No, held the Hon’ble Orissa High Court in M/s Transtech Solution v. Commissioner, CT & GST Odisha & Ors. [2025 TAXONATION 1896 (ODISHA)]. In this case, the petitioner challenged the blocking of its Input Tax Credit under Rule 86A of the CGST/OGST Rules, alleging that the suppliers were non-existent and that ITC was fraudulently availed. The petitioner asserted that it had genuine transactions, duly supported by tax invoices, e-way bills, books of accounts, and payment proofs. However, without granting any opportunity of hearing or evaluating the material evidence submitted, the authorities proceeded to block the credit citing “fraudulent availment” under Rule 86A. The Hon’ble High Court clarified that blocking of credit under Rule 86A is an extraordinary power that can only be exercised when the Commissioner or an authorised officer (not below the rank of Assistant Commissioner) has "reasons to believe" that the ITC is ineligible or fraudulently claimed. The phrase “reasons to believe,” as interpreted by the Supreme Court in State of U.P. vs Aryaverth Chawal Udyog [2014 (11) TMI 1095 – SC], requires tangible material and an objective application of mind, not vague suspicion or administrative convenience. The Court observed that the authenticity of invoices, matching of records, and supplier status are all factual matters that can only be evaluated through proper adjudication upon submission of documentary evidence. Since no such adjudication was carried out and no clear reasons were recorded in support of the ITC blocking, the Court refrained from deciding on the factual merits but highlighted the procedural lapses and lack of evidentiary application.
Author’s Comments:
Rule 86A of the CGST Rules confers an extraordinary and pre-emptive power, meant strictly for five narrowly defined situations. Its invocation must be based on clear, tangible material and supported by the statutory standard of “reasons to believe”—a threshold higher than mere suspicion or administrative expedience. ITC is a vested and indefeasible right, recognised as akin to property. Blocking its utilisation without first examining the taxpayer’s documentary evidence—such as invoices, e-way bills, payment proofs, and books of accounts—amounts to a serious infraction of procedural fairness. The zeal to protect revenue does not legitimise bypassing due process.
The non-appealable nature of ITC blocking (despite its absence from Section 121 of the CGST Act) further heightens the duty of the Commissioner/authorised officer to act with restraint and precision. Notably, the Hon’ble Karnataka High Court in K-9 Industries v. State of Karnataka [2024 TAXONATION 2616 (KARNATAKA)] has affirmed that an opportunity of hearing must be granted before blocking of the electronic credit ledger.
In the present case, the absence of recorded “reasons to believe,” coupled with the failure to adjudicate upon the material evidence supplied by the taxpayer, rendered the ITC blocking procedurally unsustainable. Such lapses not only erode taxpayer trust but also risk judicial invalidation of the very revenue protection measures sought to be preserved.
GST Case Law M/s Transtech Solution v. Commissioner, CT & GST Odisha & Ors.
Citation-2025 TAXONATION 1896 (ODISHA)(Click here to read full case law)
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