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of <h1>Rule 86A of CGST Rules upheld allowing ITC blocking without prior hearing to prevent fraud, with post-decisional review</h1> <h3>M/s Steel Centre A Sole Proprietorship Concern Through Its Proprietor Rajkumar Gupta Versus Union of India Throgh Its Secretary And Others</h3> M/s Steel Centre A Sole Proprietorship Concern Through Its Proprietor Rajkumar Gupta Versus Union of India Throgh Its Secretary And Others - 2025:MPHC - ... ISSUES: Whether Rule 86A of the Central Goods & Service Tax Rules, 2017 (CGST Rules) and Circular No.04/2021 issued by CBIC are constitutionally valid.Whether the blocking of Input Tax Credit (ITC) under Rule 86A without prior opportunity of hearing violates the principle of natural justice.Whether the procedure prescribed under Rule 86A for blocking and subsequent release of ITC complies with statutory and constitutional safeguards.Whether the authorities acted within the scope of power and reasonableness in blocking ITC under Rule 86A. RULINGS / HOLDINGS: The constitutional validity of Rule 86A of the CGST Rules, 2017 is upheld; the provision is not unconstitutional merely because it does not provide for pre-decisional hearing prior to blocking ITC.The blocking of ITC under Rule 86A without prior hearing does not violate the principle of natural justice as the rule provides for a post-decisional opportunity to submit objections under sub-rule (2), and the Commissioner is required to decide such objections expeditiously.The temporary blocking of ITC for a period not exceeding one year under sub-rule (3) is a reasonable and necessary immediate action to prevent recovery difficulties in cases of fraudulent or ineligible ITC claims.The authority must record reasons in writing for blocking ITC and must consider any objections filed by the taxpayer before lifting the restriction, thus ensuring procedural fairness. RATIONALE: The Court applied the statutory framework of Rule 86A of the CGST Rules, 2017, which authorizes the Commissioner or an authorized officer to block the debit of electronic credit ledger where there are 'reasons to believe' that the ITC has been fraudulently availed or is ineligible, with reasons to be recorded in writing.Reliance was placed on precedent from the Karnataka High Court's decision in K-9 Enterprises, which upheld the validity of Rule 86A and emphasized the necessity of reading the principle of natural justice into the rule by providing a post-decisional hearing opportunity.The Court recognized the practical necessity of immediate blocking of ITC to prevent the potential dissipation of revenue, justifying the absence of pre-decisional hearing, balanced by the statutory provision for post-blocking objections and review.The Court directed the competent authority to exercise its discretion expeditiously and pass a speaking order on any objections filed under Rule 86A(2), reinforcing procedural safeguards without invalidating the rule.
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