Facts of the Case:

In this case, the petitioner challenged the blocking of its Input Tax Credit (ITC). The grievance of the petitioner was that the authorities had blocked the ITC available in its electronic credit ledger without passing any formal order and without recording any reasons for such action.

The petitioner contended that Rule 86A of the Central Goods and Services Tax Rules, 2017 empowers the competent authority to block ITC only upon formation of a reasoned belief that the ITC had been fraudulently availed or was otherwise ineligible. However, in the present case, no such order or recorded satisfaction existed prior to blocking the electronic credit ledger.

Issue:

Whether the GST authorities could block the Input Tax Credit available in the electronic credit ledger of a taxpayer without passing a formal order and without recording reasons as mandated under Rule 86A of the CGST Rules, 2017.

Held That:

The High Court held that Rule 86A specifically authorizes the Commissioner or an officer authorized by him, not below the rank of Assistant Commissioner, to block ITC only when such officer has “reasons to believe” that the ITC has been fraudulently availed or is otherwise ineligible.

The Court observed that it was undisputed between the parties that before blocking the petitioner’s ITC, no order had been passed by the competent authority recording reasons for formation of such belief. Since the mandatory procedural requirements under Rule 86A were not complied with, the action of blocking the petitioner’s ITC was found to be contrary to law.

Accordingly, the Court held the blocking of the petitioner’s ITC to be illegal and directed release of the blocked credit. However, liberty was granted to the department to initiate fresh proceedings in accordance with law after complying with statutory requirements.

Case Name: Shreyash Retail (P.) Ltd. v. Assistant Commissioner of State Tax dated 12.05.2026