Relief in GST ITC Restriction & Bank Attachment Case

Case Title: M/s Sri Shivsakthi Mercantile Pvt. Ltd. v. Assistant Commissioner (ST), Tondiarpet & Anr.
Court: Madras High Court
Petition No.: W.P.No.28835 of 2024 & W.M.P.Nos.31442, 31444 & 31445 of 2024
Date of Judgment: 01.10.2024
Category: Input Tax Credit (ITC) – Restriction under Rule 86B and Bank Attachment
Relevant Sections/Rules:

• Section 73, CGST/TNGST Act, 2017

• Rule 86B, CGST/TNGST Rules, 2017

• Article 226, Constitution of India

Facts of the Case (Paras 3–4)

• The petitioner, engaged in trading activities, availed 100% ITC on the basis of proviso to Rule 86B, which allows exemption from 1% cash liability if the taxpayer paid income tax above ₹1,00,000/- in preceding years.

• The Department issued a show cause notice and order under Section 73 dated 26.03.2024, uploaded in the portal under “Additional Notices and Orders.”

• The petitioner claimed unawareness of the notices and alleged no personal hearing was granted before passing the order.

• The order demanded reversal of 1% ITC and led to bank account attachment notice dated 06.08.2024, prompting the writ petition.

Question(s) in Consideration (Paras 4–6)

1. Whether the order under Section 73 dated 26.03.2024 was valid when no opportunity of personal hearing was given?

2. Whether the petitioner falls within the exemption under Rule 86B and was wrongly compelled to reverse 1% ITC?

3. Whether the bank attachment dated 06.08.2024 could be sustained after setting aside the main order?

Observations of the Court (Paras 7–8)

• The proviso to Rule 86B clearly exempts the petitioner from the 1% ITC restriction since they have been paying income tax above ₹1,00,000/- from FY 2019–20 onwards.

• The impugned order was passed without granting personal hearing, violating principles of natural justice.

• The Court held that the matter requires fresh consideration on merits after giving the petitioner an opportunity to reply and be heard.

Judgment of the Court (Para 8)

1. The impugned order dated 26.03.2024 is set aside.

2. The matter is remanded to the respondent for fresh adjudication.

3. The petitioner shall file a reply within 3 weeks.

4. The Department shall provide 14 days’ clear notice and conduct a personal hearing before passing a fresh order.

5. The bank attachment dated 06.08.2024 is lifted, and Axis Bank is directed to de-freeze the petitioner’s account immediately.

Between Fine Lines

• The Court protected the taxpayer from an unfair ITC reversal under Rule 86B.

• Orders passed without a hearing were struck down for violating natural justice.

• Bank account attachment was quashed since it flowed from an invalid order.

• Taxpayers meeting Rule 86B exemptions cannot be compelled to pay 1% cash liability.

• The case reaffirms that procedural fairness is as important as tax compliance.

Summary of Referred Cases

(No external precedents were cited in the judgment; only statutory interpretation applied.)

Disclaimer – “The above summary is for academic purpose only; not formal legal opinion. Seek professional opinion before application. Author or publisher or website shall not be responsible for any usage in any form.”