Direction to decide ITC blocking under Rule 86-A(2) after reply, with 10% disputed tax deposit

HC addressed blocking of ITC under Rule 86-A(2) of the Tamil Nadu GST Rules, 2017. Observing that the disputed tax amount was substantial, HC directed the authorities to pass a reasoned order on merits, considering the petitioner's reply dated 04.09.2025 to the SCN in FORM GST DRC-01 dated 30.07.2025 as a reply to the impugned intimation notices dated 30.05.2025 and 24.10.2025, within four weeks. To balance interests, the petitioner was ordered to deposit 10% of the disputed tax in cash within thirty days. Petition was disposed.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the blocking of Input Tax Credit through impugned intimation notices and consequent bank account attachment could be sustained without a speaking order under Rule 86-A(2) of the Tamil Nadu Goods and Services Tax Rules, 2017, after considering the assessee's reply.

1.2 What conditional relief, if any, should be granted to the assessee pending such decision, including the requirement of part-deposit of disputed tax and lifting of bank attachment.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of ITC blocking and related action in absence of order under Rule 86-A(2)

Legal framework (as discussed)

2.1 The Court noted that the power to block Input Tax Credit in the electronic credit ledger is traceable to Rule 86-A(2) of the Tamil Nadu Goods and Services Tax Rules, 2017, and that such power has to be exercised by the jurisdictional authority in accordance with law.

Interpretation and reasoning

2.2 The Petitioner challenged the intimation notices blocking Input Tax Credit on the ground that the reasons mentioned therein were incorrect, relying on certificates issued by the jurisdictional Assistant Commissioner (ST) confirming the genuineness and active status of the supplier.

2.3 The Court recorded that show cause notices in FORM GST DRC-01 had already been issued and that the Petitioner had submitted a reply dated 04.09.2025.

2.4 Considering the high quantum involved and the requirement that the 1st Respondent exercise power under Rule 86-A(2), the Court directed the 1st Respondent to pass appropriate orders on merits and in accordance with law, treating the Petitioner's reply dated 04.09.2025 to the show cause notice as the reply to the impugned intimation notices, and to do so within four weeks.

Conclusions

2.5 The blocking of Input Tax Credit and related action was not finally adjudicated on merits by the Court but was made subject to a fresh, reasoned decision by the 1st Respondent under Rule 86-A(2), after considering the Petitioner's reply, within a specified time-frame.

Issue 2: Conditional relief, requirement of deposit, and lifting of bank attachment

Interpretation and reasoning

2.6 The Petitioner expressed willingness to deposit 10% of the disputed tax to secure the interests of both sides.

2.7 To balance the interests of the Petitioner and the Department, the Court directed the Petitioner to deposit 10% of the disputed tax in cash, from the Petitioner's Electronic Cash Register, within thirty days.

2.8 The Court ordered that, subject to such deposit and provided that no other amount was in arrears except the amount demanded under the impugned intimation notices, the attachment of the Petitioner's bank account would stand automatically vacated.

2.9 The Court clarified that if the Petitioner failed to comply with the deposit condition, the 1st Respondent would be at liberty to proceed to recover tax in accordance with law as if the writ petitions had been dismissed in limine, after giving due notice to the Petitioner.

Conclusions

2.10 Conditional relief was granted: (i) the Petitioner must deposit 10% of the disputed tax within thirty days; (ii) upon such deposit, bank attachment stands lifted, subject to no other arrears; (iii) failure to deposit enables the 1st Respondent to continue recovery proceedings after due notice, as if the writ petitions had been dismissed at the threshold.

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