Section 74 of the CGST Act, 2017 — Show Cause Notice --The petitioner challenged the impugned notice dated 20.01.2022 under Section 74(1) of the Act, on the ground that the statement as required under Rule 142 (1A) was not submitted by the proper officer. The counsel for the petitioner submitted that even if ITC is blocked invoking the provisions of Rules 86A of the Rules, yet a negative ITC cannot be shown otherwise it would amount to stopping the dealer from filing his return and depositing tax therewith. The counsel for the department submitted that Rule 142(1A) has been amended by Notification No.79/2020 dated 15.10.2020, and in the said rules, the words “proper officer shall”, has been substituted by the words as “proper officer may” and the words “shall communicate”, the word “communicate” has been substituted.” The court observed that Section 74(1) read with Rule 142(1A) intends to afford an opportunity to the dealer/ assessee on a pre-show cause notice stage which shall ultimately benefit both, i.e the assessee and the department, and shall also reduce litigation. This also indicates to follow the principles of natural justice at a pre-show cause notice stage.

Held that:- The Hon’ble High Court granted a week’s time to the respondent to file counter affidavit. Respondents shall also explain as to how a negative credit can be shown in the Electronic Ledger Account, while blocking Input Tax Credit. Listed the case as a fresh case on 28.03.2022. As an interim measure, the petitioner is permitted to file his return along with proof of deposit of tax for the relevant tax period for which return is being filed.