Rule 86A of the Central/State Goods and Services Tax Rules, ...

Court quashes blocking of Tax Credit Ledger for lack of reasons and natural justice.

Case Laws     GST

November 13, 2024

Rule 86A of the Central/State Goods and Services Tax Rules, 2017, which allows blocking of the Electronic Credit Ledger, has been held unconstitutional by the High Court due to violation of principles of natural justice. The Court observed that no pre-decisional hearing was provided to the petitioner, and the impugned order lacked independent or cogent reasons, relying solely on reports from the Enforcement Authority, which amounts to "borrowed satisfaction." The Court relied on its previous decision in K-9-ENTERPRISES, where it held that in the absence of valid and sufficient material constituting "reasons to believe," the mandatory requirements/prerequisites/parameters contained in Rule 86A were not fulfilled, and the respondents were not entitled to block the Electronic Credit Ledger by invoking the said Rule. Consequently, the impugned order dated 06.05.2024, blocking the petitioner's Electronic Credit Ledger u/r 86A, was quashed by the High Court for being illegal and arbitrary.

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