2026 (3) TMI 246 - HC - GST

Blocking of Input Tax Credit upheld where inspection material and show cause proceedings exist; subordinate action valid with senior authorisation.

Challenge to blocking of input tax credit for the tax period was considered on two issues: validity of blocking under Rule 86A and competence of a ... Blocking of Input Tax Credit under Rule 86A - competence to block input tax credit by authorised officer - right to representation and hearing before final order. Blocking of Input Tax Credit under Rule 86A - Validity of the impugned blocking of the petitioner's Input Tax Credit for the tax period 01.10.2025 to 31.12.2025 - HELD THAT:- The Court examined the challenge to the blocking of the petitioner's Input Tax Credit in the Electronic Credit Ledger under Rule 86A and found that the blocking arose after an inspection and recorded statements of the petitioner's Managing Director suggesting availment of credit on blocked invoices. In that factual backdrop the Court held that the challenge to the blocking could not be sustained. The Court also relied upon reasoning in an earlier Madurai Bench order and its Division Bench affirmation to conclude that, on the material before it, the impugned action fell within the regulatory scheme and could not be interfered with by this writ petition. [Paras 3, 5, 6] The challenge to the blocking of Input Tax Credit for the period 01.10.2025 to 31.12.2025 is dismissed. Competence to block input tax credit by authorised officer - HELD THAT:- The Court considered the contention that only an Assistant Commissioner or a senior officer could block credit under Rule 86A. Relying on the Madurai Bench decision and its Division Bench affirmation, the Court observed that while Rule 86A contemplates a restriction on blocking by officers below a certain rank, the practice and prior orders indicate that blocking by a subordinate would have been done with the permission or authorisation of a senior officer. The State Tax Officer who issued the show cause notice was held to be a proper officer in the circumstances and the jurisdictional objection was rejected as untenable. [Paras 4, 5, 6] Objection to competence on the ground that an officer below the prescribed rank effected the blocking is not countenable; the blocking is not vitiated for want of jurisdiction. Right to representation and hearing before final order - Obligation to afford the petitioner an opportunity to make representation before final adjudication on the blocked credit - HELD THAT: - Although the writ petition was dismissed, the Court granted the petitioner liberty to submit a proper representation in light of the admissions recorded during inspection. The Court directed that upon receipt of such representation the concerned officer shall consider it and pass appropriate orders on merits as expeditiously as possible, preferably within thirty days, and expressly noted that the petitioner shall be heard before final orders are passed. [Paras 7, 8, 9] Petitioner given liberty to represent; officer to decide on merits after hearing, preferably within thirty days. Final Conclusion: The petition is dismissed: the Court upheld the legality of the impugned blocking of Input Tax Credit for 01.10.2025 to 31.12.2025 and rejected the competence objection, while granting the petitioner liberty to make a representation and directing the officer to decide on merits after hearing within a short time frame. Issues: (i) Whether the blocking of input tax credit in the electronic credit ledger for the tax period 01.10.2025 to 31.12.2025 under Rule 86A of the GST Rules is maintainable; (ii) Whether an officer below the rank of Assistant Commissioner is competent to block input tax credit under Rule 86A.Issue (i): Whether the impugned blocking of input tax credit under Rule 86A for the specified tax period is valid.Analysis: Evidence of an inspection and recorded statements on 04.12.2025 indicated that the credit was claimed on potentially blocked invoices, and the blocking action was taken on 05.12.2025. Prior decisions addressed identical factual and legal circumstances, confirming that blocking under Rule 86A is permissible where the material justifies such action and a show cause notice proceedings are in existence.Conclusion: The blocking of input tax credit for the specified tax period is valid and the challenge to the blocking is dismissed.Issue (ii): Whether the action to block credit by an officer below the rank of Assistant Commissioner is beyond jurisdiction under Rule 86A.Analysis: Prior judicial decisions construed Rule 86A to permit blocking where a subordinate officer acts with the authorisation of a senior officer; issuance of Form GST DRC 01 and internal authorisation satisfy the requirement that the blocking be effected with senior approval. The internal hierarchical permission and the status of the State Tax Officer as proper officer for issuance of show cause notice were treated as validating the impugned action.Conclusion: The objection based on competence of the officer is rejected; the blocking carried out by the officer below Assistant Commissioner is not invalidated where senior authorisation or proper internal delegation exists.Final Conclusion: The writ petition challenging the blocking of input tax credit is dismissed; the petitioner is granted liberty to make a representation and, if submitted, the concerned officer shall consider it and pass appropriate orders after hearing within thirty days.Ratio Decidendi: Where material gathered from inspection and recorded statements indicates ineligibility or potential fraud in claimed input tax credit and a show cause notice is in existence, blocking of credit under Rule 86A is permissible; such blocking by a subordinate officer is valid if effected with senior authorisation or within the internal delegation of powers.