The Gujarat High Court issued the notices to the Central and State over blocking of Input Tax Credit (ITC) under Rule 86A.
The petitioner, Surat Mercantile Association has filed a petition challenging the constitutional validity and vires of Rule 86A of the Central GST Rules and the Gujarat GST Rules.
Rule 86A of the GST Rules has given unbridled power to a GST officer to block input tax credit in electronic credit ledger maintained on GSTN portal without giving any notice or intimation to the taxpayer, if the concerned GST officer has reason to believe that input tax available in the electronic credit has been fraudulently availed or is ineligible.
Electronic credit ledger of a buyer of goods or services of an honest business entity is getting blocked even if it is not at fault.
The Counsel for the petitioner Vinay Sharaff Parth S Shah contended that Rule 86A of the Rules which allows unilaterally blocking the electronic credit ledger without issue of Show Cause Notice and without giving an opportunity of fair hearing is in violation of principles of natural justice.
“Rule 86A of the Rules is a draconian, arbitrary, irrational and unduly harsh provision and therefore violative of article 14 of the Constitution of India. Rule 86A of the Rules ultra virus the Section 74 of the Act in as much as Section 74 of the Act mandates issue of show cause notice for demand of ineligible or fraudulently availed input tax credit,” the counsel for the petition said.
It was further submitted that Rule 86A of the Rules also ultra-virus Section 75(4) of the Act which mandates grant of an opportunity of hearing where any adverse decision is contemplated against a taxpayer. Rule 86A of the Rules also seeks to circumvent the right of appeal to the extent that such right can be exercised upon payment of 10% of the disputed amount under section 107 of the Act. The division bench headed by Chief Justice Vikram Nath and Justice J.B. Pardiwala issued notice to the Central and State Government to submit its response by 21st January 2021.
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