M/S Aryan Tradelink vs. The Union Of INDIA

Held

The Court held that the blocking of the petitioner's credit ledger was not sustainable in its current form. While the Court did not explicitly rule on the vires of Rule 86A, it found that the procedure followed by the respondents was deficient. The Court noted that Rule 86A mandates that an authorized officer must record reasons before blocking a credit ledger. In this case, the reasons were not provided simultaneously with the blocking order, and were only communicated later. The Court found it just and reasonable to dispose of the writ petition by directing the Assistant Commissioner to pass a detailed reasoned order as required under Rule 86A. The Court also clarified that for the purposes of Rule 86A(3), which stipulates that blockage ceases after one year from the date of blocking, the effective date would continue to be January 21, 2020. The Court did not expressly leave any issues undecided, but the core challenge to the vires of Rule 86A was not directly adjudicated upon, with the decision resting on procedural non-compliance.

Facts

The petitioner, M/s Aryan Tradelink, filed a writ petition challenging a communication dated June 10, 2020, from the Superintendent of Central Tax, which informed them that their credit ledger was blocked. The petitioner stated that their credit ledger was blocked effective January 21, 2020, without any reasons being assigned. They further stated they were unaware of which authority had blocked the credit. After corresponding with the third respondent, the petitioner received the impugned communication, which indicated the blocking was based on a request from the fourth respondent. The reason provided was that one of the petitioner's vendors, M/s M.S. Marketing Enterprises Limited, was under investigation for fraudulent invoices without actual supply of goods or services.

Key Issues

1. Whether Rule 86A of the CGST Rules, 2017, is ultra vires the CGST Act, as it allegedly presumes guilt and shifts the burden of proof to the assessee, contrary to statutory provisions and the rule of law? 2. Whether the action of blocking the petitioner's credit ledger, based on the circumstances outlined, renders Sections 73 and 74 of the CGST Act and the recovery mechanism under Section 83 otiose and redundant? 3. Whether the order of blocking the petitioner's credit, as communicated, is opposed to statutory provisions and the rule of law? Petitioner's arguments: The petitioner contended that Rule 86A of the CGST Rules, 2017, is ultra vires the Act. They argued that the rule creates a presumption of guilt, placing the onus on the petitioner to prove innocence, which is contrary to statutory provisions. They further argued that the blocking of credit without proper reasons and based on a presumption renders Sections 73 and 74, and Section 83, redundant. The petitioner also argued that the blocking of credit was opposed to statutory provisions and the rule of law. Respondents' arguments: The respondents, represented by Smt. M.R. Vanaja, were unable to controvert that the reasons for blocking the credit ledger were not mentioned simultaneously and were only provided subsequently in the impugned communication.