Natural justice bars premature Rule 86-A blocking orders passed before the reply period expires or a timely response is considered.

Rule 86-A blocking orders cannot be sustained where the department issues a notice granting time to reply but passes an adverse order before that period expires and without considering the reply. The Bombay High Court treated the notices as show-cause notices because they called for an explanation on alleged fraudulent input tax credit and warned of Rule 86-A action if unanswered. As the petitioner replied within the stipulated time and the impugned orders were made prematurely, the court quashed them for breach of natural justice and directed restoration of the electronic credit ledger position and deblocking of credit, leaving the underlying tax dispute open.

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Issues: Whether the impugned orders blocking use of electronic credit ledger under Rule 86-A could be sustained when the department had issued notices requiring a reply by a specified date but passed the orders before that time expired and without considering the reply.

Analysis: The notices dated 30 June 2025 were treated as show-cause notices because they called upon the petitioner to explain the alleged fraudulent availment of input tax credit and stated that failure to respond would result in invocation of Rule 86-A and restriction on use of the electronic credit ledger. The petitioner filed a reply within the time permitted by those notices, but the impugned orders were passed on 2 July 2025, before expiry of the response time and without awaiting or considering the reply. Once the department chose to issue show-cause notices, fairness required it to wait for the stipulated time to expire and then decide the matter after considering the response.

Conclusion: The impugned orders were quashed and set aside for violation of natural justice, and the department was directed to restore the electronic credit ledger position and deblock the credit.

Final Conclusion: Relief was granted to the petitioner on the ground that the blocking orders were made prematurely in disregard of the reply period granted in the notices, while the merits of the underlying tax dispute were left open.

Ratio Decidendi: Where an authority issues a notice requiring a reply within a stated time, it cannot pass an adverse order before that time expires or without considering a reply filed within time.

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