Facts of the Case:

The petitioner challenged an order dated 09.04.2026 whereby the GST authorities blocked its Input Tax Credit (ITC) available in the Electronic Credit Ledger (ECL) by invoking Rule 86A of the U.P. GST Rules, 2017. The petitioner contended that the mandatory pre-condition for exercising powers under Rule 86A, namely recording of “reasons to believe” in writing, had not been fulfilled before blocking the credit. During the proceedings, the Court directed the Revenue to produce the material and reasons allegedly forming the basis of the action. The Revenue relied upon written instructions and investigation reports, including information received from DGGI alleging that one of the petitioner’s suppliers was non-functional and had passed on fraudulent ITC.

Issue:

Whether an order blocking ITC under Rule 86A of the GST Rules can be sustained when the competent authority has not recorded “reasons to believe” in writing before exercising the power, and whether such deficiency can subsequently be cured through affidavits, written instructions, or additional explanations furnished before the Court.

Held That:

The Allahabad High Court allowed the writ petition and set aside the ITC blocking order. The Court held that recording of “reasons to believe” in writing is a mandatory jurisdictional requirement for invoking Rule 86A.

The impugned order merely recorded a conclusion that the petitioner had fraudulently availed ITC and did not disclose any reasons leading to such belief. The Court reiterated the settled principle laid down by the Supreme Court in Mohinder Singh Gill v. Chief Election Commissioner that a statutory order must stand on the reasons contained in the order itself and cannot be supplemented later through affidavits, instructions, or additional explanations.

The Court further observed that a generic allegation that a supplier was non-functional or involved in suspicious transactions is insufficient unless the authority independently applies its mind to the material and records a reasoned belief connecting such material to the taxpayer concerned. Since no reasons had been recorded before exercising power under Rule 86A, the action suffered from a jurisdictional defect and was liable to be quashed. However, liberty was granted to the authorities to pass a fresh order in accordance with law after complying with the statutory requirements.

Case Name: M/s Mohan Milkfoods Private Limited Versus Joint Commissioner (Corporate-2), State Tax And 2 Others dated 26.05.2026