Ms Apple Fabrics vs. Union Of INDIA

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). The reasons cited by the revenue authorities include allegations that the petitioners' suppliers were unregistered, and that the petitioners availed fraudulent ITC based on bogus invoices without actual movement of goods or services. The petitions also include a challenge to the vires of Section 16(2)(c) of the CGST Act.

Held

The Court held that the CGST Act and its Rules constitute a complete code. While acknowledging that blocking ITC has adverse consequences, the Court stated that each case must be examined on its own facts to ascertain if the department's proposed action is based on tangible material and 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. The Court directed that petitioners should be permitted to file their replies to the show cause notices within two weeks, after which these notices would be adjudicated on merits, considering all factual and legal contentions. For petitions with pre-show cause intimations where objections were already 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 proceedings. All contentions of the parties, including the challenge to the vires of Section 16(2)(c), were expressly kept open for consideration in the proceedings before the adjudicating authorities or in appropriate future proceedings.

Key Issues

1. Whether Section 16(2)(c) of the CGST Act, 2017, which imposes conditions for availing ITC, is ultra vires the Constitution of India, specifically Articles 14, 19(1)(g), and 300A, on the grounds of being arbitrary, irrational, and imposing an undue burden on the recipient of goods/services? Petitioner's arguments: The petitioners contended that Section 16(2)(c) of the CGST Act is unconstitutional as it places an unreasonable burden on them and violates their fundamental rights. They argued that the blocking of ITC without proper adjudication is arbitrary and affects their business operations. Revenue's arguments: The revenue authorities argued that the CGST Act and its Rules form a complete code. They contended that situations involving fake or bogus ITC cannot be permitted and that each case must be examined on its own facts to determine if the department's action is based on tangible material and a rational basis. The revenue also implicitly argued that the challenge to the vires of the section is premature at this stage.