In a significant decision, the Bombay High Court addressed a batch of writ petitions challenging departmental actions related to the blocking of Input Tax Credit (ITC) under the Central Goods and Services Tax (CGST) Act. The petitions also questioned the constitutional validity of Section 16(2)(c) of the CGST Act, which conditions ITC entitlement on actual tax payment by the supplier.
The petitioners contested the issuance of show cause and intimation notices by the department, which alleged that ITC was availed on the basis of bogus invoices or from unregistered suppliers, without actual movement of goods or services. The petitioners argued that such actions were arbitrary and imposed an undue burden on recipients, violating their constitutional rights under Articles 14, 19(1)(g), and 300A.
After hearing both sides, the Court observed that the CGST Act and its Rules form a comprehensive code governing departmental actions. The judges acknowledged that blocking ITC has serious consequences for registered persons and their business activities. However, the Court emphasized that each case must be examined individually to determine whether the department’s action is supported by tangible material and a rational basis. The Court made it clear that fraudulent or bogus ITC claims cannot be permitted under the statutory framework.
Regarding the challenge to the vires of Section 16(2)(c), the Court held that it would be premature to adjudicate the constitutional validity of the provision at the stage of show cause notice, before a final decision is made by the adjudicating authority. The Court directed that petitioners be allowed to file replies to the show cause notices within two weeks, and that the authorities must adjudicate the notices in accordance with law, considering all factual and legal contentions raised.
For cases where only pre-show cause intimation had been issued and objections already submitted, the Court directed the authorities to consider such objections expeditiously, grant a hearing, and decide within eight weeks whether to proceed with a show cause notice or drop the proceedings.
The Court expressly kept open all contentions of the parties, including the challenge to the vires of Section 16(2)(c), for consideration in appropriate future proceedings. The petitions were disposed of on these terms, with no order as to costs.
This decision underscores the necessity for the department to act on concrete evidence when blocking ITC and clarifies that constitutional challenges to statutory provisions should be addressed at the appropriate stage, not prematurely.
Case Reported at:
Case Name: Karan Agencies v. State of Maharashtra
Case Citation: (2026) taxcode.in 847 HC
