New Global Tex vs. Union Of INDIA Thr Secretary And Ors

Held

The Court held that the CGST Act, along with its Rules, constitutes a complete code governing the actions of the department. While acknowledging that blocking ITC has adverse consequences on a registered person's business, the Court emphasized that each case must be examined on its own facts to determine if the department's action is based on tangible material and has a rational basis. The Court found it premature to entertain the challenge to the vires of Section 16(2)(c) of the CGST Act at the stage of show cause notices. It directed that petitioners should be allowed to file their replies to the show cause notices within two weeks, and these notices should be adjudicated in accordance with law, considering all factual and legal contentions. For petitions where only pre-show cause intimations were issued and objections filed, the authorities were directed to consider these objections expeditiously, grant a hearing, and decide within eight weeks whether to issue a show cause notice or drop the proceedings. All contentions of the parties, including those related to the vires of Section 16(2)(c), were expressly kept open for consideration in the proceedings before the adjudicating authorities.

Facts

This batch of writ petitions, involving multiple petitioners 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 action, primarily concerning the blocking of Input Tax Credit (ITC). The department's reasons include allegations of suppliers being unregistered, and petitioners 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 of imposing an undue burden on the recipient of goods/services and being arbitrary and irrational? Petitioner's argument: The petitioners contend that Section 16(2)(c) places an unreasonable burden on them, making it difficult to avail ITC, and thus violates their fundamental rights. They argue that the provision is arbitrary and irrational. Revenue/State's argument: The judgment does not explicitly record arguments from the revenue or State regarding the vires of Section 16(2)(c). However, the court's observation implies that the CGST Act and Rules form a complete code, suggesting an implicit defense of the statutory provisions. 2. Whether the blocking of Input Tax Credit (ITC) by the department is justified based on the material available and whether the show cause notices/pre-intimation notices are procedurally sound? Petitioner's argument: The petitioners challenge the action of blocking their ITC, implying it is arbitrary and without sufficient basis. They seek adjudication on the merits of the show cause notices. Revenue/State's argument: The judgment does not explicitly record arguments from the revenue or State on this issue. However, the court's observations indicate that situations involving fake or bogus ITC cannot be countenanced, suggesting the department's actions are aimed at preventing such practices.