Mariyam Fabtex vs. Union Of INDIA

Held

The Court held that the CGST Act and its Rules form a complete code for the department's actions. While acknowledging that blocking ITC has adverse consequences, it emphasized that each case must be examined on its facts to determine if the department's action is based on tangible material and a rational basis, especially in situations involving fake or bogus ITC. Regarding the show cause notices, the Court ruled that they must be decided on their individual facts and cannot be adjudicated collectively. It deemed the challenge to the vires of Section 16(2)(c) of the CGST Act premature at this stage, stating that such challenges are best entertained when facts disclose a legal injury and at an appropriate stage. The Court directed that petitioners should be permitted to file replies to show cause notices within two weeks, after which these notices would be adjudicated on merits, considering all factual and legal contentions. For pre-show cause intimations where objections have been filed, the authorities must consider them expeditiously, grant a hearing, and decide whether to issue a show cause notice or drop proceedings within eight weeks. All contentions of the parties are expressly kept open for consideration by the adjudicating authorities, and the challenge to the vires of Section 16(2)(c) is also kept open for agitation in appropriate proceedings if needed.

Facts

This batch of writ petitions, filed by various entities including Karan Agencies, Nevitad Distillers Pvt. Ltd., and others, challenges show cause notices and pre-intimation notices issued by the State of Maharashtra and the Union of India. These notices propose actions, primarily concerning the blocking of Input Tax Credit (ITC), citing reasons such as suppliers being unregistered or the petitioners allegedly availing fraudulent ITC on bogus invoices without actual movement of goods or services. The petitioners are seeking relief against these proposed actions and also challenging the constitutional validity of Section 16(2)(c) of the CGST Act.

Key Issues

1. Whether Section 16(2)(c) of the CGST Act, 2017, is ultra vires the Constitution of India, specifically Articles 14, 19(1)(g), and 300A, on the grounds that it imposes an undue burden on the recipient of goods/services and is arbitrary and irrational? 2. Whether the blocking of Input Tax Credit (ITC) by the revenue authorities, based on allegations of unregistered suppliers or fraudulent invoices, is justified and based on tangible material with a rational basis? Petitioner's Arguments: The petitioners contend that Section 16(2)(c) of the CGST Act is unconstitutional, arbitrary, and violates their fundamental rights. They argue that the blocking of ITC, without proper adjudication and based on mere allegations, adversely affects their business. They also challenge the specific actions taken by the department in their individual cases. Revenue's Arguments: The judgment does not explicitly record arguments from the revenue or state respondents regarding their specific contentions on the merits of each case or the challenge to Section 16(2)(c). However, the court's observations imply that the CGST Act and Rules constitute a complete code and that situations involving fake ITC cannot be countenanced.