Pilcon Infrastructure Private Limited Vs State of U.P. And Another (Allahabad High Court)
Mandatory Requirement of Written ‘Reasons to Believe’ Under Rule 86A for Blocking Input Tax Credit (ITC)
Summary : In Pilcon Infrastructure Pvt. Ltd. v. State of U.P., the Allahabad High Court held that blocking Input Tax Credit (ITC) under Rule 86A of the U.P. GST Rules without recording specific, written “reasons to believe” is illegal and without jurisdiction. The petitioner’s ITC of ₹13,96,220/- was blocked based on a generic DGGI alert alleging its supplier was non-functional and engaged in fraudulent transactions. The Court emphasized that mere suspicion, ex-parte communications, or generic alerts do not satisfy the statutory requirement of written reasons linking the assessee to fraud. Citing Supreme Court precedents, the Court reinforced that reasons must be rational, germane, and based on material facts specific to the taxpayer. The action disrupting the ITC chain was set aside, and authorities were directed to unblock the ITC. The Court clarified that the Revenue can initiate fresh proceedings only after strictly complying with Rule 86A and recording valid reasons in writing.
Facts:
Pilcon Infrastructure Pvt. Ltd. (‘the Petitioner’) had input tax credit (ITC) amounting to Rs. 13,96,220/- blocked by Respondent no.2, the State Commissioner of GST, U.P. in the Electronic Credit Ledger (ECL) based on an internal alert from Directorate General of GST Intelligence (DGGI), which alleged its supplier M/s Maa Kamakhaya Trading was non-operational and engaged in fraudulent tax credit transactions.
