1. Heard Shri Navin Sinha, learned Senior Advocate assisted by Shri Nishant Mishra and Shri Rahul Agarwal for the petitioner company and Shri Bipin Kumar Pandey, learned Additional Chief Standing Counsel for the respondents.

2. This writ petition has been filed by M/s North End Food Marketing Pvt. Ltd. against the order dated 26.3.2021 passed by the respondent no.3/Commissioner, Commercial Tax, U.P. Lucknow by which he has accepted the proposal for revision submitted by the Additional Commissioner, Grade-1, Commercial Tax, Moradabad Zone, Moradabad and stayed the effect and operation of the order dated 10.3.2021 passed by the Additional Commissioner, Grade-II (Appeal)-1st, Commercial Tax, Moradabad, wherein, the appeal filed by the assessee/petitioner company was allowed and decision of the respondent no.5/Deputy Commissioner, Sector-1, State Tax, Chandausi, Sambhal (Assessing Officer), communicated to the petitioner vide e-mails dated 23.7.2020 & 06.8.2020 for blocking of credit, was set aside.

3. The petitioner is a company incorporated under the provisions of the erstwhile Companies Act, 1956 having its unit at Shaktinagar, Chandausi, District Sambhal, U.P.. It is a subsidiary company of M/s Sohanlal Commodity Management Pvt. Ltd (‘SCMPL’) dealing in the business of procuring commodities on behalf of its customers on Pan India basis, storing such commodities in the warehouses owned and operated by SCMPL and thereafter supplying such commodities to different persons on the instructions of the customers. The SCMPL is primarily engaged in providing warehousing services for which it is registered under the provisions of the Warehouse (Development and Regulation) Act, 2007. On account of multiplicity of operations, the petitioner company maintains its books of account electronically in a centralized system prescribed under Rule 10 of the erstwhile Central Excise Rules, 2002 and Section 35 of the GST Act read with Rules 56 & 57 of the Central Goods and Services Tax Rules, 2017 (‘CGST Rules’).

4. The petitioner is mainly dealing in “Mentha” oil in the State of Uttar Pradesh and is duly registered under the provisions of U.P. Value Added Tax Act, 2008 (‘UPVAT Act’). The petitioner availed the credit of input tax paid on the purchases made from the dealers registered in the State of Uttar Pradesh in accordance with the provisions of UPVAT Act and after deducting the same from the output tax payable, discharged the net tax liability as per provisions contained in UPVAT Act. After enactment of Central Goods and Services Tax Act, 2017 (‘CGST Act’) and U.P. Goods and Services Tax Act, 2017 (‘UPGST/SGST Act’) the petitioner was allotted GSTIN No.09AABCN9927F1Z6 on 23.6.2018.

5. Section 16 in Chapter-V of SGST Act provides for eligibility and condition for taking input tax credit. The expressions “input tax”, “input tax credit” and “output tax” have been defined in clauses (62) & (63) of Section 2 of the SGST Act, which read as under:-

“Sec. 2 (62) “Input Tax” in relation to a registered person, means the central tax, State tax, integrated tax or union territory tax charged on any supply of goods or services or both made to him and includes;-

a) the integrated goods and service tax charged on import of goods;

b) the tax payable under the provision of sub-section (3) & (4) of Section 9;

c) the tax payable under the provision of sub-section (3) & (4) of Section 5 of Integrated Goods and Service Tax Act (13 of 2017); or

(d) the tax payable under the provision of sub-sections (3) & (4) of Section 9 of Central Goods and Services Tax Act, 2017 but does not include tax paid under the composition levy;

Sec. 2( 63) “Input Tax Credit” mean the credit of input tax;

Sec.2 (82) “output tax” in relation to a taxable person, means the tax chargeable under this Act on taxable supply of goods or services or both made by him or by his agent but excludes tax payable by him on reverse charge basis.”

6. Section 16 (1) provides that every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in Section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him, which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person. Sub-section (2) provides that no registered person shall be entitled to take input tax credit unless he is in possession of a tax invoice, debit note or any other prescribed duty paying documents and he has received the goods or services or both. Section 17 of SGST Act provides for apportionment of credit and blocked credits. Sub-sections (1), (2), (3) & (4) provide for restricted credit, whereas sub-section (5) provides for circumstances in which credit is not admissible. Sub-section (6) confers powers on Government to prescribe the manner in which credits referred to in sub-section (1) and (2) may be attributed. Section 49 provides that every deposit made towards tax, interest, penalty, fee etc. shall be credited to the electronic cash ledger, whereas input tax credit as self-assessed in the return of registered person shall be credited to his electronic credit ledger. Section 49 also provides that the amount available in the electronic cash ledger may be used for making any payment towards output tax in such manner and subject to such conditions and within such time, as may be prescribed.

7. Section 164 confers power on the State Government to make rules for carrying out the provisions of the Act and in exercise of such powers, ‘Uttar Pradesh Goods & Services Tax Rules, 2017 (‘SGST Rules) were notified by the State Government. Chapter-V of the UPGST Rules provides for ‘Input Tax Credit’. Rule 36 (1) provides for the documents on the basis of which input tax credit shall be availed, whereas Rule 36 (3) provides that no input tax credit shall be availed in respect of any tax that has been paid in pursuance of any order where demand has been confirmed on account of any fraud, willful misstatement or suppression of facts. Rule 37 provides for reversal of input tax credit in case of non-payment of consideration by recipient to supplier. Rule 86 provides that electronic credit ledger shall be maintained in Form G.S.T.P.M.T.-02 for each registered person eligible for input tax credit on the common portal and every claim of input tax credit shall be credited to the said ledger. The SGST Act and SGST Rules contain a complete code regarding eligibility conditions to take credit of input tax, manner in which such credit can be taken and also the manner in which such credit can be utilised for making payment towards output tax.

8. The Mentha oil, in which the petitioner company is trading, is extracted from Mentha herbs, which is grown in different districts of Uttar Pradesh. When the crop is ripened the farmers take the herbs to the distillation plants where Mentha oil is extracted. Then such farmers sell this oil to different registered dealers, who in turn supply the same to the petitioner company after issuing the tax invoice and E-way bill. The Mentha oil is an agricultural produce as defined under the U.P. Krishi Utpadan Mandi Adhiniyam, 1964 and hence, exit of specified agricultural produce from market area requires issuance of gate pass in Form V-A by the Market Committee under Rule 50A of U.P. Krishi Utpadan Mandi Niyamawali, 1965 as well as issuance of bill in Form IXR by the seller to the purchaser. Thus, the supply of Mentha oil is permissible only after issuance of gate pass by the Market Committee in Form V-A and bill in Form-9R by the supplier.

9. The petitioner company purchased Mentha oil from various suppliers on the strength of tax invoice issued by such suppliers. Since the petitioner is using warehousing services provided by SCMPL at different locations, hence e-way bills were also generated for movement of goods from the supplier’s place to the warehouses operated by SCMPL. Such supply was also supported with gate pass in Form V-A issued by the Market Committee and bill in Form 9R by the supplier. Upon receipt of Mentha oil at warehouses of SCMPL, three samples are drawn for testing quality/properties of Mentha oil. After receipt of test reports, Mentha oil is warehoused, after making appropriate entry in stock register maintained at warehouses. The Mentha oil are not brought to the branches of petitioner situated within the State of U.P. The petitioner company maintains books of accounts electronically online and details of goods purchased and sold by the petitioner are also available at the warehouses operated by SCMPL.

10. During the period of 2018-19 the petitioner purchased Mentha oil from different suppliers including M/s Jai Balaji Trading Company. The purchases made from M/s Jai Balaji Trading Company during the period 2018-19 were to the tune of ₹ 20188.39 lacs (inclusive of SGST & CGST). The Mentha oil so purchased was later on sold by the petitioner to different purchasers. The petitioner disclosed the input tax credit of ₹ 1211.30 lakhs each of CGST & SGST in its returns as self-assessed and the same was credited to the electronic credit ledger of the petitioner in accordance with provisions of Section 49 of SGST/CGST Act. M/s Jai Balaji Trading Company made a cash payment of ₹ 5,83,15,039/- to the Government exchequer from September, 2017 to March, 2019. The petitioner also made a cash payment of ₹ 11,86,94,500/- apart from the adjustment of input tax credit against his output tax liability.

11. On 13.09.2019 the warehouses of SCMPL situated at Chandausi and Barabanki were searched by the officers of State tax, wherein 133 drums of Mentha oil kept at Chandausi warehouses were seized. On the same day, 1397 drums of Mentha oil at Barabanki Warehouse of SCMPL belonging to six firms were also detained and prohibited for disposal after issuance of an order in Form GST INS- 03. 161 drums of Mentha oil belonging to the petitioner were seized by the Deputy Commissioner (Special Investigation Branch), Unit-B, Ayodhya on 28.2.2020. It is pertinent to mention here that 1236 drums belonging to five firms had been released prior to the said seizure without realizing any tax or penalty. Various electronic devices alongwith 15 loose papers and various other documents were seized from the warehouse at Barabanki on 13.9.2019 and nothing adverse has been communicated to the petitioner from these seized materials. Hence, these documents should have been returned to the petitioner within 30 days as per provision of sub-section (3) of Section 67 of the SGST Act. Except a few electronic devices, which were returned in July 2020, no other documents have been returned to the petitioner despite repeated requests. Out of the seized documents, a regular book in the Form of 9R (Exhibit No.2) was seized which reflected all the regular and daily inward supplies of the petitioner. Stock register of warehouse (Exhibit No.3) was seized, wherein details of stock was recorded. After investigation, no discrepancy was found by the concerned officer. All the entries were verified from the arrival stock register of Mandi Samiti and nothing adverse has been communicated to the petitioner. The department was informed on 05.9.2019 that 133 drums of Mentha oil of the petitioner were lying at the Chandausi warehouse and as such, the said stock was not suppressed and the same was seized on 13.9.2019 treating it as out of books or undisclosed.

12. The warehouse of SCMPL at Barabanki informed to the Commercial Tax Department at Ayodhya on 05.9.2019 that 161 drums of the petitioner were lying at the warehouse and despite this disclosure the same stock was seized on 28.2.2020. The petitioner through its authorized representative appeared on every occasion, whenever he was summoned either at Moradabad or at Ayodhya. The search was conducted on 13.9.2019 at all the places and the petitioner submitted its detailed explanation on 21.9.2019. On 04.12.2019 the entire details relating to outward supplies of Mentha oil made by the petitioner including the ledger account, e-way bills, 9R Forms, gate passes, invoices, bank transactions, were made available to the officers of State tax and after submission of these details, out of 1397 drums of Mentha oil detained from the Barabanki warehouse, 1236 drums relating to other parties, were released by the officers of State tax. The summons dated 09.12.2019 under Section 70 of the SGST Act were issued to the officers of the petitioner company requiring their attendance for the purposes of furnishing various documents mentioned in the summon. Adequate responses were furnished by the petitioner on 27.12.2019 and 05.2.2020. Even after furnishing the required details, neither the officers of the State tax were disclosing the ‘reason to believe’ nor released the seized goods.

13. Aggrieved with the said proceeding, SCMPL alongwith the petitioner earlier approached this Court by preferring Writ Tax No.304 of 2020 (M/s Sohan Lal Commodity Management Pvt. Ltd. and another vs. State of UP and ors) for quashing the proceedings pursuant to the search and seizure operation carried out at the warehouses of M/s Sohan Lal Commodity Management Pvt. Ltd. at Chandausi on 13.09.2019 and on 13.9.2020 and 28.02.2020 at Barabanki. The writ jurisdiction was invoked on the ground that jurisdiction under Section 67 of SGST can be exercised only on the basis of ‘reason to believe’. It had been pressed that neither there was evasion of tax or stock nor it was reflected in the books of accounts. Even though repeated requests were made to the officers of the State tax but neither ‘reasons to believe’ were disclosed nor released the seized good items. The aforesaid writ petition was disposed of by a Division Bench of this Court by an order dated 02.6.2020. Relevant portion of the order is extracted hereinafter:-

“During course of arguments, learned counsel for the petitioners confined his prayer only with respect to prayer no. (b) in the writ petition.

At the very outset, Shri Manish Goyal, learned Additional Advocate General appearing on behalf of the State has placed before us the judgment and order dated 22nd November, 2019 passed by the Hon’ble Apex Court in the Case of The State of Uttar Pradesh & Others Versus M/S Kay Pan Fragrance Pvt. Ltd in Civil Appeal No. 8941 of 2019 wherein the Apex Court has interalia observed as follows:-

“There is no reason why any other indulgence need be shown to the assessees, who happen to be the owners of the seized goods. They must take recourse to the mechanism already provided for in the Act and the Rules for release, on a provisional basis, upon execution of a bond and furnishing of a security, in such manner and of such quantum (even upto the total value of goods involved), respectively, as may be prescribed or on payment of applicable taxes, interest and penalty payable, as the case may be, as predicated in Section 67 (6) of the Act. In the interim orders passed by the High Court which are subject matter of assail before this Court, the High Court has erroneously extricated the assessees concerned from paying the applicable tax amount in cash, which is contrary to the said provision.

In our opinion, therefore, the orders passed by the High Court which are contrary to the stated provisions shall not be given effect to by the authorities. Instead, the authorities shall process the claims of the concerned assessee afresh as per the express stipulations in Section 67 of the Act read with the relevant rules in that regard. In terms of this order, the competent authority shall call upon every assessee to complete the formality strictly as per the requirements of the stated provisions disregarding the order passed by the High Court in his case, if the same deviates from the statutory compliances. That be done within four weeks without any exception.

We reiterate that any order passed by the High Court which is contrary to the stated provisions need not be given effect to in respect of all the cases referred in the affidavit by the State Government before this Court and fresh cases which may have been filed or likely to be filed before the High Court in connection with the subject matter of these appeals, by all concerned and are deemed to have been set aside/modified in terms of this order.

In view of this order, all the Writ Petitions pending before the High Court, list whereof has been furnished in the affidavit are deemed to have been disposed of accordingly. We have passed this common order to cover all cases of seizure during the relevant period, to obviate inconsistency in application of Law and also to do away with multiple appeals required to be filed by the State/ assessee to assail the unstatable orders/directions passed by the High Court in subject writ petition(s) referred to in the affidavit filed by the State before this Court.

Accordingly, the appeals are disposed of in the afore stated terms. All pending applications are also disposed of.”

Shri Manish Goyal, learned Addl. Advocate General has submitted that the Central Goods and Services Tax Act, 2017 provides a complete procedure for release of such goods, as contained in Section 67 of the Act read with Rule 141 of the relevant Rules. It has been further submitted by him that the petitioners should have approached the appropriate authority under Uttar Pradesh Goods and Services Tax Act, 2017 (in short “the Act”) to ventilate their grievance.

Per contra, learned counsel for the petitioners has submitted that “Mentha Oil” has been seized in the matter which is perishable in nature but the concerned authority has not yet exercised its power under Section 67 of the Act (in short “the Act, 2017”).

While rebutting the contention made by the learned counsel for the petitioners, learned Standing Counsel has stated that “Mentha Oil” is not perishable in nature and it has not been included in the schedule contained in the Notification dated 13th June, 2018 issued by Government of India.

Considering the facts and circumstances of the case, without expressing any opinion on the merits of the case, this writ petition is finally disposed of with a direction to the petitioners to make an appropriate application/representation before the concerned authority under the relevant provision of the Act, 2017 ventilating their grievances along with a certified copy of this order enclosing therewith a copy of the writ petition and its Annexures and, if any such application/representation is filed, the concerned authority shall make all endeavour to consider and decide the same by a reasoned and speaking order, after affording opportunity of personal hearing to the petitioners, in accordance with law expeditiously preferably within two weeks from the date of receipt of the said application.”

14. The petitioner company was contesting with the respondents in respect of the drums seized from the warehouses of SCMPL by email dated 23.7.2020 sent by Goods and Services Tax network. For the first time, it was transpired to the petitioner through e-mail communication dated 23.7.2020 that the input tax credit available in the electronic credit ledger of the petitioner has been blocked and upon further enquiry, copy of the decision taken by the respondent no.5 was provided to the petitioner on 06.8.2020 informing that input tax credit of ₹ 47,40,767/- under the CGST Act and ₹ 47,40,767/- under the SGST Act (cumulative ₹ 95,11,774/-) was blocked under Rule 86-A of the SGST Rules.

15. Aggrieved with the said decision/order dated 06.8.2020 the petitioner preferred statutory appeal before the Additional Commissioner, Grade-2 (Appeal)-I, State Tax, Moradabad/Appellate Authority and the same was registered as Appeal No.95/20 2019-20. Finally, the appeal was allowed by the Appellate Authority on 10.3.2021 with the following reasoning/findings:-

“(i) For invoking Rule 86A, there must exist reasons to believe that credit available in the electronic credit ledger was fraudulently availed or is ineligible;

(ii) The order dated 23.7.2020 does not disclose any reasons to believe, on the basis of which respondent no.5 has formed opinion that input tax credit was fraudulently availed or was ineligible;

(iii) From the documents submitted by petitioner relating to inward and outward supply, it is factually established that the same contains tax invoice no., date, description of goods, quantity, value, charged SGST & CGST, eway bill no., no. of 6R & 9R, gate pass no. and vehicle no.. Before treating petitioner as a bogus entity, it was required on the part of respondent no.5 to verify the correctness of such details and reasons to believe that credit was fraudulently availed or was ineligible, could exist only if such details were found to be incorrect;

(iv) However, the decision dated 6.8.2020 does not disclose that the details furnished by petitioner were ever verified. The same was also pointed out to respondent no.5, but no explanation regarding the same was furnished.

(v) On the basis of material on record, it is clear that there was no reason to believe available with respondent no.5 that M/s Jai Balaji Trading Company has not received consideration in respect of outward supply or that the input tax credit availed by petitioner on inward supply was ineligible. The petitioner had disclosed the details of payment worth ₹ 226.98 crores made against the outward supplies by Jai Balaji Trading Co. worth ₹ 225.89 Crores (including the amount of S.G.S.T. and C.G.S.T after the price settlement). This factual aspect was not rebutted by the respondents.

(vi) On the basis of material available on record, it cannot be said that the inward supply of the petitioner was on the basis of fake invoices;

(vii) Unless and until the details submitted by petitioner are examined and verified after giving opportunity of cross examination, the same cannot be rejected;

(viii) Before blocking input tax credit, concerned authorities have not conducted any enquiry and the decision dated 6.8.2020 has been passed by respondent no.5 in a routine manner only on the basis of letter issued by Deputy Commissioner (SIB), Ayodhya, without verifying the same himself;

(ix) Principle of natural justice also requires that a speaking and reasoned order is passed, but respondent no.5 has passed a non-speaking and nonreasoned order;

(x) There is no requirement under the SGST Act that purchased goods must necessarily be first brought to the business premises and thereafter transported to the warehouse. Such practice is time saving, commercially expedient as warehouse has sophisticated infrastructure to store mentha oil, saves money and quality of mentha oil.

(xi) Adverse inference cannot be drawn if the business premises is found closed during inspection and the registered person cannot be treated as bogus on the said ground.”

16. The Appellate Authority, on the basis of aforesaid reasoning/findings, decided the appeal with the findings that before blocking the credit, there was no ‘reason to believe’ with respondent no.5 that the credit available in the ledger was fraudulently availed or was ineligible. The appeal was allowed and the directions were issued for unblocking of credit of ₹ 47,71,007/- of SGST & CGST. However, the order was rectified under Section 161 on the same day i.e. 10.3.2021, wherein the amount of credit was corrected. Although the first appellate order dated 10.3.2021 is an appealable order and the appeal lies against the same before the Appellate Tribunal under Section 112 of the SGST Act but for the reason best known to the respondents, they have not preferred any appeal against the same. Inspite of repeated requests made by the petitioner-company the respondent no.5 had not complied with the directions of the Appellate Authority. Meanwhile, the respondent no.4/Additional Commissioner, Grade-I, Commercial Tax, Moradabad vide letter dated 16.3.2021 informed to the respondent no.3/Commissioner, Commercial Tax, U.P. Lucknow that the order dated 10.3.2021 passed by the Appellate Authority is legally and factually erroneous and as such, the same is required to be revised in the interest of the revenue. The respondent no.4 also requested the respondent no.3 to stay the effect and operation of the order dated 10.3.2021.

17. In this backdrop, Shri Navin Sinha, learned Senior Advocate appearing for the petitioner submitted that the respondent no.3, in most arbitrary manner and without application of mind, has passed the impugned order dated 26.3.2021 in complete violation of principles of natural justice. More so, the jurisdiction under Section 108 of the SGST Act can be exercised by the revisional authority on his own motion and upon information received by him or on request of Commissioner of Central Tax, if he considers that any decision or order passed by any officer subordinate to him is erroneous insofar as it is prejudicial to the interest of revenue and illegal or improper or has not taken into account any material facts, he may stay the operation of such decision or order and after giving the person concerned an opportunity of being heard, pass such order, as he thinks just and proper including enhancing or modifying or annulling the decision or order. He submitted that sub-section (2) of Section 108 of SGST Act prohibits exercise of powers under sub-section (1) with an exception contained in the proviso. Sub-section (2) prohibits exercise of revisional powers, if (a) the order has been subjected to an appeal under Section 107 or Section 112 or Section 117 or Section 118; or (b) the period specified under sub-section (2) of Section 107 has not yet expired or more than three years have expired after the passing of the decision or order sought to be revised; or (c) the order has already been taken for revision under this Section at an earlier stage; or (d) the order has been passed in exercise of the powers under sub-section (1). The proviso carves out an exception and provides that the revisional authority may pass an order on any point which has not been raised and decided in an appeal referred to in clause (a) of sub-section (2), before the expiry of period of one year from the date of order in such appeal or before the expiry of period of three years, whichever is later.

18. Shri Sinha would argue that once the word ‘order’ used in clause (a) refers to ‘adjudication order’ then such order can be passed by ‘Adjudicating Authority’. Thus, the order passed in appeal by the Appellate Authority is not an ‘Adjudication Order’ and consequently, the same cannot be revised, in view of specific bar under clause (a) of sub-section (2) of Section 108 of SGST Act. It is submitted that under sub-sections (3) and (4) of Section 112 of SGST Act, the Commissioner may call for and examine the record of any appellate authority and may direct any officer subordinate to him to apply to the Appellate Tribunal for determination of such points as may be specified by the Commissioner. In terms of sub-section (4) if the authorised officer makes such application, then such application shall be treated as an appeal against the order passed by the Appellate Authority. Once there is a remedy of appeal provided under the statute against the order under Section 107 then Section 108 cannot be interpreted in a manner so as to confer power of revision against the same order. In this regard, he has placed reliance on the judgment of Supreme Court in Anwar Hasan Khan vs. Mohd. Shafi (2001) 8 SCC 540, wherein, it was held that statute should be read as a whole and one provision should be read with another provision to make the provision consistent with the object sought to be achieved. The revisional powers can be exercised in respect of orders passed by authorities lower to appellate authority, whereas the order passed in appeal under Section 107 of SGST Act can be challenged before the Appellate Tribunal under Section 112 of SGST Act.

19. Shri Sinha pointed out that the revisional authority has exercised powers under Section 108 (1) and sought to revise the order dated 10.3.2021 passed by the Appellate Authority without calling for and examining the record of Appeal No.GST-95/2020 Year 2019-20. The respondent no.3 had not called for and examined the record of the aforesaid appeal as well as order dated 10.3.2021. The jurisdiction under Section 108 can be exercised only if the twin conditions specified in sub-section (1) of Section 108 are satisfied. The words ‘erroneous insofar as it is prejudicial to revenue’ have been used in other statutes like Income Tax Act, 1961 and the same has been considered by the Supreme Court in Malabar Industrial Co. Ltd. vs. CIT (2000) 2 SCC 718, wherein it has been held that twin conditions are required to be satisfied i.e. (i) the order sought to be revised must be erroneous; & (ii) it is prejudicial to the interest of revenue. It is submitted that the impugned order does not record any finding to the effect that the order dated 10.3.2021 passed by the Appellate Authority is erroneous insofar as it is prejudicial to the interest of revenue. On the contrary, in the impugned order the respondent no.3 has only observed that prima facie, there is reason to believe that the order dated 10.3.2021 is improper and prejudiced to the interest of revenue. In absence of any finding to the effect, that the order dated 10.3.2021 is erroneous, the exercise of powers under Section 108 by the respondent no.3 is wholly without jurisdiction. The defect in the said order while invoking revisional powers under Section 108 cannot be cured at a later stage, inasmuch as Section 108 can be invoked only if the circumstances specified in Section 108 exist and once it is invoked, the respondent no.3 is free to pass such order as he thinks just and proper and thus the impugned order suffers from inherent lack of jurisdiction.

20. Shri Sinha further pointed out that every loss of the revenue as a consequence of an order of Assessing Officer cannot be treated as prejudicial to the interest of revenue. An order can be erroneous only when it is based on incorrect assumption of facts and incorrect assumption of law or without applying principles of natural justice or without applying mind. In the present case the Appellate Authority has concluded that there were no reasons to believe with respondent no.5 that credit was fraudulently availed or ineligible. This conclusion is based on findings recorded in the order dated 10.3.2021 to the effect that the reasons to believe must exist for exercise of power under Rule 86-A. Moreover, the order dated 23.7.2020 does not disclose any reasons to believe; before examining documents furnished by the petitioner company, credit was blocked in a routine manner without application of independent mind and statement of third person cannot be relied upon without granting opportunity of cross-examination. The order dated 10.3.2021 passed by the Appellate Authority is neither based on incorrect assumption of facts or law, inasmuch as the entire material facts and relevant law in relation to exercise of power under rule 86A by the respondent no.5 have been considered by the Appellate Authority and adequate opportunities were given to respondent no.5 alongwith senior officers including respondent no.4 to justify his action under Rule 86-A. The observation, that the order dated 10.3.2021 is prejudiced to revenue, is also irrelevant, inasmuch as the requirement of Statute is ‘prejudicial to the interest of revenue’ and not ‘prejudiced to the interest of revenue’. He has placed reliance on the judgments in Malabar Industrial Co. Ltd. vs. CIT (2000) 2 SCC 718 and CIT v. Max India Ltd. (2007) 15 SCC 401, in which it was held by the Apex Court that if the Appellate Authority has taken a view to which the respondent no.3 does not agree, the same does not make the order dated 10.3.2021 prejudicial to the interest of revenue unless the order dated 10.3.2021 is, otherwise, sustainable in law.

21. Shri Sinha would argue that in the present case, there is no finding as to show that the order dated 10.3.2021 is unsustainable in law and therefore, the observation of respondent no.3 regarding ‘prejudiced to the interest of revenue’ is wholly misplaced. The impugned order, being a quasi-judicial order, affects the rights of the petitioner, and it could not be passed on the prima facie opinion. After conducting due enquiry once the Appellate Authority has passed a detailed and reasoned order then the respondent no.3 cannot assume jurisdiction to revise such order simply on the ground that the revenue is not happy with the order and under the garb of revision, the respondent no.3 cannot be allowed to conduct a fishing and roving enquiry in the matter. In this regard, he has placed reliance on the judgments in Paul Mathew & Sons v. CIT 263 ITR 101 (Ker.), CIT v. Gabriel India Ltd 203 ITR (Bom.); CIT v. Arvind Jewellers 259 ITR 502 (Guj.); Sun Beam Auto Limited (2009) TOIL-552-HC-Del-IT , CIT v. Ratlam Coal Ash Co. 171 ITR 141 (MP), CIT v. Ganpat Ram Bishnoi 152 Taxman (2008) 296 ITR 0292, CIT v. Mehrotra Brothers 270 ITR 157 (MP) and CIT v. Associated Food Products (P) Ltd. 280 ITR 377 (MP).

22. He further submitted that the respondent no.3 has neither served any notice nor granted opportunity of hearing to the petitioner before passing the order impugned. Rule 86A could not have been invoked by the respondents during the investigation or inquiry. Rule 86A has prescribed a mandatory procedure to be followed for the purpose of invoking the same. The Rule provides for “reasons to be recorded in writing” for blocking or not allowing the utilization of the ITC. It is argued that the procedure, as prescribed under Rule 86A of the rules, requires two conditions to be satisfied; namely, recording of the reasons in writing by the officer ordering blocking of the ITC and secondly, communication of such reasons to the affected person. It is argued that the bare minimal requirement of the principles of natural justice is recording of reasons and communicating such reasons to the affected party. The impugned action of the respondent no.3 clearly entails civil consequences inasmuch as input tax credit of the petitioner has been blocked. He has also placed reliance on the judgment in Sahara India (Firm) (1) v. CIT (2008) 14 SCC 151. He has also placed reliance on the RTI reply dated 28.7.2021 issued by the Deputy Commissioner (Administration) and Public Information Officer, Commercial Tax, Moradabad, wherein, it has been informed that the records of the Appellate Authority were neither called for by the office of respondent no.3 nor the same were ever dispatched by the office of the Appellate Authority to the office of the respondent no.3.

23. In such circumstances, referred to above, Shri Sinha prays that there being merit in the writ petition, the same be allowed and the reliefs prayed for in the writ petition may be granted.

24. Per contra, Shri B.K. Pandey, learned Additional Chief Standing Counsel appearing for the respondents has vehemently opposed the writ petition. Shri Pandey submitted that on the basis of Red Flag Data Analysis, Local Information and Reiki of this, it was found that in the business done by the petitioner company the actual value of the goods being displayed ‘exchange’ is not taking place. There was strong reason to believe that actual supply of goods by the merchant by creating a network can be obtained in large quantities without actual supply of goods. The search of the petitioner company was made on 13.9.2019, wherein, it was found that the company was not found doing business anywhere nor trading books of account were found at the site. From the initial analysis itself, it came to light that certain other firms are selling in huge quantities to the petitioner company. Six firms were also investigated on 22.10.2019 and out of these firms, M/s Jai Balaji Trading Company, Barabanki was not found in existence at its declared business place, whereas, supply of ₹ 248.85 crores has been made by the said firm to the petitioner firm. Upon making further investigation it was found that the owner of the said firm is residing in Delhi. On analysis of the information available online, it was found that the rules of SEBI and MCX have been violated and fraud has been done in the guise of online trading by the firm in question.

25. Shri Pandey argued that ITC has been used by showing the purchase of about ₹ 250 crores from non-existent firm M/s Jai Balaji Trading Company, whereas, it is clear from the money trail of the bank statement that only ₹ 5 crore has been paid against it. In this way, ITC has been obtained through bogus invoices. On analysis of bank account it was also found that the petitioner company paid a fixed amount of ₹ 22,500/- per month to the proprietor of M/s Jai Balaji Trading Company, Barabanki. From the money trail of the petitioner’s bank statement it was revealed that huge money has been transacted with some suspicious names/firms but on perusal of returns, no purchase/sale was declared from these dealers and most of these firms have been paid a fixed amount every month. The fixed monthly payment to the aforesaid persons makes it clear that these persons are employees of the firm and are on the payrolls, in whose names the trading is done indirectly through MCX online. Moreover, it was also found that Mentha oil was bought and sold by these employees and some other proxy firms indirectly through funding on MCX. The billing to a non-existent firm opened in the name of any of its own employees/persons generated a huge amount of ITC by showing purchases from the same firm in its own name without making actual payment and receiving fake/bogus invoices.

26. It has been submitted that as per SEBI guidelines, only 40 metric tonnes of Mentha were allowed to be bought and sold to any individual in a month and 400 tonnes to a member of MCX. Due to this compulsion the stock positioning was done by the petitioner company by raising a group of persons on the platform of MCX at different time intervals and maximum stock of the future market, which led to a huge jump in the rates of Mentha oil. After initiation of the investigation against the trader in question, the rate of Mentha oil has not reached more than ₹ 1300 per kg. The physical delivery of the purchase and sale of online platforms by C Group firms has been shown to Mrs. Abhishek Agarwal, Neetu Gupta and Yash Gupta. In the GST tax regime, these firms are neither registered to act as agents nor are they registered to deal with Mentha oil. On the aforesaid basis, out of the amount available in the credit ledger of the petitioner company, SGST amounting to ₹ 4740767.00 and CGST amounting to ₹ 4771007.00 i.e. total ITC of ₹ 9511774.00 was blocked. As per arrangements made in the Circular dated 03.7.2020, the information regarding blocking of credit was duly sent to the petitioner company by e-mail, wherein the reasons for blocking the credit were mentioned. The said order was assailed by the petitioner company before the First Appellate Officer by preferring Appeal No.GST- 95/20/Year 2019-Appeal and the same was allowed by the First Appellate Officer. Against the aforesaid order, the Additional Commissioner Grade-1, Moradabad vide his letter dated 16.3.2021 moved an application for restoration. In compliance thereof, the Commissioner, Commercial Tax vide its order dated 26.3.2021 stayed the effect and operation of the order having found factual wrong and prejudicial to the interest of revenue.

27. Shri Pandey further argued that Section 49 (4) of CGST Act empowers the State Government to determine the conditions for the use of funds available in the credit ledger for payment of any output tax. Section 49 (4) provides that the amount available in the electronic credit ledger may be used for making any payment towards output tax under this Act or under the Integrated Goods and Services Tax Act in such manner and subject to such conditions and within such time, as may be prescribed. Section 16 of the Act determines the eligibility and conditions for claiming input credit and empowers the Government to impose conditions and restrictions through rules. Section 16 (2) of the Act prescribes the entitlement of input credit. It is clear from Section 16 (2) (b) of the Act that there is no entitlement of input credit without receipt of goods or services. In view of the increasing cases of loss to the exchequer through bogus ITC claims on the basis of bogus forms, it was recommended by the GST Council to bring Rule 86A of GST Rules. There is no provision in Rule 86-A to provide an opportunity of being heard before blocking the credit. The restrictions prescribed by Rule-86A are for a limited period and are not in any way contrary to Section 73/74 or any other provisions of the Act. In fact, the ban was imposed for a limited period under Rule 86A. With regard to credit, proceedings are done naturally in due course and there is a legal arrangement to provide proper opportunity of being heard to the registered person concerned at the time of proceeding under Section 73/74. In the investigation, it was found that only paper invoice has been received by the petitioner without receiving the goods. Rule 86A (1) empowers the Commissioner, Commercial Tax, U.P. to authorize the officer subordinate to him to take action under Rule 86A. The Commissioner, Commercial Tax, Uttar Pradesh as the revisional authority vide Circular dated 24.12.2019 has the right to review the decision or order passed under the Act on the grounds mentioned in Section 108 (1). In support of his submission, he has placed reliance on the judgment of Supreme Court in Osram Surya Pvt. Ltd vs. Commissioner of Central Excise, Indore (2002) 9 SCC 20, wherein it was held that a rule fixing time limit for exercise of a right does not take away any vested right. He has also placed reliance on the judgment in ALD Automative (P) Ltd. vs. CTO (2019) 13 SCC 225; in which it was held that input credit is in the nature of benefit/concession extended to the dealer under the statutory scheme. The concession can be received by the beneficiary only as per the scheme of the Statute. The same view has been reiterated by the Supreme Court in Jayam & Co. v. Commr. (2016) 15 SCC 125.

28. Shri Pandey argued that the newly inserted Rule 86A (w.e.f. 26.12.2019) confers power upon the authority concerned to block the ITC, if it is prima facie found that the transactions are fraudulent. He submitted that over a period of time the Government has unearthed many cases of fake input tax credit due to issuance of fake invoices, issuance of invoices without supply and other fraudulent activities which has led to decline in the revenue’s exchequer. According to Shri Pandey, to meet with such situations, the Central Government introduced the concept of blocking of input tax credit by way of Rule 86A of the CGST Rules, 2017. In other words, according to Shri Pandey, the object behind the introduction of Rule 86A of the Rules is to curb such fraudulent activities. The supplier of the petitioner company has neither done business from any of his declared place of business nor books of account have been kept at any declared place of business. Therefore, there is sufficient ground to believe that no goods have actually been received by the petitioner company from its supplier M/s Jai Balaji Trading Company Barabanki and only invoices have been received. As per provisions contained in Section 16 (2) (b) the petitioner is not eligible to claim input credit on the basis of the invoices received by the petitioner company. The action in respect of bogus invoices received before implementation of Rule 86A is completely in accordance with the law. The notice has been issued to the petitioner company on 07.5.2021 to appear in the office of Commissioner, Commercial Tax, U.P. on 02.6.2021 for hearing. The order passed by the Appellate Authority under Section 108 of UPGST Act is in consonance with the order of the revisional authority passed by the Appellate Tribunal under Section 113 and the order passed by the High court under Section 117 as well as the order of Hon’ble Apex Court under Section 118. The stay order has been passed by the revisional authority under Section 108 (1) of UPGST.

29. In such circumstances, referred to above, Shri Pandey prays that the present writ petition does not merit any consideration and the same be dismissed.

30. Having heard the learned counsel appearing for the parties and having gone through the materials available on record, the question that falls for consideration is whether pending inquiry or investigation into the allegations of fraudulent transactions with respect to fake/bogus invoices for the purpose of availing the ITC, the respondents could have blocked/debited the input tax credit in the electronic credit ledger of the petitioner company by virtue of the power under Rule 86A of the SGST Rules, which came into force vide Notification dated 05.2.2020 and further the revisional authority has rightly invoked/exercised power under Section 108 and sought to revise order passed by the Appellate Authority without adhering the procedure and especially without calling for and examining the record of the Appeal No.GST-95/2020 Year 2019.

31. Before adverting to the rival submissions made on either side, the Court may first look into the provisions of Rule 86A of the Rules. Rule 86A reads thus;

“86A. Conditions of use of amount available in electronic credit ledger.-

(1) The Commissioner or an officer authorised by him in this behalf, not below the rank of an Assistant Commissioner, having reasons to believe that credit of input tax available in the electronic credit ledger has been fraudulently availed or is ineligible in as much asa) the credit of input tax has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36-

i. issued by a registered person who has been found non- existent or not to be conducting any business from any place for which registration has been obtained; or

ii. without receipt of goods or services or both; or

b) the credit of input tax has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36 in respect of any supply, the tax charged in respect of which has not been paid to the Government; or

c) the registered person availing the credit of input tax has been found nonexistent or not to be conducting any business from any place for which registration has been obtained; or

d) the registered person availing any credit of input tax is not in possession of a tax invoice or debit note or any other document prescribed under rule 36,

may, for reasons to be recorded in writing, not allow debit of an amount equivalent to such credit in electronic credit ledger for discharge of any liability under section 49 or for claim of any refund of any unutilised amount.

(2) The Commissioner, or the officer authorised by him under sub-rule (1) may, upon being satisfied that conditions for disallowing debit of electronic credit ledger as above, no longer exist, allow such debit.

(3) Such restriction shall cease to have effect after the expiry of a period of one year from the date of imposing such restriction.”.

32. Having referred to Rule 86A above, the Court may now look into Sections 16 and 108 (1) and (2) of the CGST Act. The same read thus;

“Section 16 – Eligibility and conditions for taking input tax credit

(1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,–

(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;

(b) he has received the goods or services or both.

Explanation.–For the purposes of this clause, it shall be deemed that the registered person has received the goods or, as the case may be, services-

(i) where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;

(ii) where the services are provided by the supplier to any person on the direction of and on account of such registered person.;

(c) subject to the provisions of section 41 or section 43A, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and

(d) he has furnished the return under section 39:

Provided that where the goods against an invoice are received in lots or installments, the registered person shall be entitled to take credit upon receipt of the last lot or installment:

Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed:

Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon.

(3) Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income-tax Act, 1961, the input tax credit on the said tax component shall not be allowed.

(4) A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier.

Provided that the registered person shall be entitled to take input tax credit after the due date of furnishing of the return under section 39 for the month of September, 2018 till the due date of furnishing of the return under the said section for the month of March, 2019 in respect of any invoice or invoice relating to such debit note for supply of goods or services or both made during the financial year 2017-18, the details of which have been uploaded by the supplier under sub-section (1) of section 37 till the due date for furnishing the details under sub- section (1) of said section for the month of March, 2019.

Section 108 – Powers of Revisional Authority –

(1) Subject to the provisions of section 121 and any rules made thereunder, the Revisional Authority may, on his own motion, or upon information received by him or on request from the Commissioner of central tax, call for and examine the record of any proceedings, and if he considers that any decision or order passed under this Act or under the central Goods and Services Tax Act, 2017 by any officer subordinate to him is erroneous in so far as it is prejudicial to the interest of revenue and is illegal or improper or has not taken into account certain material facts, whether available at the time of issuance of the said order or not or in consequence of an observation by the Comptroller and Auditor General of India, he may, if necessary, stay the operation of such decision or order for such period as he deems fit and after giving the person concerned an opportunity of being heard and after making such further inquiry as may be necessary, pass such order, as he thinks just and proper, including enhancing or modifying or annulling the said decision or order.

(2) The Revisional Authority shall not exercise any power under subsection (1), if (a) the order has been subject to an appeal under section 107 or section 112 or section 117 or section 118; or (b) the period specified under sub-section (2) of section 107 has not yet expired or more than three years have expired after the passing of the decision or order sought to be revised; or (c) the order has already been taken for revision under this section at an earlier stage; or (d) the order has been passed in exercise of the powers under sub-section (1):

Provided that the Revisional Authority may pass an order under sub-section (1) on any point which has not been raised and decided in an appeal referred to in clause (a) of sub-section (2), before the expiry of a period of one year from the date of the order in such appeal or before the expiry of a period of three years referred to in clause (b) of that sub-section, whichever is later.”

33. Rule 86A 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. The Constitutional validity of Rule 86A of the Rules is not under challenge in the present case and the Court does not intend to test its validity in the absence of any specific challenge to the same. In such circumstances, the Court would confine its adjudication in the present litigation only to the question, whether the respondents could be said to be justified in invoking Rule 86A of the Rules for the purpose of blocking the input tax credit of the petitioner company pending the inquiry as regards the fraudulent transactions.

34. The Rule 86A is in respect of the power and procedure for blocking the input tax credit (ITC) in the electronic credit ledger of a registered person. A bare reading of Section 86A indicates that the Commissioner or an officer authorised by him in this behalf, not below the rank of an Assistant Commissioner, having reasons to believe that credit of input tax available in the electronic credit ledger has been fraudulently availed or is ineligible, may, for reasons to be recorded in writing, not allow debit of an amount equivalent to such credit in electronic credit ledger for discharge of any liability under section 49 or for claim of any refund of any unutilised amount. The invocation of Rule 86A of the Rules for the purpose of blocking the input tax credit may be justified, if the concerned authority or any other authority, empowered in law, is of the prima facie opinion based on some cogent materials that the ITC is sought to be availed based on fraudulent transactions like fake/bogus invoices etc. However, the subjective satisfaction should be based on some credible materials or information and also should be supported by supervening factor. It is not any and every material, howsoever vague and indefinite or distant remote or far-fetching, which would warrant the formation of the belief. The power conferred upon the authority under Rule 86A of the Rules for blocking the ITC could be termed as a very drastic and farreaching power. Such power should be used sparingly and only on subjective weighty grounds and reasons. The power under Rule 86A of the Rules should neither be used as a tool to harass the assessee nor should it be used in a manner, which may have an irreversible detrimental effect on the business of the assessee. The aspect of availing the credit and utilization of credit are two different stages. The utilization of credit is a vested right. No vested right accrues before taking credit. There needs to be some guidelines or procedure for the purpose of invoking Rule 86A of the Rules. In the absence of the same, Rule 86A could be misused and may have an irreversible and detrimental effect on the business of the person concerned.

35. The jurisdiction under Section 108 of the SGST Act can be exercised by the revisional authority on his own motion and upon information received by him or on request of Commissioner of Central Tax, if he considers that any decision or order passed by any officer subordinate to him is erroneous insofar as it is prejudicial to the interest of revenue and illegal or improper or has not taken into account any material facts, he may stay the operation of such decision or order and after giving the person concerned an opportunity of being heard, pass such order, as he thinks just and proper including enhancing or modifying or annulling the decision or order. In the present matter, admittedly the respondent no.3 has neither served any notice nor granted opportunity of hearing to the petitioner before passing the impugned order.

36. The pre-conditions to the exercise of this powers were two folds, namely, error in the order passed by an officer subordinate to the revisional authority and prejudicial to the interest of revenue. Once these two conditions stood fulfilled, the revisional authority was authorized to give an opportunity to the assessee of being heard and after making such inquiry as he thought fit he could pass appropriate orders as the circumstances of the case would justify. This power was essentially a supervisory power. However, in order to ascertain whether the officer subordinate to him had passed an erroneous order, which was also prejudicial to revenue, the Commissioner was required to call for and examine the record of such proceedings. Therefore, the revisional authority had to call for the records, he had to examine such records, he had to be satisfied regarding fulfilment of the above two conditions and thereafter give opportunity to the assessee of being heard and on making appropriate inquiry the revisional authority is empowered to pass appropriate orders.

37. In Eicher Motors Ltd. vs. Union of India 1999 (106) ELT 3 (SC ), the validity and application of the scheme as modified by introduction to Rule 57F (read as 57F (4-A) of the Central Excise Rules, 1944 under which the credit which was lying unutilised on 16th March, 1995 with the manufacturers, stood lapsed in the manner set out therein, was questioned. Paras 4 and 5 of the judgment are quoted hereinafter:-

“4…….As pointed out by us that when on the strength of the rules available certain acts have been done by the parties concerned, incidents following thereto must take place in accordance with the scheme under which the duty had been paid on the manufactured products and if such a situation is sought to be altered, necessarily it follows that right, which had accrued to a party such as availability of a scheme, is affected and, in particular, it loses sight of the fact that provision for facility of credit is as good as tax paid till tax is adjusted on future goods on the basis of the several commitments which would have been made by the assessees concerned. Therefore, the scheme sought to be introduced cannot be made applicable to the goods which had already come into existence in respect of which the earlier scheme was applied under which the assessees had availed of the credit facility for payment of taxes. It is on the earlier scheme necessarily the taxes have to be adjusted and payment made complete. Any manner or mode of application of the said rule would result in affecting the rights of the assessees.

5. We may look at the matter from another angle. If on the inputs the assessee had already paid the taxes on the basis that when the goods are utilised in the manufacture of further products as inputs thereto then the tax on these goods gets adjusted which are finished subsequently. Thus, a right accrued to the assessee on the date when they paid the tax on the raw materials or the inputs and that right would continue until the facility available thereto gets worked out or until those goods existed. Therefore, it becomes clear that Section 37 of the Act does not enable the authorities concerned to make a rule which is impugned herein and, therefore, we may have no hesitation to hold that the rule cannot be applied to the goods manufactured prior to 16.3.1995 on which duty had been paid and credit facility thereto has been availed of for the purpose of manufacture of further goods.”

38. As significant reliance has been placed on Eicher Motors Ltd. (supra), the Court may also look into the decision of the Supreme Court in the case of C.C.E vs. Dai Ichi Karkaria Ltd. 1999 (112) ELT 353 (SC). In the said case, the manufacturers purchased raw material and used the same in the manufacture of an intermediate product and, in turn, used the intermediate product in the manufacture of the final product. The raw material and the intermediate product were liable to excise duty and they were specified goods for the purposes of the Modvat Scheme. The assessable value of the intermediate product for the purposes of excise duty in the instant case was admittedly to be determined on the basis of its cost which necessitated the taking into account of the cost of the raw material. The Revenue contended that the excise duty paid by the seller on the raw material was also to be included in the cost of the excisable goods (the intermediate product) in this case. On the other hand, the manufacturers contended otherwise. The Supreme Court rejected the contentions of the Revenue and held in Paras-18 and 19 as under;

“18. It is clear from these rules, as we read them, that a manufacturer obtains credit for the excise duty paid on raw material to be used by him in the production of an excisable product immediately it makes the requisite declaration and obtains an acknowledgment thereof. It is entitled to use the credit at any time thereafter when making payment of excise duty on the excisable product. There is no provisions in the rules which provides for a reversal of the credit by the Excise Authorities except where it has been illegally or irregularly taken, in which event it stands cancelled or, if utilised, has to be paid for. We are here really concerned with credit that has been vaildly taken, and its benefit is available to the manufacturer without any limitation in time or otherwise unless the manufacturer itself chooses not to use the raw material in its excisable product. The credit is, therefore, indefeasible. It should also be noted that there is no correlation of the raw material and the final product; that is to say, it is not as if credit can be taken only on a final product that is manufactured out of the particular raw material to which the credit is related. The credit may be taken against the excise duty on a final product manufactured on the very day that it becomes available.

19. It is, therefore, that in the case of Eicher Motors Ltd. v. Union of India, this Court said that a credit under the Modvat Scheme was “as good as tax paid.”

39. With the above principles, it is the claim of the petitioner company that Rule 86A of the Rules extinguishes a vested right which the petitioner had for claiming credit of duty paid on inputs.

40. In the case in hand, Shri Pandey, appearing for the respondents submitted that there is no such requirement that a specific order should be passed assigning, prima facie, reasons to block the input tax credit and communicate the same to the person concerned. Shri Pandey would submit that ordinarily, the reasons are found in the form of notings in the original file, on the basis of which, the Court may be in a position to ascertain the genuineness of the belief formed by the authority. The formation of the opinion by the authority undoubtedly should reflect intense application of mind with reference to the materials available on record that it had become necessary to order blocking of the input tax credit pending the inquiry. (See Bhikhubhai Vithlabhai Patel & Ors. vs. State of Gujarat AIR 2008 SCC 1771).

41. On 12.5.2021, learned counsel appearing for the respondents was asked to get instructions on certain aspects. For ready reference, order passed by this Court on 12.5.2021 is reproduced below:

“Mr. Nimai Das, learned Additional Chief Standing Counsel is granted a week’s time to seek instruction in the matter.

It is argued by Mr. Navin Sinha, learned Senior Advocate assisted by Mr. Nishant Mishra, learned counsel for the petitioner that operation of the appellate order, by which the Adjudicating Authority’s order locking the Input Tax Credit had been reversed, has now been stayed. The submission is that the Revisional Authority has passed the order impugned without application of mind, merely paraphrasing the words of the statute with no reference to the facts of the case, or other material on record to reach his conclusion in favour of passing an interim order of stay.

The State shall clarify in its instruction the aforesaid fallacy urged on behalf of the petitioner.

Lay this matter as fresh again on 20.05.2021 before the appropriate Bench.”

42. Thereafter, the matter was taken up on 20.5.2021 and on the said date, the Court had proceeded to pass following order:-

“In response to the aforesaid order, Shri Nimai Das, learned Addl. Chief Standing Counsel assisted by Shri Devesh Vikram, learned Standing Counsel, on the basis of instructions, has informed the Court that 2.6.2021 is the next date fixed in the revision in question for final disposal of the matter.

Put up this matter as fresh.”

43. Again the matter was taken up on 16.7.2021 and learned Additional Chief Standing Counsel was directed to produce the entire original records. In compliance thereof, the original record was produced by Shri Jagidsh Mishra, learned Standing Counsel before this Court on 26.7.2021 and the same was taken on record.

44. Perusal of original record reflects that the Joint Commissioner (GST), Commercial Tax Headquarters, U.P. Lucknow forwarded the matter to Additional Commissioner (G.S.T.) with specific noting dated 24.3.2021, wherein in paragraph-5, he has also suggested two options namely (i) either to prefer a writ petition before this Court for stay or (ii) exercise powers under Section 108 of UPSGST Act and stay the execution of the Appellate Order till the revision is decided. The noting is reproduced herein below:-

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