Rithwik Projects Private Limited Vs Union of India & Ors. (Bombay High Court)
Blocking of Electronic Credit Ledger under Rule 86A Requires Recorded Reasons and Timely Post-Decisional Hearing: Bombay High Court
The Bombay High Court, in the matter of Rithwik Projects Private Limited v. Union of India & Ors., ruled that the electronic credit ledger of a taxpayer cannot be blocked under Rule 86A of the CGST Rules without adhering to principles of natural justice, which requires recording explicit reasons and providing a prompt post-decisional hearing. The Petitioner’s credit ledger was blocked by the GST authorities without a reasoned, speaking order and without satisfying the “reason to believe” requirement under Rule 86A, which the Petitioner challenged. The Court observed that the blocking order lacked the necessary reasons and, conditional on the Petitioner furnishing a bank guarantee of Rs. 6.5 crores, set aside the blocking order. Furthermore, the Court directed the Revenue authorities to grant the Petitioner a full post-decisional hearing within four months. To maintain a balance, the Court also barred the authorities from encashing the bank guarantee until four months after the final order is passed in the proceedings. This decision underscores the requirement for GST authorities to strictly follow statutory conditions, including recording reasons and granting a hearing, before restricting a taxpayer’s credit ledger.
