Rule 86A of the CGST Rules, 2017 —- Blocking of ITC — The applicant prayed for quashing the action of Respondent No.3 regarding blocking of ITC of the Petitioner; for directions to the Respondents to unblock the ITC. The respondent no.3 had blocked the ITC in exercise of power under Rule 86A of the Rules. The petitioner came to know such blocking of the ITC through E-mail and SMS on 28.07.2021. The ITC had been blocked without assigning any reasons. The counsel for the applicant submitted that the respondent no.3 was required to convey the reasons. The court observed that Rule 86A has two pre-requisites to be fulfilled. The first is that the Competent Authority having been satisfied on the basis of the material available before him that blocking of ECL is necessary. The second pre-requisite is of recording the reasons in writing for such an exercise of the power. The power to block ECL is drastic in nature. It creates a disability for the tax payer to avail of the credit in ECL for discharge of his tax liability, therefore, all the requirements of rule 86-A would have to be fully complied. The court further observed that the order is bereft of any reasons. The first requirement of Rule 86A has manifestly been not followed, the impugned order would have to be treated as erroneous in law. The second requirement regarding recording of reasons in writing is also followed in breach.

Held that:- The Hon’ble High Court partly allowed the writ application and quashed the impugned order of blocking of the ECL. The respondents are at liberty to pass a fresh order under Rule 86A in accordance with law.