Case: Dee Vee Projects Ltd Vs. The Government of Maharashtra and ors

Tax, MIDC-Nagpur-502 Admn.State. This order does not give any reasons and, therefore, there is no question of any reflection therein of the authority passing the order on being satisfied about the necessity of passing it. When the first requirement of rule 86-A is of, having reasons to believe and it has manifestly been not followed, the impugned order would have to be treated as bad in law. The second requirement regarding recording of reasons in writing, it is obvious, is also followed in breach. The impugned order is, therefore, an instance of arbitrary exercise of the power under rule 86-A and so it is illegal. 40. The impugned order is illegal for another reason, as well. It does not specify the amount to the extent to which the ECL has been blocked. As explained by us earlier, the power under rule 86-A does not enable the authority to impose a blanket prohibition upon utilization of credit available in the ECL. It permits the authority to disallow debit of only that amount which has been found to be fraudulently or wrongly availed of and, therefore, if the credit amount available in the ECL is more than the amount found to be fraudulently or erroneously availed of, the entire credit amount amount lying in the ECL cannot be subjected to the disability of rule 86-A. The disallowance has to be restricted to only such amount which is equivalent to the amount found to be fraudulently or erroneously availed of in respect of which the credit has accumulated in the ECL, and it is only debit of this amount to the ECL which can be forbidden and not the debit of the entire amount lying in credit in the ECL. The impugned order has the effect of imposing complete ban on utilisation of any credit amount and not just the credit amount found to be fraudulently or erroneously and, therefore, it is illegal for this additional reason. 41. The learned AGP for respondent nos.1, 2 and 4 and learned counsel for respondent no.3 have placed reliance upon certain correspondence between these authorities which revealed as to what weighed with the authority for issuing a direction to respondent no.1 via respondent no.4 for blocking of the ECL. These communications are of dates 27.1.2021 and 25.6.2021. The communication dated 27.1.2021 did not give any reasons as to why the ECL of the petitioner was merited and it only said that as certain material was found during the course of investigation made against the petitioner, the blocking was found necessary. Therefore, this communication would not help further the case of the respondents. The communication dated 25.6.2021 does no better. By this communication respondent no.4 directed respondent no.1 to take necessary action at her end by blocking of ITC of listed tax payers as per rule-86-A. Respondent no.1 complying with the direction, passed the impugned order of blocking of the ECL on 1.7.2021. In the reply filed by respondent no.1, it is admitted that the blocking of ECL was done by her because there was direction received by her from respondent no.3 via respondent no.4 regarding blocking of the ECL as per rule 86-A. This admission shows that there was an abdication of authority conferred upon respondent no.1 regarding exercise of power under rule 86-A which ought to have been exercised by her after applying her mind independently in the matter, but that was not to be. The surrender of the authority made by her was in favour of respondent no.3, although respondent no.3, on its part had only recommended for blocking of the ECL. This shows that exercise of power under rule 86-A made by respondent no.1 was not because she was independently satisfied about the need for blocking the ECL but, was due to the fact that she felt compelled to obey the command of her superior. In other words, the order was passed virtually by respondent no.3. This is not the manner in which the law expects the power under rule 86-A to be exercised. When a thing is directed to be done in a particular manner, it must be done in that manner or not at all is the well established principle of administrative law (see Chandra Kishor Jha V/s. Mahavir Prasad, AIR 1999 SC 3558 and Dhananjay Reddy V/s. State of Karnataka, AIR 2001 SC 1512 ), which has not been followed here. This is one more reason for us to hold that the impugned order is arbitrary and illegal. 42. For the reasons stated hereinabove, we find that the impugned order is arbitrary and illegal and it must be quashed and set aside. Question no.3 is answered accordingly. 43. As regards fourth question, we must say here that it is not necessary for us to answer it in specific terms as the impugned order itself has been found to be not worthy of upholding. The necessity for examining justification for issuance of the impugned order would have arisen, had it been held that the impugned order is sustainable in law on the touchstone of due process but requires consideration on merits, which is not the case here. 44. The petitioner has also sought issuance of direction to the Union of India for coming out with appropriate guidelines for exercise of the power available under rule 86-A. As of now, we do not think that there is any need for this Court to issue a direction as desired by the petitioner. We are of the opinion that rule 86-A has been adequately framed by the rule making authority so as to take care of any possible misuse of the power. The authority has ensured that sufficient safeguards against the misuse of power are embedded in rule 86-A itself and accordingly the rule has been framed. We have already explained in detail the meaning, extent, necessity and manner of operation of these safeguards and, therefore, we do not think that anything more than what we have done here is required to be done.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]20. Reading the provision, we can see that appeal under section 107(1) can be filed against a decision or order passed under Central GST Act or State GST Act or the Union Territory GST Act by an adjudicating authority. It is also clear that this provision does not include any decision or order passed under the Rules framed under Central GST Act or any other Rules. In this case, the respondents maintain that the impugned order and action has been passed and taken under rule 86-A of the Rules, 2017. Therefore, we find that no appeal remedy could have been available to the petitioner under this provision.22. A careful perusal of the provision would show that the revisional power conferred upon the Commissioner is in respect of an order passed by an adjudicating authority and the expression, adjudicating authority, as defined in section 2(4) excludes the Revisional Authority from its ambit, as rightly submitted by Shri Mirza, learned counsel for the petitioner. It is, therefore, clear that the petitioner could not have filed any revision petition before the Commissioner under section 107(2) of the CGST Act. In any case, no authority, Commissioner here, can be a revisional authority against his own order, though he can be a reviewing authority against his own order, if power of review is expressly conferred upon him.23. Thus, neither under sub-section (1) nor under subsection (2) of section 107, the petitioner could have found any succour for resolution of its grievance and, therefore, we reject the contention of the respondents that this petition is not maintainable due to availability of an alternate remedy.We find no merit in the contention as this rule itself shows that the power can be exercised not only by the Commissioner but also by an officer authorised by him in this behalf and only restriction is that the delegate of the Commissioner cannot be an officer who is below the rank of an Assistant Commissioner. In this case, there is no dispute about the fact that respondent no.1, a Deputy Commissioner holding the rank above an Assistant Commissioner, was duly authorised by the Commissioner to initiate action under section 86-A of the CGST Act. The contention is, therefore, rejected.27. The effect of the power exercised under this provision of law, is that of an embargo placed upon utilisation of the amount of credit or refund of the unutilised amount of credit. It is quite like maintaining status quo in respect of the amount of credit available in the ECL. This effect is not akin to seizure of the credit amount for its consequent appropriation for realisation of tax dues as would happen in the case of attachment of property. While amount of credit lying in the ECL could be considered to be the property of the tax payer, if viewed from perspective of ownership or entitlement of the tax payer over the same, not allowing use of such property for discharging liability to pay tax, penalty etc. under section 49 of the Central GST or not permitting its refund to the tax payer cannot seen as seizure or attachment of the property. In attachment of property, the custody of the property is, actually or symbolically, taken over by the department with a view to protect the property from being transferred or altered in character, so that it can be appropriated, if the need arises, for realising tax dues. But, in case of blocking of ECL under rule 86-A, the custody of the property remains with the tax prayer but disability is created on his capacity to utilise it or receive the refund of unutilised credit. The power of provisional attachment of the property under section 83 of the CGST Act can be exercised only after initiation of any proceeding under Chapters XII, XIV and XV, which relate to assessment, inspection, search, seizure, arrest and demands and recovery of tax not paid or shortly paid or erroneously paid. For invoking the power under rule 86-A, it is not necessary that proceeding under any of the said Chapters is initiated and it can be exercised, when conditions prescribed therein are met. It is thus clear that the power under rule 86-A is quite distinct from the power under section 83 and, therefore, any order passed under rule 86-A cannot be treated as the order amounting to the provisional attachment of property under section 83 of CGST Act.28. For the aforestated reasons, the argument made by learned counsel for the petitioner that the impugned order is no less than an order for provisional attachment under section 83 is rejected and the first question is answered in terms that the impugned order could not be understood as the order amounting to provisional attachment of property under section 83 of the CGST Act and, therefore, further question regarding following of the procedure prescribed in section 83 would not arise.However, as we have found that the impugned order could not be considered as the one passed in exercise of power under section 83 of the CGST Act, in our respectful submission, the case of Radha Krishan Industries (supra) would render no assistance to the petitioner.30. Coming to the second and third questions, which can be answered together, we are of the view that a closure examination of the provisions made in rule 86-A would throw much required light on these questions.31. A careful perusal of the above referred provisions would show that there is no specific mention therein about the blocking of the ECL and what is stated is that the Competent Authority may not allow debit of an amount equivalent to an amount determined or found to be fraudulently or wrongly shown as credit available in the ECL for discharge of any liability under Section 49 or any equivalent refund of an unutilised amount of credit in the ECL. Disallowing debit of an amount to the ECL is nothing but blocking of the ECL. But, such blocking of the ECL cannot be for an amount which is more than the amount found to be fraudulently or wrongly availed of. The answer to the second question, therefore, is that rule 86-A of Rules, 2017 does permit dis-allowance of debit of an amount to the electronic credit ledger only to the extent of fraudulent or wrong availment of credit in the ECL and such disallowance can be done through blocking of the ECL to the extent of the amount fraudulently or wrongly shown as lying in credit in the ECL.32. Coming to the third question, we would say that rule 86-A has two pre-requisites to be fulfilled before the power of disallowing of debit of suitable amount to the Electronic Credit Ledger or blocking of ECL to the extent of the amount fraudulently or wrongly availed of is exercised. The first pre-requisite is of the Competent Authority or the Commissioner having been satisfied on the basis of material available before him that blocking of ECL for the afore-stated reasons is necessary. The second pre-requisite is of recording the reasons in writing for such an exercise of the power. From the language used in rule 86-A it becomes very clear that unless both these pre-requisites are fulfilled, the authority cannot disallow the debit of the determined amount to the ECL or cannot block the ECL even to the extent of amount found to be fraudulently or wrongly availed of.34. In the case of Maneka Gandhi Vs. Union of India : AIR 1978 SC 597 , it was held that the principle of reasonableness which legally as well as philosophically, is an essential element of equity or non-arbitrariness and it pervades Article 14 like a brooding omnipresence and the procedure contemplated by Article 21 must answer the test of reasonableness in order to be in conformity with Article 14. Fair and reasonable exercise of power would be there only when the power is exercised in the manner prescribed in the provision of law conferring the power and for the purpose for achievement of which it exists. This would underline the importance of existence of reasons to believe that there is fraudulent or erroneous availment of credit standing in the ECL. In other words, the power under rule 86-A cannot be exercised unless there is a subjective satisfaction made on the basis of objective material by the authority.35. As regards the following of principles of natural justice, the law is now well settled. In cases involving civil consequences, these principles would be required to be followed although, the width, amplitude and extent of their applicability may differ from case to case depending upon the nature of the power to be exercised and the speed with which the power is to be used. Usually, it would suppose prior hearing before its exercise (See Swadeshi Cotton Mills Vs. Union of India : (1981) 1 SCC 664  and Nirma Industries Limited and another Vs. Securities and Exchange Board of India : (2013) 8 SCC 20) . But, it is not necessary that such prior hearing would be granted in each and every case. Sometimes, the power may be conferred to meet some urgency and in such a case expedition would be the hallmark of the power. In such a case, it would be practically impossible to give prior notice or prior hearing and here the rule of natural justice would expect that at least a post decisional hearing or remedial hearing is granted so that the damage done due to irrational exercise of power, if any, can be removed before things get worse. In Smt. Maneka Gandhi (supra), it was laid down that where there is an emergent situation requiring immediate action, giving of prior notice or opportunity to be heard may not be practicable but a full remedial hearing would have to be granted. The power conferred upon the Commissioner under rule 86-A is one of such kind. It has civil consequences though for a limited period not exceeding one year and has an element of urgency which perhaps explains why the rule does not expressly speak of any show cause notice or opportunity of hearing before the ECL is blocked. Of course, in order to guard against arbitrary exercise of power, the rule creates certain checks which are found in the twin requirements explained by us earlier. But, in our view, that may not be enough, given the nature of power, and what settled principles of law tell us in the matter. They would, in such a case, require this Court to read into the provisions of rule 86-A something not expressly stated therein, and so, we find that post decisional or remedial hearing would have to be granted to the person affected by blocking of his ECL. We may add that such post decisional hearing may be granted within a reasonable period of time which may not be beyond two weeks from the date of the order blocking the ECL. After such hearing is granted, the authority may proceed to confirm the order for such period as may be permissible under the rule or revoke the order, as the case may be.36. The second pre-requisite of rule 86-A is of recording of reasons in writing. It comes with the use of the word may, which, in our opinion, needs to be construed as conveying an imperative command of the rule maker, and that means, reasons must be recorded in writing in each and every case. This is because of the fact that any order which brings to bear adverse consequences upon the person against whom the order is passed, must disclose the reasons for it so that the person affected thereby would know why he is being made to suffer or otherwise he would not be able to seek appropriate redressal of his grievance arising from such an order. Right to know the reasons behind an administrative order having civil consequences is a well embedded principle forming part of doctrine of fair play which runs like a thread through the warp and weft of the fabric of our Constitutional order made up by Articles 14 and 21 of the Constitution of India. In the case of Andhra Bank V/s. Official Liquidator : (2005) 3 SCJ 762 , the Apex Court has held that an unreasoned order does not subserve the doctrine of fair play. It then follows that the word, may used before the words, for the reasons recorded in writing signifies nothing but a mandatory duty of the competent authority to record reasons in writing.37. There is another reason which we would like to state here to support our conclusion just made. The power under rule 86-A is of enabling kind and it is conferred upon the Commissioner for public benefit and, therefore, it is in the nature of a public duty. Essential attribute of a public duty is that it is exercised only when the circumstances so demand and not when they do not justify its performance (see Commissioner of Police, Bombay Vs. Gordhandas Bhanji : AIR (39) 1952 Supreme Court 16). It would then mean that justification for exercise of the power has to be found by the authority by making a subjective satisfaction on the basis of objective material and such satisfaction must be reflected in the reasons recorded in writing while exercising the power.38. Examined in the light of above principles of law, the provisions made in rule 86-A would require the Competent Authority to first satisfy itself, on the basis of objective material, that there are reasons to believe that credit of input tax available in ECL has been fraudulently or wrongly utilised and secondly to record these reasons in writing before the order of disallowing debit of requisite amount to the ECL or requisite refund of unutilised credit, is passed or otherwise the order of blocking the ECL under rule 86-A would be unsustainable in the eye of law. This is also the view taken in the case of M/s HEC India LLP Vs. Commissioner of GST and Central Excise Audit-II and another (WA No.2341 of 2021 dated 16.09.2021), which commends to us. Then, as stated earlier, a remedial hearing followed by confirmation or revocation of the order would be necessary..This order does not give any reasons and, therefore, there is no question of any reflection therein of the authority passing the order on being satisfied about the necessity of passing it. When the first requirement of rule 86-A is of, having reasons to believe and it has manifestly been not followed, the impugned order would have to be treated as bad in law. The second requirement regarding recording of reasons in writing, it is obvious, is also followed in breach. The impugned order is, therefore, an instance of arbitrary exercise of the power under rule 86-A and so it is illegal.40. The impugned order is illegal for another reason, as well. It does not specify the amount to the extent to which the ECL has been blocked. As explained by us earlier, the power under rule 86-A does not enable the authority to impose a blanket prohibition upon utilization of credit available in the ECL. It permits the authority to disallow debit of only that amount which has been found to be fraudulently or wrongly availed of and, therefore, if the credit amount available in the ECL is more than the amount found to be fraudulently or erroneously availed of, the entire credit amount amount lying in the ECL cannot be subjected to the disability of rule 86-A. The disallowance has to be restricted to only such amount which is equivalent to the amount found to be fraudulently or erroneously availed of in respect of which the credit has accumulated in the ECL, and it is only debit of this amount to the ECL which can be forbidden and not the debit of the entire amount lying in credit in the ECL. The impugned order has the effect of imposing complete ban on utilisation of any credit amount and not just the credit amount found to be fraudulently or erroneously and, therefore, it is illegal for this additional reason.These communications are of dates 27.1.2021 and 25.6.2021. The communication dated 27.1.2021 did not give any reasons as to why the ECL of the petitioner was merited and it only said that as certain material was found during the course of investigation made against the petitioner, the blocking was found necessary. Therefore, this communication would not help further the case of the respondents. The communication dated 25.6.2021 does no better. By this communication respondent no.4 directed respondent no.1 to take necessary action at her end by blocking of ITC of listed tax payers as per rule-86-A. Respondent no.1 complying with the direction, passed the impugned order of blocking of the ECL on 1.7.2021. In the reply filed by respondent no.1, it is admitted that the blocking of ECL was done by her because there was direction received by her from respondent no.3 via respondent no.4 regarding blocking of the ECL as per rule 86-A. This admission shows that there was an abdication of authority conferred upon respondent no.1 regarding exercise of power under rule 86-A which ought to have been exercised by her after applying her mind independently in the matter, but that was not to be. The surrender of the authority made by her was in favour of respondent no.3, although respondent no.3, on its part had only recommended for blocking of the ECL. This shows that exercise of power under rule 86-A made by respondent no.1 was not because she was independently satisfied about the need for blocking the ECL but, was due to the fact that she felt compelled to obey the command of her superior. In other words, the order was passed virtually by respondent no.3. This is not the manner in which the law expects the power under rule 86-A to be exercised. When a thing is directed to be done in a particular manner, it must be done in that manner or not at all is the well established principle of administrative law (see Chandra Kishor Jha V/s. Mahavir Prasad, AIR 1999 SC 3558  and Dhananjay Reddy V/s. State of Karnataka, AIR 2001 SC 1512 ), which has not been followed here. This is one more reason for us to hold that the impugned order is arbitrary and illegal.42. For the reasons stated hereinabove, we find that the impugned order is arbitrary and illegal and it must be quashed and set aside. Question no.3 is answered accordingly.43. As regards fourth question, we must say here that it is not necessary for us to answer it in specific terms as the impugned order itself has been found to be not worthy of upholding. The necessity for examining justification for issuance of the impugned order would have arisen, had it been held that the impugned order is sustainable in law on the touchstone of due process but requires consideration on merits, which is not the case here.44. The petitioner has also sought issuance of direction to the Union of India for coming out with appropriate guidelines for exercise of the power available under rule 86-A. As of now, we do not think that there is any need for this Court to issue a direction as desired by the petitioner. We are of the opinion that rule 86-A has been adequately framed by the rule making authority so as to take care of any possible misuse of the power. The authority has ensured that sufficient safeguards against the misuse of power are embedded in rule 86-A itself and accordingly the rule has been framed. We have already explained in detail the meaning, extent, necessity and manner of operation of these safeguards and, therefore, we do not think that anything more than what we have done here is required to be done.