Ms Magma Fincorp Limited vs. Union Of INDIA & Ors.

Held

The Court held that the impugned show cause notice dated March 25, 2022, issued under Section 73 of the CGST Act, was unsustainable. The Court found that the notice failed to disclose any specific reasons for proposing the recovery of tax, penalty, and interest, and was merely a mechanical reproduction of statutory provisions. The Court observed that a show cause notice can only be issued if the proper officer has reasons for raising a demand, which must be specifically stated. The Court also noted that the Circular relied upon by the respondents could not be interpreted as permitting the mechanical creation of a demand. While the respondents argued that there was sufficient material to believe the ITC transition was erroneous, the Court found it inappropriate to enter this controversy, as it was a matter to be addressed by the proper officer. The Court clarified that the respondents were not precluded from taking steps permissible in accordance with law. Regarding the prayer for interest, the Court held that there is no statutory provision for granting interest for the period ITC was blocked and did not consider it a fit case for entertaining such a claim. The impugned show cause notice was set aside.

Facts

The petitioner, M/s Poonawalla Fincorp Limited, is aggrieved by the blocking of its Input Tax Credit (ITC). The petitioner claimed to be entitled to cumulative ITC of ₹2,30,35,228/- as on July 1, 2017, under the erstwhile VAT regime. It filed GST Tran-I on October 7, 2017, for transition. On July 13, 2018, the petitioner discovered that ₹1,77,81,200/- of its ITC had been blocked by the respondents. Despite multiple visits to GST officials, representations, and lodging a grievance, the petitioner could not ascertain the reason for the blocking. The petitioner filed a writ petition seeking directions to unblock the ITC and claimed interest. The respondents stated that the ITC was automatically unblocked on April 8, 2022. Subsequently, a Show Cause Notice dated March 25, 2022, under Section 73 of the CGST Act was issued, proposing a demand of ₹1,77,81,200/-, identical to the blocked ITC amount.

Key Issues

1. Whether the impugned show cause notice issued under Section 73 of the CGST Act is sustainable when it fails to disclose specific reasons for proposing a demand and appears to be a mechanical reproduction of statutory provisions? Petitioner's contention: The petitioner argued that the show cause notice was unsustainable as it did not provide any reasons for blocking the ITC or proposing the demand. It was merely a mechanical reproduction of statutory provisions and did not elicit a meaningful response. The petitioner also contended that the Circular No. F.3(429)/GST/Policy/2022/1067-1072 dated March 8, 2022, could not permit the mechanical creation of a demand without proper reasons. Respondents' contention: The respondents asserted that there was sufficient material with the proper officer to believe the ITC transition was erroneous, citing the petitioner's zero stock position on the transition date and a low DVAT return amount prior to transition. They also submitted that the petitioner's ITC had been unblocked automatically.