The Punjab and Haryana High Court has held that the blocking of Input Tax Credit (ITC) in an assessee’s electronic credit ledger without passing a reasoned order is contrary to the mandate of Rule 86A of the Central Goods and Services Tax Rules, 2017.
The bench of Justice Deepak Sibal and Justice Lapita Banerji ruled that authorities cannot freeze a taxpayer’s available credit merely through an administrative communication without recording reasons and following the procedure prescribed under law.
The petitioner/assessee, Shreyash Retail Private Limited challenged the action of the State Tax authorities in blocking its ITC. According to the petition, the blockage had been communicated through an email dated January 13, 2026, without any formal order being passed by the competent authority. The petitioner contended that such action lacked statutory backing and violated procedural safeguards under the GST framework.
The Bench examined the scope of Rule 86A of the CGST Rules. The Court noted that the provision grants power to the Commissioner or an authorized officer not below the rank of Assistant Commissioner to block ITC only where there are reasons to believe that such credit has either been fraudulently availed or is otherwise ineligible. However, the exercise of this power is not unrestricted and requires compliance with statutory conditions.
The Court emphasized that the requirement of “reasons to believe” is not a mere formality. Such reasons must exist prior to the exercise of power and should be reflected in an order passed by the competent authority. In the present matter, it was undisputed that before blocking the petitioner’s ITC available in the electronic credit ledger, no order had been passed recording reasons for such action.
Taking note of this procedural lapse, the High Court concluded that the impugned action was in direct contravention of Rule 86A. The Bench observed that the blocking of credit without a formal order and without recording reasons could not be sustained under law. The Court therefore held the action to be illegal.
The Court ordered the release of the petitioner’s blocked ITC. However, while granting relief, the Bench clarified that the tax authorities would remain at liberty to initiate fresh proceedings against the petitioner, provided such action is undertaken strictly in accordance with law and after following the procedure prescribed under the statutory framework.
Case Details
Case Title: M/s Shreyash Retail Private Limited Versus The Assistant Commissioner of State Tax and another
Citation: JURISHOUR-1293-HC-2026(ALL)
Case No.: CWP-14419-2026 (O&M)
Date: 12.05.2026
Counsel For Petitioner: Kumar Vislaksha, Advocate
Counsel For Respondent: Saurabh Kapoor, Additional Advocate General
