Facts of the Case

Eight connected writ petitions, led by M/S M.M. Traders vs State of U.P. (Writ Tax No. 212 of 2022), along with Writ Tax Nos. 950 of 2021, 297, 298, 299, 307, 310 and 287 of 2022, came up together before a Division Bench of the Allahabad High Court. Each petitioner was a registered dealer aggrieved by the blocking of Input Tax Credit (ITC) in its electronic credit ledger by the jurisdictional GST authority in exercise of power under Rule 86A of the CGST/UPGST Rules, 2017. The petitioners had approached the Court directly under Article 226, without first raising formal objections before the authority that had ordered the blocking, seeking a judicial declaration that the restriction was unwarranted on the facts of their respective cases.

Issues Involved

  1. Whether the blocking of Input Tax Credit under Rule 86A of the CGST/UPGST Rules, 2017 in each of the eight petitions warranted interference in writ jurisdiction.
  2. Whether the petitioners were required to first exhaust the remedy of raising objections before the Commissioner or the authorised officer under Rule 86A(2) before invoking Article 226.
  3. What procedure the departmental guidelines dated 23 November 2021 prescribe for lifting a Rule 86A restriction.

Petitioner's Arguments

  • The petitioners contended that the blocking of ITC in their respective electronic credit ledgers was arbitrary and not backed by the "reasons to believe" mandated under Rule 86A(1).
  • It was urged that the restriction was causing serious prejudice to working capital and ought to be lifted by the Court.
  • Counsel for the petitioners sought a substantive determination on the validity of the blocking action in each case.

Respondent's Arguments

  • The State and Union of India, represented by standing counsel, relied on Rule 86A(2), which empowers the Commissioner or the authorised officer to lift the restriction once satisfied that the grounds for blocking no longer survive.
  • Reference was made to the Commissioner of Commercial Tax, U.P.'s guidelines dated 23 November 2021, which lay down a structured procedure for taxpayers to seek release of blocked credit before the departmental authority itself.

Court Order/Findings

  • The Division Bench examined Rule 86A(2) together with paragraph 3.4 of the Commercial Tax guidelines dated 23 November 2021, which permits the authorised officer to allow debit of the disallowed credit on being satisfied that the grounds for restriction no longer exist.
  • The Court held that the petitioners should first approach the authorised officer raising objections against the blocking of ITC, and that authority is under a statutory obligation to decide the objection within a time-bound period.
  • All eight writ petitions were disposed of with liberty to the petitioners to submit objections under Rule 86A(2) within two weeks, along with a certified copy of the order.
  • The concerned authority was directed to decide such objections, if filed within the stipulated period, by a speaking and reasoned order within three further weeks, after affording a reasonable opportunity of hearing.
  • The Court expressly clarified that it had not expressed any opinion on the merits of any of the cases.

Important Clarification

  • A dealer aggrieved by blocking of ITC under Rule 86A must, as a rule, first invoke the departmental remedy under Rule 86A(2) before the authorised officer rather than approaching the writ court in the first instance.
  • The Commissioner of Commercial Tax, U.P.'s guidelines dated 23 November 2021 create a time-bound, structured mechanism for release of blocked credit, and courts will ordinarily relegate parties to that mechanism.
  • Such disposal is procedural in nature and does not amount to any finding, favourable or adverse, on whether the original blocking was justified.

Sections Involved

  • Rule 86A, CGST Rules, 2017 — empowers the Commissioner or an authorised officer to disallow debit of the electronic credit ledger where input tax credit is believed to be fraudulently availed or ineligible, subject to a one-year outer limit.
  • Rule 86A(2), CGST/UPGST Rules, 2017 — permits the authority to allow debit of the disallowed credit once satisfied that the grounds for restriction no longer exist.
  • Article 226, Constitution of India — invoked by the petitioners to challenge the blocking action.

Decision – In Favour of

Disposed of with directions, without any finding on merits — a procedural outcome that is neutral between the Assessee and the Department, giving the petitioners a time-bound departmental remedy under Rule 86A(2) rather than a substantive ruling either way.

Related Case Laws

No related case laws are available on this site at present for cross-reference on this specific point.

Case Details

  • Court: Allahabad High Court
  • Case No.: WRIT TAX No. 212 of 2022 (with connected Writ Tax Nos. 950/2021, 297/2022, 298/2022, 299/2022, 307/2022, 310/2022, 287/2022)
  • Coram: Hon'ble Surya Prakash Kesarwani, J. and Hon'ble Jayant Banerji, J.
  • Date of Order: 7 April 2022

Link to Download the Order

Download the full judgment (PDF)

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.