Order blocking credit ledger under Rule 86A set aside as no reasons recorded and post-decisional hearing not given{ Rithwik Projects (P.) Ltd. vs. Union of India [2025] 179 taxmann.com 256 (Bombay)}
Facts
- Petitioner’s electronic credit ledger under GST was blocked by the tax authority invoking Rule 86A of the CGST Rules thus preventing the petitioner from utilising its Input Tax Credit.
- The blocking order was passed without giving reasons in writing (i.e., no recorded satisfaction) and without granting any post-decisional hearing to the petitioner.
- On challenge in writ jurisdiction, the petitioner contended that the impugned order was arbitrary, violative of principles of natural justice, and could not be sustained.
- The High Court considered that the administrative power under Rule 86A is “drastic” in nature and needs to satisfy procedural safeguards.
Issue:
Whether a blocking order under Rule 86A which is passed without recorded reasons and without post-decisional hearing is legally sustainable and if not, whether the High Court should set aside such order or remand with directions to follow due process.
Held:
- The High Court held that the blocking order must have recorded reasons in writing the officer must independently form a “reason to believe” based on material, and this cannot be a mere borrowed satisfaction.
- Further, the High Court held that denying a hearing (even a post-decisional or remedial hearing) violates the doctrine of natural justice in a case involving such restriction of a taxpayer’s credit.
- Because those procedural safeguards were not followed (no reasons, no hearing), the Court set aside the blocking order subject to furnishing of a bank guarantee by the petitioner.
- The matter was remanded to the authority, with a direction to afford the petitioner a hearing and then pass a fresh order, with reasons recorded.
