Input tax credit (ECL) blocked u/r 86A without hearing or independent reasons; blocking order quashed, relief granted.

Blocking of the taxpayer's ECL under Rule 86A CGST Rules was challenged for breach of natural justice and absence of legally sustainable "reasons to believe." Applying HC precedent, the Court held that Rule 86A requires independent, cogent material forming the proper officer's satisfaction and cannot rest on borrowed satisfaction from enforcement reports. As no pre-decisional hearing was granted and the order merely alleged ITC from non-existent suppliers and multiple e-way bills without recording independent reasons to believe, the mandatory prerequisites of Rule 86A were not met. The Rule 86A blocking orders were quashed and the writ petition was allowed.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether blocking of a registered person's Electronic Credit Ledger under Rule 86A of the CGST Rules is vitiated where no pre-decisional hearing is afforded.

(ii) Whether the impugned Rule 86A blocking order is invalid for absence of independent, cogent "reasons to believe" recorded by the competent officer and for being based on borrowed satisfaction from enforcement/other officers' reports, resulting in a mechanical, non-speaking order.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Requirement of pre-decisional hearing before blocking the Electronic Credit Ledger under Rule 86A

Legal framework (as discussed by the Court): The Court treated the action of blocking the Electronic Credit Ledger under Rule 86A as subject to the requirements clarified by the binding dictum of a Division Bench of the same Court, which held that a pre-decisional hearing is required before passing orders blocking the ECL.

Interpretation and reasoning: On examining the impugned blocking action, the Court found that the petitioner was not granted any pre-decisional hearing. Applying the Division Bench ruling referred to in the judgment, the Court concluded that the absence of such pre-decisional hearing rendered the impugned blocking order unsustainable.

Conclusion: The Rule 86A blocking action was quashed on the ground that no pre-decisional hearing had been provided.

Issue (ii): Validity of Rule 86A invocation-absence of independent "reasons to believe", reliance on borrowed satisfaction, and non-speaking nature of the order

Legal framework (as discussed by the Court): The Court proceeded on the basis that invocation of Rule 86A requires the competent authority to form and record "reasons to believe" founded on independent application of mind, and that reliance merely upon reports/communications of other officers constitutes borrowed satisfaction, which is impermissible. The Court also treated a cryptic or mechanical order as legally infirm.

Interpretation and reasoning: The Court held that the impugned blocking order did not disclose independent or cogent "reasons to believe" and instead rested upon reports of enforcement authorities, amounting to borrowed satisfaction. The Court further found that, beyond stating allegations such as receipt of ITC from non-existent suppliers and issuance of multiple e-way bills for the same vehicle on the same day for different routes, no further reasons were forthcoming, rendering the orders bald and unreasoned.

Conclusion: The impugned Rule 86A orders were held illegal and arbitrary for want of independent, recorded reasons and for being passed mechanically on borrowed satisfaction; they were accordingly quashed. The Court directed immediate unblocking of the Electronic Credit Ledger to enable filing of returns, while reserving liberty to the authorities to proceed afresh in accordance with law consistent with the cited Division Bench dictum.

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