Karnataka HC quashes GST ITC Block u/r 86A for Relying on Enforcement Reports without Independent ‘Reason to Believe’

The Karnataka High Court has annulled the blocking of Input Tax Credit (ITC) under Rule 86A of the Central Goods and Services Tax (CGST) Rules, 2017, due to the absence of an independent 'reason to believe' and lack of a pre-decisional hearing. The petitioner's ITC was blocked on July 9, 2024, based solely on enforcement reports without any independent verification or application of mind by the authorities. The court emphasized that Rule 86A requires the proper officer to have a justified belief, based on material evidence, that the ITC was fraudulently availed or is ineligible. Furthermore, the court highlighted that the blocking of ITC without granting the taxpayer an opportunity for a hearing violates principles of natural justice. Consequently, the court quashed the impugned order, underscoring the necessity for tax authorities to exercise their powers under Rule 86A judiciously, ensuring adherence to due process and safeguarding taxpayers' rights. ​Taxscan+2SAG Infotech Official Blog+2TaxGuru+2SAG Infotech Official Blog+2Taxsutra+2Taxscan+2Taxscan