2026-VIL-1107-GUJ
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SGST High Court Cases

GST - Applicability of blocked credit under Section 17(5)(d) of CGST Act, 2017 to input tax credit availed on GST paid on acquisition of leasehold rights in an industrial plot allotted by GIDC - Petitioner availed input tax credit in its return, and reversed the entire credit along with interest through Form DRC-03 during inspection proceedings. The Department issued show cause notice under Section 74(1) alleging that the credit was blocked under Section 17(5)(d) - demand along with interest and penalty was confirmed - Whether Section 17(5)(d) is applicable to input tax credit availed on GST paid on assignment of leasehold rights of a GIDC plot, where no construction activity is undertaken - HELD - The High Court in an earlier decision has held that assignment by sale or transfer of leasehold rights of a plot allotted by GIDC to the lessee, in favour of a third party-assignee for consideration, is an assignment or transfer of benefits arising out of immovable property. Section 7(1)(a) read with clause 5(b) of Schedule II and clause 5 of Schedule III is not applicable to such a transaction, and the same is not subject to levy of GST under Section 9. The GST charged by the supplier and paid by the petitioner was therefore contrary to law - When the charging provision itself does not apply, any amount collected or retained by the Department, whether directly as tax or indirectly by way of ITC reversal and interest, has no legal sanctity - Section 17(5)(d) presupposes the existence of a taxable inward supply on which tax is lawfully leviable and paid. Where the transaction neither qualifies as supply under Section 7 nor is chargeable to tax under Section 9, the question of applying the blocking provision under Section 17(5) does not arise at all - The allegation of availing blocked credit is misconceived, and the demand determined on the basis of Section 17(5)(d) is unsustainable in the eyes of law - The demand raised under Section 17(5)(d) is held unsustainable and the writ petition is allowed - Invocation of Section 74(1) of CGST Act, 2017 for alleged wrongful availment of input tax credit treated as blocked credit under Section 17(5)(d) - Whether Section 74(1) could be invoked on the allegation that the credit constituted blocked credit under Section 17(5)(d), where there was no fraud, wilful misstatement or suppression of facts - HELD - Section 74 applies where tax has not been paid or short paid, or input tax credit has been wrongly availed or utilised, by reason of fraud, wilful misstatement or suppression of facts to evade tax. The credit was availed under a bonafide belief, the transaction was disclosed in the returns and reflected in the books of account, and the credit was reversed along with interest. Section 17(5)(d) is held to be inapplicable and the allegation of blocked credit misconceived - In light of the settled legal position, the question of fraud, wilful misstatement or suppression of facts does not arise to invoke Section 74(1) on the allegation that the credit constituted blocked credit under Section 17(5)(d) - The action of the Department is contrary to the statutory provisions and the settled legal position - Invocation of Section 74(1) is held unsustainable, and the order-in-original, the summary order in Form DRC-07, the rectification order and the order-in-appeal are quashed and set aside - Refund of tax and interest paid through Form DRC-03 on reversal of input tax credit availed on GST paid on assignment of leasehold rights of GIDC plot - Whether the Petitioner is entitled to refund of the input tax credit reversed and interest paid through Form DRC-03 - HELD - When the charging provision itself does not apply, any amount collected or retained by the Department, whether directly as tax or indirectly by way of ITC reversal and interest, has no legal sanctity. The reversal of ITC and payment of interest, which were premised solely on the assumption that GST was leviable on the transaction, would not survive - The Respondents are directed to refund the tax and interest paid through Form DRC-03.
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