Bombay High Court Grants Relief to Petitioner in ITC Blocking Case
Bombay High Court Grants Relief to Petitioner in ITC Blocking Case
In a significant victory for taxpayers, the Bombay High Court recently granted relief to Muktai Enterprises in a case concerning the unlawful blocking of Input Tax Credit (ITC) under the Central Goods and Services Tax (CGST) framework. The case, argued by Advocate Sachin P. Kumar underscores the importance of judicial oversight in ensuring fair treatment for businesses under India’s evolving GST regime.
Background of the Case
Muktai Enterprises, engaged in legitimate business operations, faced an unexpected challenge when the Anti-Evasion Wing of the CGST Department blocked its ITC worth several crores. The blockage included credits already available and those subsequently acquired, significantly impacting the company’s working capital and daily operations.
The petitioner approached the Bombay High Court under Article 226 of the Constitution, challenging the arbitrary and disproportionate action taken by the authorities. The issue centered on whether the department could block ITC beyond what was available at the time of initiation and whether such blocking complied with procedural safeguards under the GST law.
Key Arguments
Appearing on behalf of the petitioner, Adv. Sachin P. Kumar argued that:
- The blocking of ITC without proper cause or procedure violates the taxpayer’s right to conduct business under Article 19(1)(g) of the Constitution.
- Once the available ITC was blocked, any subsequent credit earned through fresh transactions could not be lawfully frozen without due process.
- Such continuous blockage severely restricts liquidity and affects the fundamental working capital cycle of a business, effectively punishing the taxpayer before any determination of guilt.
The Respondents, represented by Mr. J. B. Mishra, maintained that the blocking was within the scope of their powers to prevent misuse of credit. However, the court found merit in the petitioner’s contention.
The High Court’s Decision
The Division Bench comprising Justice M.S. Sonak and Justice Advait M. Sethna adopted the reasoning from similar matters decided earlier the same day. The Court upheld the department’s right to block ITC worth ₹41,87,658 (available at the time of action) but set aside the blocking of subsequent ITC amounting to ₹1,43,30,363, holding that such a measure was beyond lawful limits.
The Court directed the department to restore the blocked ITC of ₹1.43 crore within 15 days of the order’s uploading and observed that while authorities may initiate recovery proceedings as per law, arbitrary continuation of ITC blockage was not permissible.
Significance of the Order
This order reaffirms the judiciary’s commitment to ensuring a balanced and fair application of tax laws. While the government retains the right to prevent fraudulent claims, it must not impose measures that hinder the legitimate functioning of compliant taxpayers.
The decision also highlights the critical role of legal recourse for businesses facing procedural excesses in GST administration. It serves as an important precedent for taxpayers whose ITC has been unjustly blocked without cause or due process.
Our Perspective
At Sachin P. Kumar & Associates, we believe this judgment marks a significant step toward restoring fairness in GST compliance. Businesses must not be penalized for administrative overreach, and this case reinforces the principle that justice and economic efficiency go hand in hand.
Our team remains committed to assisting taxpayers in defending their rights, ensuring compliance, and securing rightful relief through the legal system.
Conclusion
The Muktai Enterprises case stands as a reminder that while tax enforcement is essential, it must always align with the rule of law. The Bombay High Court’s intervention has provided much-needed clarity on the limits of ITC blocking powers and strengthened taxpayer confidence in the justice system.