Rule 86A: Electronic Credit Ledger cannot be blocked just on basis of GST intelligence reports

High Court in the matter of Rajnandini Metal Ltd. vs Union of India said that GST Authority cannot block the Electronic Credit Ledger (ECL) just on the basis of intelligence reports received from the GST authorities.

In this case, the Rule 86A of CGST Rules was invoked against the petitioner on basis of an intelligence report received from the Principal Chief Commissioner, Central Excise and Central Tax, Vadodara Zone regarding a racket of firms indulging in fake judicial and passing of illicit Input Tax Credit (ITC).

As per the Court “Merely by recording that some investigation is going-on a drastic far-reaching action under Rule 86A of the CGST Rules cannot be sustained. There is no reason recorded by the Authority for exercising power under Rule 86A of the CGST Act, 2017 which would show independent application of mind that can constitute reasons to believe which is sine qua non for exercising power under Rule 86A of the CGST Rules. It is trite law that a speaking order has to be self sustainable and respondents at this stage cannot be allowed to justify the same by adding reasons to it by filing additional affidavits. From the reading of the order it is evident that it is bereft of any material or ‘reason to believe’ that the petitioner is guilty of fraudulent transaction or is ineligible under Section 16 of the CGST Act.“