Reason to Believe Requirement Controls Blocking of Input Tax Credit Under Rule 86A

Blocking of input tax credit under Rule 86A of the U.P. GST Rules is permissible only where the competent authority records, in writing, reasons to believe based on relevant material and shows application of mind to the facts. A generic communication, non-specific reasons, or reliance on mere suspicion or an ex parte investigation report does not satisfy this mandatory precondition. On the facts stated, the blocking of input tax credit was held invalid and set aside, with liberty to proceed afresh only in accordance with law.

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Issues: Whether blocking of input tax credit under Rule 86A of the U.P.G.S.T. Rules, 2017 was valid when the competent authority had not recorded reasons to believe in writing based on relevant material.

Analysis: The blocking of input tax credit is permissible only when the statutory precondition of reasons to believe, recorded in writing, is satisfied by the competent authority. The material relied upon must have a rational nexus with the belief formed, and there must be an application of mind to the facts before the authority. A generic or non-specific communication, without any order or recorded reasons showing why the assessee's credit was liable to be blocked, does not satisfy the mandatory requirement. Mere suspicion or an ex parte investigation report, without more, is insufficient to justify such action.

Conclusion: The blocking of input tax credit was invalid and was set aside. The authority was directed to act only in accordance with law if it wished to proceed afresh.

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