M/S Graphic Trades Private Limited vs. The State Of Bihar

Held

The Court held that while the order directing the blocking of ITC was an interim measure and the specific order of Respondent No. 4 was not under challenge, the petitioner had a remedy available. The Court noted that the materials on record, including the report of the Inspector and Annexure 'P/2', indicated that Respondent No. 3 had sufficient materials to satisfy himself about the necessity of passing an order under Rule 86A(1). The Court referred to Clause 3.4 of the guidelines issued by the Central Board of Indirect Taxes and Customs, which allows for a review of the blocked credit. The Court stated that it had not gone into the merits of the case. If the petitioner makes an appropriate request, Respondent No. 4 shall consider it expeditiously and pass a reasoned order after hearing the petitioner. The Court found no illegality or infirmity with the impugned order (Annexure 'P/2') as an interim measure. All contentions were left open.

Facts

The petitioner, M/s Graphic Trades Private Limited, challenged an order dated February 7, 2025, issued by the Additional Commissioner of State Tax, Bihar, Patna (Respondent No. 3). This order directed the Joint Commissioner of State Taxes (Respondent No. 4) to block the petitioner's Input Tax Credit (ITC) amounting to Rs. 1,18,41,455/- under Rule 86A(1) of the Bihar Goods & Services Tax Rules, 2017. The blocking was based on information from Respondent No. 3 that M/s TDML Services Private Limited, from whom the petitioner had allegedly received ITC, was found to be non-existent at its registered address. The petitioner sought to quash this order and unblock their ITC, arguing that the power under Rule 86A was exercised arbitrarily without independent application of mind or recording of reasons.

Key Issues

1. Whether the order directing the blocking of Input Tax Credit (ITC) under Rule 86A(1) of the Bihar Goods & Services Tax Rules, 2017, is liable to be quashed for non-compliance with the requirement of recording reasons and independent application of mind by the authority issuing it? Petitioner's Arguments: - The petitioner contended that Rule 86A mandates the recording of reasons, citing judgments from the Gujarat High Court in *Samay Alloys India Pvt. Ltd. vs. State of Gujarat* and the Bombay High Court in *Dee Vee Projects Ltd. Vs. The Government of Maharashtra & Ors.*, which held that the power under Rule 86A should not be exercised mechanically. - They argued that Respondent No. 4 had not conducted any independent investigation before blocking the ITC, rendering the action unsustainable. - The petitioner also argued that the action was arbitrary, discriminatory, and violative of Article 265 of the Constitution of India due to non-compliance with Rule 86A. Revenue's Arguments: - The State argued that the petitioner had received a huge input tax credit from a firm (M/s TDML Services P. Ltd.) found to be non-existent, and therefore, the blocking of ITC was justified. - The State contended that the petitioner had an alternative remedy available and had circumvented it by filing the writ application.