prpri Rule 86A Department cannot block ITC for more than one year Rule 86A Department cannot block ITC for more than one year

Case Law Details

Case Name : M/s Aryan Tradelink Vs The Union of India (Karnataka High Court)
Appeal Number : Writ Petition No. 11581/2020 (T/RES)
Date of Judgement/Order : 27/11/2020
Related Assessment Year :

M/s Aryan Tradelink Vs The Union of India (Karnataka High Court)

Hon’ble HC has quashed a notice and blocking of input tax credit under rule 86A whereby the credit was blocked for more than one year. Rule 86A does not empower the department to block the credit for more than one year and they are bound to unblock it even if the assessment has not taken place or got completed within one year.


The petitioner is aggrieved by the Communication dated 10.6.2020 (Annexure-E) issued by the Office of the Superintendent of Central Tax, AWD-5 Range, West Division-5 Bangalore West Commissionerate, Bengaluru (the third respondent) informing the petitioner that its credit ledger is blocked .

2. The learned Counsel for the petitioner submits that the petitioner’s credit ledger is blocked with effect from 21.1.2020 (as per Annexure -C) without assigning any reasons, and in fact the petitioner is not aware which authority has blocked the petitioner’s credit ledger. The petitioner therefore repeatedly corresponded with the third respondent who ultimately issued the impugned Annexure –E dated 10.6.2020 informing the petitioner that on the basis of the request received from the Commissioner of North West Commissionerate (the fourth respondent) the petitioner’s credit ledger is blocked and the petitioner’s credit ledger is blocked because one of its vendors M/s M.S. Marketing Enterprises Limited is being investigated for issuing invoices fraudulently without actual supply of goods or services.

3. The learned Counsel for the petitioner further submits that Rule 86A of the Central Goods and Services Tax Rules, 2017 (for short ‘the Rules) mandates that the Commissioner or Officer who is authorized, but not below the rank of the Assistant Commissioner, can block credit ledger if he has reasons to believe that any of the circumstances enumerated under the Rules exist and such officer must record reasons. In the present case, no reasons have been assigned and as such, the blockage of the credit ledger and the impugned order cannot be sustained.

4. Smt. M.R. Vanaja, learned Counsel for the respondent Nos. 2 to 4 is unable to controvert that the reasons for blocking the petitioner’s credit ledger is not mentioned simultaneously, and reasons are mentioned only subsequently in the impugned Communication as per Annexure –E.

5. In the facts and circumstances of the case, it would be just and reasonable to dispose of the writ petition calling upon the Assistant Commissioner to pass a detailed reasoned order as required under Rule 86A of the Rules while observing that for the purposes of Rule 86A(3) which stipulates that the blockage shall cease to have effect after the expiry of a period of one year from the date of blocking, the effective date shall continue to be 21.01.2020.

The writ petition is accordingly disposed of.

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