Vatsamitra Infrastructure Private Limited Vs State of Bihar (Patna High Court)
Summary: The Patna High Court considered a writ petition filed by Vatsamitra Infrastructure Private Limited challenging the order dated 26.12.2025 passed by respondent no. 2, whereby an amount of Rs. 72 lakhs was debited/blocked in the petitioner’s Electronic Credit Ledger (ECL), resulting in blocking of input tax credit and recovery of tax from the Electronic Credit Ledger under Rule 86A of the GST Rules. The stated basis for the action was that invoices purportedly issued by M/s Pennant Construction Private Limited were found upon investigation to relate to a non-existent entity.
The petitioner contended that the ITC standing to its credit in the Electronic Credit Ledger was genuine and that the respondent authority had arbitrarily blocked and debited ITC amounting to Rs. 72 lakhs. The petitioner relied upon an earlier order of a Coordinate Bench of the Patna High Court in CWJC No. 4506 of 2025 dated 23.04.2025, which dealt with the guidelines issued by the Central Board of Indirect Taxes and Customs, particularly paragraph 3.4 concerning the circumstances in which disallowed or restricted credit may be allowed to be debited again.
The Court reproduced paragraph 3.4 of the guidelines, under which the Commissioner or authorised officer may examine the matter afresh, either on his own or on the basis of submissions and material evidence furnished by the taxpayer, and may allow use of the restricted credit to the extent of eligibility where the credit is no longer considered ineligible or wrongly availed.
The guidelines also provide that the restriction under sub-rule (1) of Rule 86A ceases after one year from the date of restriction. In the earlier case, the Coordinate Bench had granted liberty to the petitioner to avail the remedy contemplated under paragraph 3.4. Considering the nature of the dispute and the judgment of the Coordinate Bench in a similar matter, the Patna High Court disposed of the present writ application with a direction that, if the petitioner makes a request in terms of paragraph 3.4 of the guidelines, respondent no. 2 shall consider it as expeditiously as possible and pass a reasoned order after hearing the petitioner or its authorised representative. The Court expressly clarified that it had not gone into the merits of the case and that respondent no. 2 would consider the entire matter afresh if an appropriate request was made in accordance with paragraph 3.4.
Cases Discussed
- CWJC No. 4506 of 2025 – Coordinate Bench of the Patna High Court, order dated 23.04.2025.
FULL TEXT OF THE JUDGMENT/ORDER OF PATNA HIGH COURT
Heard learned counsel for the petitioner and learned counsel for the State.
2. The petitioner has filed the present writ application being aggrieved by the order dated 26.12.2025, passed by respondent no. 2, whereby a sum of Rs. 72 lakhs has been debited/blocked in Electronic Credit Ledger (ECL) and thereby blocked the input tax credit and recovered the tax from Electronic Credit Ledger on the basis of 86(a) of the GST Rules. The ground on which the amount in question has been blocked is that the revenue on the strength of invoices purportedly issued by M/s Pennant Construction Private Limited found upon investigation to be a non-existent entity.
3. The contention of the petitioner is that the ITC credit in the Electronic Credit Ledger of the petitioner is genuine and the respondent authority in arbitrary manner has blocked and debited ITC credit amount kept in Electronic Credit Ledger of the petitioner to the tune of rupees 72 lakhs.
4. In the similar facts a Coordinate Bench of this Court passed the order in CWJC No. 4506 of 2025, dated 23.04.2025 in which the Hon’ble Court deals with the guidelines issued by Central Board of Indirect Taxes and Customs and reference to guidelines 3.4, which is quoted below:
“3.4 Allowing debit of disallowed/restricted credit under sub-rule (2) of Rule 86A:- 3.4.1 The commissioner or the authorized officer, as the case may be, either on his own or based on the submissions made by the taxpayer with material evidence thereol, may examine the matter afresh and on being satisfied that the input tax credit, initially considered to be fraudulently availed or ineligible as per conditions of sub-rule (l) of rule 86A, is no more ineligible or wrongly availed, either partially or fully, may allow the use of the credit’ so disallowed/restricted, up to the extent of eligibility, as per powers granted under sub-rule (2) of rule 86A. Reasons for allowing the debit of electronic credit ledger, which had been earlier disallowed, shall be duly recorded on file in writing, before allowing such debit of electronic credit ledger. 3.4.2 The restriction imposed as per sub-rule ( I ) of rule 86A shall cease to have effect after the expiry of a period of one year from the date of imposing such restriction. In other words, upon expiry of one year from the date of restriction, the registered person would be able to debit input tax credit so disallowed, subject to any other action that may be taken against the registered person. 3.4.3 As the restriction on debit of electronic credit ledger under sub-rule (l) of rule 86A is resorted to protect the interests of the revenue and the said action also has bearing on the working capital of the registered person, it should be endeavored that in all such cases’ the investigation and adjudication are completed at the earliest, well within the period of restriction, so that the due liability arising out of the same can be recovered from the said taxable person and the purpose of disallowing debit from electronic credit ledger is achieved.”
5. Granted liberty to petitioner therein to avail its remedy in terms of paragraph 3.4 of the guideline. Considering the nature of dispute in the present writ application and the judgment of Coordinate Bench of this Court in similar matter, the present writ application is disposed with direction that if any request is made by the petitioner, in terms of paragraph 3.4 of the guidelines, the respondent no. 2 shall consider the same as expeditiously as possible and shall pass a reasoned order after hearing the petitioner or its authorize representative.
6. It is made clear by us that this Court has not gone into the merit of the case and respondent no. 2 shall consider the entire matter afresh, if the petitioner makes an appropriate request in this regard, in terms of paragraph 3.4 of the guidelines as quoted thereinabove.
7. With the aforesaid liberty/observation, the writ application is disposed of.
