in the petitioner's ledger with effect from 30 June 2023, on the ground that the petitioner was found non-functioning at its declared place of business.

Issues Involved

  1. Whether blocking of the petitioner's Electronic Credit Ledger under Rule 86A, without a prior show-cause notice or hearing, was sustainable.
  2. Whether the material relied upon by the department satisfied the pre-requisites of Rule 86A(1)(a)(i).

Petitioner's Arguments

  • The petitioner duly filed GSTR-1, GSTR-3B and GSTR-9C returns and paid taxes from its registered premises in Odisha, which returns were accepted by the opposite parties.
  • Neither an order with respect to blocking the Electronic Credit Ledger nor any show-cause notice or notice of hearing was ever served upon the petitioner before the blocking was effected.

Respondent's Arguments

  • On scrutiny of returns for the tax period April 2023 to August 2023, it was prima facie found that the taxpayer was non-functioning at its declared place of business (per Rule 21(a)) despite having passed on Input Tax Credit, which is squarely covered by Sub-clause 1(a)(i) of Rule 86A.
  • Proceedings under Section 74 of the OGST Act had been initiated following the blocking, and the petitioner's portal would automatically be revived after expiry of one year (30.06.2024) if the matter remained unresolved; the petitioner, on being queried about its non-functioning status, remained silent.

Court Order / Findings

  • The Court held that, on the material placed by the department — a prima facie finding of non-functioning at the declared place of business coupled with the petitioner having passed on Input Tax Credit, squarely falling within Rule 86A(1)(a)(i) of the OGST/CGST Rules — it was not inclined to entertain the writ petition.
  • The writ petition was accordingly dismissed.

Important Clarification

Where the department has prima facie material — such as a field-verification finding that a registered person is non-functioning at its declared place of business — showing that credit was availed on invoices issued by a person found non-existent or not conducting business at the registered address, blocking of the Electronic Credit Ledger under Rule 86A(1)(a)(i) can be sustained even absent a pre-decisional hearing, and a writ court may decline to interfere, particularly where the taxpayer offers no explanation when queried.

Sections Involved

  • Rule 86A of the OGST/CGST Rules, 2017 – empowers blocking of the Electronic Credit Ledger where the Commissioner has reason to believe ITC has been fraudulently availed or is ineligible, including where availed on invoices from a non-existent/non-functioning supplier.
  • Section 74 of the OGST Act, 2017 – governs determination of tax not paid by reason of fraud, wilful misstatement or suppression, the proceedings initiated following the blocking.

Decision – In Favour of

The decision was in favour of the Department, with the Court declining to interfere with the blocking of the petitioner's Electronic Credit Ledger.

Case Details

  • Court: High Court of Orissa at Cuttack
  • Case Number: W.P.(C) No.25433 of 2023
  • Coram: Dr. Justice S.K. Panigrahi and Mr. Justice G. Satapathy
  • Date of Order: 22 September 2023

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