Madras HC Directs GST Authorities to Reconsider Blocked ITC Claim and Pass Orders Within Four Weeks [Read Order]

The High Court of Madras, directed the Goods and Service Tax ( GST ) authorities to reconsider the blocked Input Tax Credit ( ITC ) of the petitioner and pass appropriate orders within four weeks.

V V Steels,petitioner-assessee, was under the jurisdiction of the first respondent, the Assistant Commissioner of GST and Central Excise. The petitioner had entered into transactions with PSN Traders, falling under the jurisdiction of the second respondent, the State Authority.

Since PSN Traders was found to be operating without a physical place of business, proceedings were initiated against it, resulting in the cancellation of its registration. Relying on this information, the first respondent subsequently blocked the petitioner’s Input Tax Credit on 12.12.2024

The petitioner counsel submitted that the first respondent had, on 28.05.2025, written to the second respondent stating that the petitioner had furnished all necessary documents, including e-way bills, invoices, payment slips, and bank details related to PSN Traders, and that the transactions appeared to be in order.

The counsel argued that the first respondent was required to act under Section 86A(2) of the GST Rules. Referring to the Central Board of Indirect Taxes and Customs ( CBIC ) guidelines dated 02.11.2021, the counsel pointed out that authorities could allow the use of blocked credit if it was later found to be valid and that such restrictions automatically ceased after one year.

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The first respondent’s counsel stated that the petitioner’s request for unblocking the Input Tax Credit would be considered based on subsequent developments. It was also noted that the petitioner had approached the Court soon after filing the representation, leaving no time to pass an order under Rule 86A.

Both counsels for the respondents submitted that the investigation relating to PSN Traders was still ongoing and, therefore, the blocked credit need not be released during the one-year restriction period under Rule 86A(2).

Justice C.Saravanan after hearing both sides and noting the communication from the Superintendent in the Office of the first respondent to the second respondent, directed the first respondent to pass suitable orders after obtaining necessary inputs from the second respondent.

The Court instructed that this process be completed at the earliest, preferably within four weeks from the date of receiving the order.

It was further directed that the petitioner be given an opportunity of hearing before any such order was passed. The writ petition was disposed of with these directions, without any order as to costs, and the connected miscellaneous petition was closed.

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