2026-VIL-585-MAD
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SGST High Court Cases

GST - Blocking of Input Tax Credit under Rule 86A of CGST Rules, 2017 – Invocation of preventive power on finding of fraudulent transactions - Following searches conducted at the company's premises on two occasions, the tax authorities blocked the Input Tax Credit amounting to a substantial sum in three separate instances. The company submitted a representation seeking unblocking of the said credits. The tax authority passed speaking order rejecting the representation and maintaining the blockage - Whether the blocking of Input Tax Credit under Rule 86A of the CGST Rules, 2017, on the ground of fraudulent availing of credit by the assessee, is justified - HELD - The power conferred under Rule 86A, being drastic in nature, must be exercised with due care and caution, and the statutory parameters prescribed must be strictly satisfied. The assessee possesses an entitlement to submit a representation seeking revocation of the blockage, and upon submission of such representation, the authority stands obliged to consider it and issue a reasoned speaking order. In the present case, the tax authority has recorded specific findings based on adequate material on record, including physical verification of supplier premises revealing vacant premises lacking infrastructure for handling the goods in question, examination of CCTV footage showing absence of vehicle movement on alleged dates and times, and documentary evidence indicating manipulation of records through reversal of chronological sequence in receipt slips. These materials constitute adequate grounds to establish the requisite "reasons to believe" as prescribed under the Rule. The characterization of transactions as fraudulent and the invocation of Rule 86A stands justified on the objective consideration of the materials placed on record. The contention that the blockage causes undue hardship to business operations lacks merit considering the company's substantial annual turnover, which renders implausible the assertion that the entire manufacturing unit would come to a standstill solely due to the blockage. However, the Revenue cannot indefinitely continue the blockage without expeditiously completing the consequential proceedings – The writ petition is dismissed
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