# M/s RM Dairy Products LLP, Sultanganj, Agra v. State of U.P. & Ors

- **Citation:** (2021) 8 ILRA 46
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2021-07-15
- **Case number:** Writ Tax No. 434 of 2021
- **Bench:** Naheed Ara Moonis, Saumitra Dayal Singh
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/m-s-rm-dairy-products-llp-sultanganj-agra-v-state-of-u-p-ors-47229
- **Pages:** 6

## Headnote

Service Tax Rules, 2017 - Rule 86A - The
Rule does not contemplate any recovery of tax
due from an assessee. It only provides, in
certain situations and upon certain conditions
8 All. M/s RM Dairy Products LLP, Sultanganj, Agra Vs. State of U.P. & Ors.
47
being fulfilled, specified amount may be held
back and be not allowed to be utilized by the
assessee towards discharge of its liabilities on
the outward tax or towards refund. It creates a
lien without actual recovery being made or
attempted. For a valid exercise of power the
authorized officer must have reason to believe
that any credit of input tax available had been
fraudulently availed or the assessee was not
eligible to avail the same. The Rule only enables
the authorized officer to not allow debit of an
amount equivalent to 'such credit'. (Para 12-16,
22)

In the present case, the competent authority
has 'reason to believe' based on material
indicating non-existence of the selling dealer. It
is thus alleged that the petitioner was not
eligible to avail input tax credit as the seller M/s
Darsh Dairy Food Products, Agra was a nonexistent dealer.(Para 17)

Writ Petition Rejected.(E-8)

## Text

46 INDIAN LAW REPORTS ALLAHABAD SERIES

"13.
The
aforesaid
features
equally apply to the contentions urged on
behalf of the claimants as regards the rate
of interest. The Tribunal had awarded
interest at the rate of 12% p.a. but the same
had been too high a rate in comparison to
what is ordinarily envisaged in these
matters. The High Court, after making a
substantial enhancement in the award
amount, modified the interest component at
a reasonable rate of 7.5% p.a. and we find
no reason to allow the interest in this
matter at any rate higher than that allowed
by High Court."

15. No other grounds are urged orally
when the matter was heard.

16. In view of the above, the appeal is
partly allowed. Judgment and award passed
by the Tribunal shall stand modified to the
aforesaid extent. The respondent-Insurance
Company shall deposit the amount within a
period of 12 weeks from today with interest
at the rate of 7.5% from the date of filing of
the claim petition till the amount is
deposited. The amount already deposited be
deducted from the amount to be deposited.

17. In view of the ratio laid down by
Hon'ble Gujarat High Court, in the case of
Smt. Hansagori P. Ladhani v/s The
Oriental
Insurance
Company
Ltd.,
reported in 2007(2) GLH 291 and this
High Court in , total amount of interest,
accrued on the principal amount of
compensation is to be apportioned on
financial year to financial year basis and if
the interest payable to claimant for any
financial
year
exceeds
Rs.50,000/-,
insurance company/owner is/are entitled to
deduct appropriate amount under the head
of 'Tax Deducted at Source' as provided u/s
194A (3) (ix) of the Income Tax Act, 1961
and if the amount of interest does not
exceeds Rs.50,000/- in any financial year,
registry of this Tribunal is directed to allow
the claimant to withdraw the amount
without producing the certificate from the
concerned Income- Tax Authority. The
aforesaid view has been reiterated by this
High Court in Review Application No.1 of
2020 in First Appeal From Order No.23 of
2001 (Smt. Sudesna and others Vs. Hari
Singh and another) and in First Appeal
From Order No.2871 of 2016 (Tej Kumari
Sharma v. Chola Mandlam M.S. General
Insurance Co. Ltd.) decided on 19.3.2021
while disbursing the amount.

18. This Court is thankful to both the
learned Advocates for getting this matter
disposed of during this pandemic.
----------
(2021)08ILR A46
ORIGINAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 15.07.2021

BEFORE

THE HON'BLE NAHEED ARA MOONIS, J.
THE HON'BLE SAUMITRA DAYAL SINGH, J.

Writ Tax No. 434 of 2021

M/s RM Dairy Products LLP, Sultanganj,
Agra ...Petitioner
Versus
State of U.P. & Ors. ...Respondents

Counsel for the Petitioner:
Sri Nishant Mishra, Ms. Yashonidhi Shukla

Counsel for the Respondents:
C.S.C., A.S.G.I., Sri Manu Ghildyal, Sri
Ashok Singh

A. Tax - The State/Central Goods and
Service Tax Rules, 2017 - Rule 86A - The
Rule does not contemplate any recovery of tax
due from an assessee. It only provides, in
certain situations and upon certain conditions
8 All. M/s RM Dairy Products LLP, Sultanganj, Agra Vs. State of U.P. & Ors.
47
being fulfilled, specified amount may be held
back and be not allowed to be utilized by the
assessee towards discharge of its liabilities on
the outward tax or towards refund. It creates a
lien without actual recovery being made or
attempted. For a valid exercise of power the
authorized officer must have reason to believe
that any credit of input tax available had been
fraudulently availed or the assessee was not
eligible to avail the same. The Rule only enables
the authorized officer to not allow debit of an
amount equivalent to 'such credit'. (Para 12-16,
22)

In the present case, the competent authority
has 'reason to believe' based on material
indicating non-existence of the selling dealer. It
is thus alleged that the petitioner was not
eligible to avail input tax credit as the seller M/s
Darsh Dairy Food Products, Agra was a nonexistent dealer.(Para 17)

Writ Petition Rejected.(E-8)

(Delivered by Hon'ble Naheed Ara Moonis, J.
&
Hon'ble Saumitra Dayal Singh, J. )

1. Heard Mr. Nishant Mishra along
with Ms. Yashonidhi Shukla, learned
counsel for the petitioner, Mr. Manu
Ghildyal, learned counsel representing
respondent nos. 1 to 3 and Mr. Ashok
Singh, learned counsel for respondent no.4.

2. The present writ petition has been
filed against the order dated 25.06.2021
passed by respondent no.3 under Rule
86A(1)(a)(i) of the State/Central Goods and
Services Tax Rules, 2017 (hereinafter
referred as the "Rules").

3. Four fold submissions have been
advanced by learned counsel for the
petitioner. First, relying on Rule 86A (1) of
the Rules, it has been submitted that the
respondents had no jurisdiction or authority
to block any input tax credit over and
above any amount that may have been
actually available on the date of the order
(in this case 25.6.2021).

4. Second, it has been submitted that
Rule 86A of the Rules obliges the
respondents to record a positive 'reason to
believe' that credit of input tax had been
fraudulently availed by the petitioner or the
petitioner was wholly ineligible to avail the
same. Inasmuch as the petitioner had not
committed any fraud and it was otherwise
eligible to avail the input tax credit, the
action taken by the respondents is wholly
without jurisdiction.

5. Third, it has been submitted that
the input tax credit in dispute arose on
account of the purchases made by the
petitioner from M/s Darsh Dairy & Food
Products, Agra with respect to which,
adjudication proceedings are underway
against the petitioner in accordance with
Section 74 of the UP GST Act, 2017
(hereinafter referred to as the Act). Till
those proceedings are concluded, no
amount would become recoverable from
the petitioner and, therefore, the impugned
order passed by respondent no.3 under Rule
86A is wholly premature. In that context, it
has also been submitted that Section 78 of
the Act provides the manner and mode of
recovery. An amount may be recovered
only after lapse of three months time from
the date of service of the adjudication
order. Since the adjudication proceedings
are still pending, it has been submitted, the
impugned order is wholly premature and
without basis.

6. Last, it has been submitted the Act
clearly provides for the manner in which an
amount may be determined to be due and
recoverable from the petitioner. No other
procedure may be adopted, as it would
48 INDIAN LAW REPORTS ALLAHABAD SERIES
violate the settled principle of law, if the
legislature requires an act to be done in a
particular manner, it must be done in that
manner or not at all.

7. The writ petition has been
vehemently opposed by learned counsel for
the revenue.

8. Having heard the learned counsel for
the parties and having perused the record,
plainly, there can be no dispute that the Act
prescribes the manner for determination of any
tax not paid or short paid. Section 74 of the Act
provides for determination of input tax credit
wrongly availed or utilized by reason of
fraudetc through the process of adjudication.
Section 78 of the Act further mandates that any
amount that may be determined under Section
74 of the Act may not be recovered for a period
of three months from the date of service of the
adjudication order.

9. Here, it may be seen that the recovery
provision are contained in Section 79 and the
enabling Rules. The recovery Rules fall under
Chapter XVIII of the State GST Rules 2017
being Rules 142 to 161. On the other hand,
Rule 86-A falls under the Chapter heading IX
of the Rules regarding payment of tax.

10. Besides the Chapter heading being
different, we may record that it is not that
difference that prevails in our mind. It is the
ambit and purpose of the Rule 86A that appears
to be inherently different and independent of the
recovery provisions. For that reason we are not
inclined to accept the contentions advanced by
the learned counsel for the petitioner.

11. Rule 86-A of the Rules reads as
below:

"86A. (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 as-

a) 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
8 All. M/s RM Dairy Products LLP, Sultanganj, Agra Vs. State of U.P. & Ors.
49
one year from the date of imposing such
restriction."

12. Plainly, the Rule does not
contemplate any recovery of tax due from an
assessee. It only provides, in certain
situations and upon certain conditions being
fulfilled, specified amount may be held back
and be not allowed to be utilized by the
assessee towards discharge of its liabilities on
the outward tax or towards refund. It creates a
lien without actual recovery being made or
attempted.

13. The words 'input tax available' used
in the first part of sub-rule (1) of Rule 86-A
cannot be read as actual input tax available on
the date of the order passed under that
Rule.Those words are relevant for the
purpose of laying down the first condition for
the exercise of power by the Commissioner
or the authorized officer. Thus, for a valid
exercise of power, the authorized officer must
have 'reasons to believe' that any credit of
'input tax available' (i.e. that was available in
the electronic credit ledger of an assessee)
had either been fraudulently availed or the
assessee was not eligible to avail the same.

14. The words 'input tax available'
have to be read only in the context of the
infringement being alleged by the revenue.
i.e. fraudulent availment or availment
dehors
eligibility
to
the
same.
Consequently, if an assessee is found to
have either fraudulently availed or to have
availed such 'input tax credit' that he was
ineligible to avail, he may expose himself
to action under the Rule, in future, when
such an event may come to the knowledge
of the authorized officer, subject of course
to the rule of limitation.

15. Thus the word 'available' used in
the first part of sub-Rules of Rule 86-A
would always relate back in time when the
assessee allegedly availed input tax credit
either fraudulently or which he was not
eligible to avail. It does not refer to and,
therefore, it does not relate to the input tax
credit available on the date of Rule 86-A
being invoked. The word "has been" used
in Rule 86-A (1) leave no manner of doubt
in that regard.

16. Prima facie, in the facts of the
present case, the revenue alleges fraudulent
utilization
of
input
tax
credit.Even
otherwise, what may fall within the ambit
of the word 'ineligible' has been clarified by
means of Rule 86-A (1)(a)(i) to include a
transaction performed with a registered
dealer who may be found to be non-existent
or to have not conducted any business etc.
Plain reading of the impugned order reveals
that it is the revenue's allegation that M/s
Darsh Dairy & Food Products, Agra
products was found to be non-existent at
the disclosed place of business.

17. The recital of that 'reason to
believe', is contained in the impugned
order. The correctness or otherwise or the
sufficiency of the 'reason to believe' is not
subject matter of dispute in the instant
proceedings. It is the relevancy of that
reason to believe with which we are in
agreement with Mr. Ghildiyal. Thus, at
present, the 'reason to believe' is based on
material with the competent authority
indicating non-existence of the selling
dealer. It is thus alleged the petitioner was
not eligible to avail input tax credit as the
seller M/s Darsh Dairy & Food Products,
Agra was a non-existent dealer.

18. In such facts, purely on a prima
facie basis and leaving it open to the
adjudicating authority to draw its own final
conclusion in that regard, for the purpose of
50 INDIAN LAW REPORTS ALLAHABAD SERIES
the present writ petition, it cannot be
denied that, at present, their exist 'reason to
believe' with the revenue authorities that
the assessee had fraudulently availed or
was ineligible to avail 'input tax credit' with
respect to which the impugned order has
been passed.

19. As to the third submission
advanced by learned counsel for the
petitioner, the provision of Rule 86-A is not
a recovery provision. In fact, it does not
allow the revenue to reverse or appropriate
any part of the credit existing in the
electronic credit ledger of an assessee or to
adjust that credit againstany outstanding
demand or likely demand. It is at most a
provision to secure the interest of revenue,
to be exercised in the presence of the
relevant 'reasons to believe', as recorded.

20. The Rule only enables the
authorized officer to not allow debit of an
amount equivalent to 'such credit'. The
submission of Shri Mishra that the words
'such credit' refers only to any existing
amount of positive credit in the electronic
credit ledger or that it must be credit arising
from the same seller, cannot be accepted as
that intent is clearly non-existing in the
Rule.

21. The operative portion of sub-rule
(1) of Rule 86-A limits the exercise of
power (by the authorized officer), to the
amount that would be sufficient to cover
the input tax that, according to the revenue,
had either been fraudulently availed or to
which the assessee was not eligible. It is an
amount equal to that amount which has to
be kept unutilised.

22. To that effect, the legislature has
chosen the words 'not allow debit'. To not
allow debit and to appropriate the same are
two different things in the context of the
Statute.
They
lead
to
different
consequences. While the first only creates a
lien in favour of the revenue by blocking
utilization of that amount, appropriation of
an amount would necessarily involve
transfer of title over the money with the
revenue. Plainly, the Rule does not
contemplate
or
speak
of
such
a
consequence.

23. Thus, if the petitioner was to earn
any further input tax credit in its electronic
credit
ledger
upto
the
tune
of
Rs.7,06,66,700.00/-, the same would be
retained by way of a lien in favour of the
revenue, so however, that the revenue may
not
appropriate
it
under
that
Rule.
Adjustment or appropriation may arise only
upon an adjudication order attaining
finality or after lapse of three months from
the date of it being passed if there is no stay
granted in appeal etc. that too as a
consequence of the recovery provisions but
not under Rule 86-A of the Rules.

24. Since, according to us, the
provision of Rule 86-A is not a recovery
provision but only a provision to secure the
interest of revenue and not a recovery
provision, to be exercised upon the
fulfillment of the conditions, as we have
discussed above, we are not inclined to
accept the further submission advanced by
the learned counsel for the petitioner that
there is any violation of the principle when
a legislative enactment requires an act to be
performed in a particular way it may be
done in that manner or not at all.

25. It also stands to reason, if there is
no positive credit standing in the electronic
credit ledger on the date of the order,
passed under Rule 86-A, that order would
be read to create a lien upto limit specified
8 All. M/s Jay Shree Industries Vs. Union of India & Anr.
51
in the order passed as per Rule 86-A of the
Rules. As and when the credit entries arise,
the lien would attach to those credit entries
upto the limit set by the order passed under
Rule 86-A of the Rules. The debit entry
recorded in the electronic credit ledger
would be read accordingly.

26. Therefore should the assessee earn
further credit of 'input tax' the revenue
would be entitled to a lien upto the limit of
Rs.7,06,66,700.00/-. However, the same
shall not be adjusted in favour of the
revenue except in accordance with law, as
discussed above. Any further credit that
may arise over and above that amount
would be allowed to be utilized without
objection by the revenue.

27. Writ petition is dismissed. No
order as to costs.
----------
(2021)08ILR A51
ORIGINAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 06.08.2021

BEFORE

THE HON'BLE NAHEED ARA MOONIS, J.
THE HON'BLE SAUMITRA DAYAL SINGH, J.

Writ Tax No. 832 of 2020

M/s Jay Shree Industries ...Petitioner
Versus
Union of India & Anr. ...Respondents

Counsel for the Petitioner:
Sri Vijay Kumar, Awadhesh Kumar Mishra

Counsel for the Respondents:
A.S.G.I., Sri Ramesh Chandra Shukla

A.
Sabka
Vishwas
(Legacy
Dispute
Resolution) Scheme, 2019 - Sections 125,
129
&
133
-
Words
&
Phrases
-
"redemption fine" - In absence of any
contrary statutory definition of the word
'penalty'
or
other
specific
exclusion
of
'redemption fine' from the consequences of
issuance
of
a
Discharge
Certificate,
undoubtedly, the word 'penalty' appearing in
section 129 of the Scheme includes, within its
ambit, both, a penalty in personam and a
penalty in rem. (Para 31)

Upon the petitioner being eligible under section
125 of the Scheme and upon payment of the
entire amount due under section 124 of the
Scheme and, in absence of any other objection
being raised by the revenue, entitles the
petitioner to receive Discharge Certificate. The
authorities requiring the petitioner to deposit
the 'redemption fine' as a pre-condition to issue
the Discharge Certificate is found to be wholly
contrary to the law. (Para 37 & 38)

Writ Petition Allowed. (E-8)

List of Cases cited:-

1. Workmen of Cochin Port Trust Vs Board of
Trustees of the Cochin Port Trust & anr. (1978)
3 SCC 119

2. Kunhayammed & ors. Vs St.of Kerala & Anr.
(2000) 6 SCC 359

3. Srish Chandra Sen & ors. Vs Commissioner of
Income Tax, West Bengal AIR 1961 SC 487

4. Sewpujanrai Indrasanarai Ltd. Vs Collector of
Customs & ors. AIR 1958 SC 845

5. Collector of Customs, Madras & ors. Vs D.
Bhoormaall (1974) 2 SCC 544

6. UOI & Anr. Vs Mustafa & Najbai Trading Co.
& ors. (1998) 6 SCC 79

7. R.E.M.S. Abdul Hameed Vs Govindaraju &
ors. (1999) 4 SCC 663

8. Commissioner of Income Tax (Central) Vs
B.N. Bhattacharjee & Anr. (1979) 4 SCC 121

(Delivered by Hon'ble Naheed Ara
Moonis, J. &
Hon'ble Saumitra Dayal Singh, J.)