2026-VIL-417-KER
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SGST High Court Cases

GST – Invoking of proceedings under Rule 86A of CGST Rules, 2017 based on information received from authorities outside the State - Petitioners' Electronic Credit Ledgers (ECrL) were blocked by invoking powers under Rule 86A of the CGST Rules based on information received from authorities outside the State that the suppliers of the petitioners were found to be non-existent or their registrations had been cancelled - Whether the proceedings initiated under Rule 86A were legally sustainable in the absence of the concerned officer's independent satisfaction about the genuineness of the transactions entered into by the petitioners – HELD - The Rule 86A contemplates invocation of the provision only in cases where the officer has reasons to believe that the credit of input tax has been fraudulently availed or is ineligible. Merely relying on information received from authorities outside the State regarding non-existence of suppliers or cancellation of their registrations is not sufficient to invoke the drastic measure under Rule 86A, without the officer's own satisfaction about the genuineness of the transactions entered into by the taxpayers. The officer concerned must have independent satisfaction about the existence of "reasons to believe" before invoking Rule 86A, and that such satisfaction cannot be based on borrowed satisfaction of another officer - The petitioners has produced relevant documents like invoices, e-way bills, and GSTR-2B entries to substantiate the genuineness of the transactions, which the respondents had not examined. In the absence of the officer's independent satisfaction about the transactions being bogus, the proceedings under Rule 86A are not legally sustainable. Further, the proceedings under Rule 86A cannot be a substitute for the proper recovery proceedings under Sections 73 and 74 of the CGST Act - The impugned orders blocking the petitioners' ECrL are set aside and the Respondents are directed to make the credit ledgers operative forthwith. However, this would not preclude the respondent authorities from initiating fresh proceedings under Rule 86A or Sections 73 and 74 of the CGST Act, if there are proper materials to show that the specific transactions entered into by the petitioners were bogus - Blocking of credit ledger with negative balance Fact - In one of the writ petitions (W.P.C. No.12186 of 2026), the petitioner contended that the credit ledger which was blocked had a negative balance - Whether blocking of the credit ledger with negative balance is legally valid – HELD - The blocking of the credit ledger with negative balance is not legally valid, following the principles laid down in the judgments relied upon by the petitioner. The decision of the Delhi High Court in Karuna Rajendra Ringshia case was also upheld by the Supreme Court. The respondents to make the electronic credit ledgers of the petitioners operative forthwith, including the credit ledger with negative balance.
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GSTAT Appeal filed wrongly...
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