ITC Cannot Be Blocked Merely on Suspicion without Written ‘Reasons to Believe’ u/r 86A: Allahabad HC directs to Unblock Credit [Read Order]

The Allahabad High Court, in a recent ruling, held that Input Tax Credit ( ITC ) cannot be blocked merely on suspicion or generalized allegations without recording specific and written “reasons to believe” as mandated under Rule 86A of the Goods and Services Tax ( GST ) Rules, 2017.

The petitioner, M/s Pilcon Infrastructure Pvt. Ltd approached the high court seeking directions to unblock ITC amounting to ₹13,96,220/- that had been frozen in its Electronic Credit Ledger.

It was contended that the blocking was carried out on the basis of an email communication dated 24 July 2025 issued by the Goods and Services Tax Network ( GSTN ), stating the reason “Supplier found non-functioning.”

However, no written order or communication containing “reasons to believe” had been recorded by the competent authority, as required under Rule 86A.

After considering the records, the Court found that the only material relied upon by the department was an “Alert Notice” dated 13 June 2025 issued by the Directorate General of GST Intelligence (DGGI), which stated that M/s Maa Kamakhaya Trading, a supplier from Surguja, was non-operational and had allegedly passed on fake ITC without actual supply of goods.

The High Court observed that this communication was entirely generic, ex parte, and lacked any specific finding connecting the petitioner to any fraudulent transaction.

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The bench comprising Justice Saumitra Dayal Singh and Justice Indrajeet Shukla emphasized that Rule 86A(1) makes it mandatory for the proper officer to record “reasons to believe in writing” before exercising the power to block ITC.

Such reasons must arise from concrete material and demonstrate application of mind by the authority concerned, said the bench.

The Court held that mere suspicion, vague allegations, or communications from another department cannot form the basis of a valid “reason to believe.”

Additionally, the bench observed that granting and maintaining the ITC chain is the foundation of the GST system, and arbitrary blocking of credit disrupts the value addition chain and impacts tax payments. Because Rule 86A's power is ex parte and extraordinary, it must be strictly observed in order to prevent its abuse.

The high court, holding that no valid “reasons to believe” were recorded by the authority, the Court quashed the action of blocking ITC through the email communication. The bench directed the respondent authority to immediately unblock the ITC.

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