Rule 86A input tax credit blockage upheld where objective material indicated fraudulent credit availment and record manipulation.

Rule 86A of the CGST Rules, 2017 allows blocking of debit from the electronic credit ledger only on recorded reasons to believe, supported by material indicating fraudulent or otherwise ineligible input tax credit. The Madras HC found that the authority had adequate basis to invoke the rule, relying on specific circumstances such as absence of vehicle movement, the condition of suppliers' premises, CCTV verification, and suspicious delivery slip sequencing, which pointed to fake bill trading and record manipulation. The court also rejected the plea of disproportionate hardship, holding that the limited blockage did not warrant interference where the statutory conditions were satisfied. The request to unblock the credit ledger was accordingly rejected.

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Issues: Whether the blocking of input tax credit under Rule 86A of the CGST Rules, 2017 was liable to be interfered with, and whether the impugned order rejecting unblocking of the electronic credit ledger suffered from any legal infirmity.

Analysis: Rule 86A of the CGST Rules, 2017 permits disallowance of debit from the electronic credit ledger where there are recorded reasons to believe that credit has been fraudulently availed or is otherwise ineligible. The restriction is drastic and requires strict satisfaction of the statutory parameters, supported by adequate material and a reasoned order. On the facts, the authority relied on specific materials concerning four transactions, including the absence of vehicle movement at the relevant time, the condition of the suppliers' premises, CCTV verification, and suspicious reversal in serial sequence of delivery slips. These circumstances were treated as indicative of fake bill trading and manipulation of records, furnishing sufficient basis for invocation of the rule. The court also found the plea of disproportionate hardship unpersuasive in view of the scale of the petitioner's business and the limited nature of the blockage.

Conclusion: The invocation of Rule 86A was upheld and the request to unblock the input tax credit was rejected.

Ratio Decidendi: Blockage of input tax credit under Rule 86A is sustainable when the authority records objective reasons based on material indicating fraudulent or non-genuine credit availment, and the court will not interfere merely on the plea of hardship where the statutory conditions are satisfied.

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