Nb International vs. Commissioner, Central Goods And Services Tax And Others

Facts

The petitioner, NB International, a partnership firm engaged in manufacturing brass/copper sheets and utensils, filed a writ petition seeking to unblock Input Tax Credit (ITC) amounting to Rs. 82,50,038/- in its Electronic Credit Ledger (ECL). The ITC was initially blocked on 21.11.2023, citing that the supplier, M/s M.S. Trading Company, was found non-existent and had allegedly passed on ineligible ITC. The petitioner was not afforded an opportunity to prove the genuineness of its purchases before the blocking. Subsequently, a portion of the ITC (Rs. 27,48,835/-) was unblocked on 16.02.2024, but the remaining amount remained blocked. The petitioner argues that the ITC was re-blocked on 05.12.2023 for the same reason, despite no further proceedings being initiated against it. The petitioner relies on the Supreme Court's judgment in Kesari Nandan Mobile versus Office of Assistant Commissioner of State Tax.

Held

The Court held that the blocking of ITC beyond the period of one year on the same grounds is unsustainable. It noted that Rule 86A(3) of the CGST Rules, 2017, and Section 83(2) of the CGST Act, 2017, both provide for a one-year period after which the restriction or attachment ceases to have effect. The Court found that the Supreme Court's reasoning in the Kesari Nandan case, while interpreting Section 83, also applies to Rule 86A as both provisions serve the purpose of protecting revenue and have similar time limitations. The Court observed that no further proceedings had been initiated against the petitioner and no fresh grounds were presented for the renewal of the blocking. Therefore, the blocking of the petitioner's ITC by the respondent after the expiry of one year from 21.11.2024 was held to be unsustainable and was set aside. The Court clarified that this order does not reflect on the merits of the matter and the respondents are at liberty to take further steps in accordance with law.

Key Issues

1. Whether the blocking of Input Tax Credit (ITC) under Rule 86A of the CGST Rules, 2017, for a period exceeding one year, based on the same grounds as the initial blocking, is permissible under the law? 2. Whether the respondents' action of re-blocking the ITC on 05.12.2023, after the initial blocking on 21.11.2023, is arbitrary and in violation of the principles laid down by the Supreme Court in Kesari Nandan Mobile versus Office of Assistant Commissioner of State Tax? Petitioner's arguments: The petitioner contends that Rule 86A(3) of the CGST Rules, 2017, explicitly states that the restriction on debiting ITC shall cease to have effect after one year. They argue that re-blocking the ITC for the same reason without initiating further proceedings is arbitrary and contrary to the Supreme Court's decision in Kesari Nandan's case, which dealt with the issuance of a second provisional attachment order under Section 83 after the initial one lapsed. Respondents' arguments: The respondents argue that the petitioner availed ineligible ITC fraudulently. They assert that the investigation is ongoing and there is no bar in Rule 86A of the CGST Rules to re-blocking the ITC. They distinguish the Supreme Court's judgment in Kesari Nandan's case, stating it pertained to Section 83 of the CGST Act, not Rule 86A, and that the action taken under Rule 86A is correct.