Recently, the Allahabad High Court held that ITC cannot be blocked without recording written “reasons to believe”, while hearing a petition challenging the blocking of Input Tax Credit (ITC) under Rule 86A of the U.P. GST Rules. The Court observed that the requirement to record reasons in writing is mandatory and non-negotiable.
The petitioner approached the Court seeking a direction to unblock ITC amounting to ₹13,96,220 available in its Electronic Credit Ledger. The blocking was based on an email dated 24 July 2025 issued by GSTN, which cited “Supplier found non-functioning” as the reason. The petitioner argued that Rule 86A mandates the proper officer to first record “reasons to believe” in writing before imposing such a drastic restriction, and no such reasons had been recorded by the jurisdictional officer.
During the hearing, the State relied on an “Alert Notice” issued by the DGGI, Raipur Zonal Unit, stating that the supplier, M/s Maa Kamakhaya Trading, Surguja, was non-operational and had allegedly passed fraudulent ITC using bogus invoices. However, the petitioner contended that such a generic allegation cannot substitute the statutory requirement of a written satisfaction by the officer-in-charge under Rule 86A.
The Court noted that no written “reasons to believe” were recorded by the competent authority before blocking the petitioner’s ITC. It held that Rule 86A(1) imposes a mandatory obligation on the jurisdictional officer to record such reasons in writing, even though the exercise is ex-parte. A mere remark such as “Supplier found non-functioning” reflects no application of mind and does not meet the statutory threshold.
The Court observed that the DGGI communication itself contained only generic findings regarding the supplier and did not establish that the petitioner had engaged in bogus transactions. Reiterating settled principles from Bhagwan Industriesand Aryaverth Chawal Udyog, the Court held that “reasons to believe” must be based on relevant material and cannot rest on vague or extraneous grounds.
Emphasising that ITC is the backbone of a functioning GST regime, the Court held that blocking credit disrupts the entire value-addition chain and therefore cannot be undertaken on suspicion alone.
The Court set aside the blocking of ITC vide the communication dated 24 July 2025 and directed the authorities to immediately unblock the petitioner’s ITC. However, it left it open to the department to proceed afresh under Rule 86A strictly in accordance with law.
Case Title: M/S Pilcon Infrastructure Pvt. Ltd. Vs. State of U.P. and Another
Case No.: Writ Tax No. - 4654 of 2025
Coram: Justice Saumitra Dayal Singh, Justice Indrajeet Shukla
Advocate for Petitioner: Adv. Aloke Kumar, Puneet Arun
Advocate for Respondent: C.S.C.
Read Order @Latestlaws.com
Picture Source :
