This court have not gone into the issue as regards the constitutional validity of Rule 86A of the Rules but only say that the investigation cannot continue for an indefinite period of time. In such circumstances, we direct the respondents to complete the investigation within a period of four weeks from the date of the receipt of this order and take an appropriate decision
Rule 86A of the CGST Rules, 2017- blocking of Input Tax Credit – The applicants in two writs prayed for quashing the blocking of ITC; directing Respondent to allow him to utilize such ITC. Further, prayed for quashing DRC-03 Form. The applicants received the tax invoices from its suppliers and the transactions of inputs received and the ITC availed have been recorded in the electronic credit ledger. The department suspected the applicant received inputs involving ITC on invoices without receiving the goods. The court observed that there should be no interference when the investigation is in progress. The respondents have submitted that at the end of the investigation if they decide to issue a SCN under Section 74 of the Act, then all the materials relied upon by the Department shall be disclosed. In another writ the court observed that the investigation cannot continue for an indefinite period of time. Rule 86A of the Rules prescribes one year time limit.
Held that:- The Hon’ble High Court rejected both writs and held that the invocation of Rule 86A may be justified on some cogent materials that the ITC is sought to be availed based on fraudulent transactions. The power conferred for blocking the ITC could be termed as a very drastic and far-reaching power. Such power should be used sparingly and only on subjective weighty grounds and reasons. The Government needs to lay down some guidelines or procedure for the purpose of invoking Rule 86A of the Rules. In second writ, the court directed the respondents to complete the investigation within a period of four weeks.