Facts of the Case

The petitioner, Goyal Iron and Steel Traders, filed the present writ petition challenging:

  • Blocking of Input Tax Credit dated 25 January 2020 in its electronic credit ledger
  • Notice dated 28 January 2020 issued by the respondents alleging mismatch between ITC claimed in GSTR-3B and GSTR-2A for the period April 2018 to March 2019

The petitioner contended that:

  • ITC was claimed on purchases made from Indian Oil Corporation based on valid tax invoices
  • Taxes had already been deposited with the Government
  • The mismatch arose due to supplier’s error in classifying the transaction as made to an unregistered entity

The petitioner also sought directions to:

  • Allow rectification of mismatch on GST portal
  • Provide “reasons to believe” before blocking ITC
  • Pass a speaking order on representation dated 20 August 2020 

Issues Involved

  1. Whether ITC can be blocked without prior notice or reasoned order under Rule 86A CGST Rules?
  2. Whether mismatch due to supplier’s error can justify blocking of ITC?
  3. Whether principles of natural justice were violated in blocking ITC?
  4. Whether the petitioner is entitled to an opportunity of hearing and a speaking order?

Petitioner’s Arguments

  • ITC was validly claimed on the basis of genuine transactions and tax invoices
  • No prior notice or opportunity of hearing was provided before blocking ITC
  • Conditions under Rule 86A were not satisfied
  • Mismatch occurred due to supplier’s clerical error, not attributable to petitioner
  • Respondent failed to follow due process and did not provide reasons to believe
  • The GST framework should allow rectification of such errors

Respondent’s Arguments

  • The respondents relied on mismatch between GSTR-3B and GSTR-2A to justify action
  • However, during hearing, the counsel for respondents stated no objection if:
    • The writ petition is treated as a representation
    • The matter is decided by a reasoned order

Court’s Findings

  • The Delhi High Court observed that the dispute can be resolved by directing adjudication of petitioner’s representation
  • The Court emphasized the need for:
    • Reasoned decision
    • Opportunity of hearing
  • The Court accepted the suggestion of respondents to treat the writ petition as a representation

Court Order / Final Directions

  • The writ petition was disposed of with directions:
    • Petition to be treated as representation before Respondent No.1
    • Respondent to pass a reasoned order within four weeks
    • Opportunity of hearing must be granted to petitioner
  • Status quo to be maintained regarding impugned notice till decision 

Important Clarifications by Court

  • Authorities must follow due process before taking adverse action like ITC blocking
  • Opportunity of hearing and reasoned orders are essential
  • Administrative actions under GST must comply with principles of natural justice
  • Procedural fairness prevails even in tax enforcement actions

Link to download the order - https://delhihighcourt.nic.in/app/case_number_pdf/2020:DHC:2845-DB/MMH23092020CW67992020_163054.pdf

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