The Allahabad High Court has set aside an order blocking Input Tax Credit (ITC) of a taxpayer, holding that the action taken by the GST authorities under Rule 86A of the CGST Rules, 2017 cannot be sustained in the absence of a recorded “reason to believe” based on tangible material.
The bench of Justice Saumitra Dayal Singh and Justice Swarupama Chaturvedi has noted that the only reason cited for blocking the ITC was a vague reference stating “as per recommendation of Superintendent (AE), Mirzapur,” which clearly indicated absence of independent application of mind by the competent authority. It emphasized that such mechanical reliance on subordinate recommendations does not meet the statutory threshold required under Rule 86A.
The petitioner challenged the blocking of ITC amounting to ₹2,68,416/- in the Electronic Credit Ledger by the Assistant Commissioner, CGST, Mirzapur. The petitioner argued that the impugned action was wholly without jurisdiction, as no independent satisfaction or cogent reasons had been recorded by the authority before invoking Rule 86A.
On the other hand, the GST department contended that the action was based on an intelligence report and an Alert Circular issued following investigation into one of the petitioner’s suppliers. It was alleged that the supplier was involved in suspicious transactions and that the petitioner had availed ITC based on such supplies. However, the Court found that such generalised alerts and tentative findings, without specific linkage to the petitioner’s transactions, could not form the basis of a valid “reason to believe.”
Relying on earlier judicial precedents, including its own decision in M/s Pilcon Infrastructure Pvt. Ltd. and Supreme Court rulings, the Court reiterated that recording of “reasons to believe” in writing is a mandatory precondition for invoking Rule 86A. The belief must be based on relevant, specific, and tangible material having a direct nexus with the alleged wrongful availment of ITC. Mere suspicion, conjecture, or borrowed satisfaction is not sufficient to sustain such action.
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The Court highlighted that blocking of ITC is a serious measure that disrupts the seamless credit chain, which is fundamental to the GST regime. Therefore, strict compliance with statutory safeguards is essential. It observed that even though such action may be taken ex parte, the requirement to record proper reasons becomes even more critical to prevent arbitrary exercise of power.
The Bench further noted that failure to disclose the basis of the “reason to believe” deprives the taxpayer of an effective remedy, as it becomes impossible to challenge the relevance or existence of such reasons. This lack of transparency undermines procedural fairness and accountability in tax administration.
The High Court quashed the impugned order blocking the ITC. However, it granted liberty to the GST authorities to pass a fresh order in accordance with law, provided that proper reasons are recorded and due application of mind is demonstrated.
Case Details
Case Title: M/S Shree Salasar Metals Versus UOI
Citation: JURISHOUR-1007-HC-2026(ALL)
Case No.: WRIT TAX No. – 1861 of 2026
Date: 27/04/2026
Counsel For Petitioner: Kushagra Agrawal, Suresh Kumar Maurya
Counsel For Respondent: Amit Mahajan, A.S.G.I., Dhananjay Awasthi
