R M Dairy Products LLP Vs State of U P and 3 Ors. (Allahabad High Court)
The Allahabad High Court examined a writ petition challenging an order dated 25.06.2021 passed under Rule 86A(1)(a)(i) of the State/Central GST Rules, 2017, whereby input tax credit (ITC) was blocked. The petitioner contended that the authorities lacked jurisdiction to block credit beyond what was available on the date of the order, that no valid “reason to believe” existed, that adjudication under Section 74 of the UP GST Act was pending making the action premature, and that recovery could only occur under Sections 78 and 79 of the Act.
The Court held that Rule 86A is not a recovery provision but a mechanism to secure the interest of revenue by restricting debit of credit upon recording “reasons to believe” that ITC was fraudulently availed or ineligible. The expression “input tax available” relates to credit allegedly fraudulently availed in the past and is not confined to the balance existing on the date of the order. In the present case, revenue alleged that the selling dealer was non-existent, forming the basis of “reason to believe.” The Court found the invocation of Rule 86A valid, clarified that it only creates a lien and does not permit appropriation, and dismissed the writ petition.
