Focus should be placed not only on reasonable grounds to believe but also on recording of reasons while denying ITC

The Bombay High Court has ruled that the emphasis should be placed not only on ‘reasonable grounds to believe’ in order to block ITC, but also on ‘recording of the reasons’ under GST.

The petitioner, Dee Vee Projects Ltd., was registered under the provisions of the erstwhile State Sales Tax Act, and after the Sales Tax was subsumed into the Goods and Services Tax by the Central Goods and Services Tax Act, 2017, which took effect on April 12, 2017, the company was deemed to be registered under the CGST Act by operation of section 26 of the CGST Act.

There were some changes in the company’s management in 2020, thus it requested an amendment to the registration certificate, which was approved on July 18, 2020. Following that, the company moved its registered address and applied for a change of address modification to the registration certificate, which was granted on November 2, 2020.

The petitioner claims that after the implementation of the GST regime, it filed its returns on a regular basis until September 2020. The petitioner also claims that, up to that point, it has used the credit available in its Electronic Credit Ledger (ECL) to the tune of Rs.48,79,61,446/-, as permitted by law.

The petitioner stated that it sent a notice on 2.7.2021, denouncing the wrongful attachment of its property and the blocking of ECL, as well as a reminder on 14.7.2021 with a request to unblock ECL. The petitioner claims, however, that the representation was rejected by the respondent for grounds that were not previously documented. The petitioner also claims that it was at this time that he learned that his ECL had been blocked in accordance with rule 86-A of the Central Goods and Service Tax Rules, 2017. However, the petitioner claims that the procedure outlined in Rule 86-A was not followed.

The division bench of Justice Anil S.Kilore and Justice Sunil B.Shukre has ruled that we do not need to respond in detail because the challenged order was determined to be unworthy of sustaining. Had it been determined that the impugned order is sustainable in law on the touchstone of due process but required consideration on the merits, which is not the case here, the need for examining rationale for issue of the impugned order would have arisen.

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