M/S Vikartan Infrastructure PVT LTD vs. Commissioner State Goods And Service Tax Commissionerate

Facts

The petitioner, M/s Vikartan Infrastructure Pvt. Ltd., filed a writ petition challenging an order that blocked its Input Tax Credit (ITC) account portal. The respondents, the Commissioner, State Goods and Services Tax Commissionerate, and others, contended that the petitioner had claimed ITC from M/s Apex International, whose transactions were found to be dubious. Consequently, the ITC account of the petitioner was frozen. The petitioner argued that no show-cause notice preceded this action. The High Court noted that the freezing of the ITC account did not automatically imply that the petitioner's transactions were also dubious, and that issuing a show-cause notice was imperative under the scheme of the Act.

Held

The Court held that the order blocking the petitioner's Input Tax Credit (ITC) account portal was unjustified and hit by the provisions of the Act because no show-cause notice preceded it. The Court reasoned that while the transactions of M/s Apex International were found to be dubious, this fact alone did not automatically render the petitioner's transactions dubious. It was imperative for the respondents to issue a show-cause notice to the petitioner before taking such action, as mandated by the scheme of the Act. The Court stayed the operation of the impugned order. It further directed that the respondents could issue a show-cause notice, which the petitioner would need to reply to within two weeks of receipt. Subsequently, the respondents were to pass appropriate orders within three weeks of receiving the reply, after affording the petitioner an opportunity for a personal hearing. All other contentions and issues were left open to be dealt with strictly in accordance with law.

Key Issues

1. Whether the order blocking the Input Tax Credit (ITC) account portal of the petitioner, M/s Vikartan Infrastructure Pvt. Ltd., was valid in the absence of a prior show-cause notice, as required by the scheme of the GST Act? Petitioner's argument: The petitioner contended that the action of blocking their ITC account was unjustified and illegal as it was taken without issuing a show-cause notice, which is a mandatory procedural requirement under the relevant provisions of the Goods and Services Tax Act. They argued that the dubious nature of transactions of a third party (M/s Apex International) should not lead to a presumption of dubiousness in their own transactions without due process. Respondents' argument: The respondents (Department) submitted that the petitioner had claimed Input Tax Credit from M/s Apex International, whose transactions were found to be dubious, justifying the freezing of the petitioner's ITC account. They did not explicitly argue against the necessity of a show-cause notice but rather presented the factual basis for their action.