GST System doesn’t allow Matching of ITC: Gujarat HC directs Dept to allow ITC provisionally based on Invoices [Read Order]

A division bench of the Gujarat High Court comprising J B Pardiwala and Justice Nisha M Thakore held that the input tax credit cannot be blocked by invoking section 86A of the Central GST Act, 2017 without assigning any reasons. While allowing a writ petition, the division bench observed that since the facility to furnish GSTR – 2 and GSTR – 3 Forms is also not available and there is no system allowing matching of ITC, the GST department shall allow input tax credit to traders provisionally on the basis of invoices.

The writ applicant, M/S New Nalbandh Traders, approached the High Court alleging that when they checked with the GST Portal, it is was displayed that the ITC had been blocked by the respondent no.3 without assigning any reasons. It is the case of the writ applicant that he inquired with the departmentas to on what basis, the ITC was blocked but, there was no response at the end of the department.

After perusing the provisions of Rule 86A, the Court found that the Rule undoubtedly could be said to have conferred drastic powers upon the proper officers if they have reason to believe that the activities or invoices are suspicious.

“The Rule 86A is based on “reason to believe”. “Reason to believe” must have a rational connection with or relevant bearing on the formation of the belief. It is a subjective term and can be interpreted differently by different individuals. Prima facie, it appears that the Rule 86A does not even contemplate for issue of any show-cause notice or intimation notice. In such circumstances, the person affected may be taken by surprise when he would go to the portal to pay taxes and finds that his ITC is not usable,” the Court said.

Relying on a catena of decisions and the various provisions of GST, the Court held that “On the perusal of the aforesaid provisions, it can be said that there is a specific mechanism for reversing the credit in the case of a discrepancy in the ITC availed by the recipient, against the output liability of the supplier. However, the ITC reversal mechanism, as laid down in section 41 read with Rules, is kept in abeyance. The facility to furnish GSTR – 2 and GSTR – 3 Forms is also not available. Accordingly, there is no system-based matching of the ITC being carried out presently, and till the time such provisions are given effect, the recipients shall be eligible to claim ITC provisionally on the basis of the invoice issued by customer.”

M/S NEW NALBANDH TRADERS vs STATE OF GUJARAT & 2 other(s)

CITATION: 2022 TAXSCAN (HC) 216

To Read the full text of the Order CLICK HERE

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