Input Tax Credit under Rule 86A: fresh speaking order directed and ledger blocking reassessed in light of Board circular

Blocking of input tax credit via electronic credit ledger was challenged on the basis that the formation of opinion for disallowance must not be a mechanical exercise or a borrowed satisfaction; an independent application of mind with speaking reasons is required. Reference to a Board circular was held material for assessment of the action. The operative effect directed a fresh speaking order to be passed considering the circular and the requirements for reasoned formation of opinion, with the writ petition disposed accordingly.

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Issues: Whether the provisional blocking of the petitioner's Input Tax Credit under Rule 86A is sustainable in the absence of a fresh speaking order recording the officer's independent formation of opinion and compliance with the Board Circular dated 02.11.2021.

Analysis: The Court examined the impugned communication blocking Input Tax Credit and the material on which it was based, including communications from the Principal Commissioner and the DGGI. The Court considered the Board Circular dated 02.11.2021 (Ref No. CBEC-20/16/05/2021-GST) and the statutory requirements of Rule 86A which require a proper application of mind and recorded formation of opinion by an officer not below the rank of Assistant Commissioner before disallowing debit from the electronic credit ledger. The Court noted authorities criticizing mechanical or borrowed satisfaction and emphasised that the remedy under Rule 86A is extraordinary and must be exercised with circumspection, with reasons based on material evidence and independent evaluation rather than mere reliance on communications from other officers.

Conclusion: The impugned blocking order cannot stand without a fresh speaking order recording the requisite independent formation of opinion and addressing the criteria laid down in the Board Circular and Rule 86A. The 1st respondent is directed to pass a fresh speaking order in accordance with Rule 86A and the Board Circular dated 02.11.2021.

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