THE HONOURABLE SRI JUSTICE P.SAM KOSHY AND THE HONOURABLE SRI JUSTICE N.TUKARAMJI WRIT PETITION No.5256 OF 2024 ORDER:(per Hon’ble Sri Justice P.SAM KOSHY Heard Mr.S.Dwarkanath, learned Senior Counsel appearing on behalf of Mr.Siddharth Gilda, learned counsel for the petitioner, Mr.Swaroop Oorilla, learned Special Government Pleader for respondent Nos.1 and 2 and Mr.Rajesh Reddy, learned counsel representing Mr.Gadi Praveen Kumar, learned Deputy Solicitor General of India for respondent No.3. Perused the material available on record.

2. The instant writ petition has been filed assailing the action on the part of the respondents in blocking the input tax credit against the petitioners to the tune of Rs.50,06,000/-, vide order dated 06.02.2024, for the period from 01.02.2024 to 13.02.2024.

3. The said action on the part of the respondents has been challenged on two primary grounds; firstly, that the impugned action of blocking the input tax credit to the aforesaid amount was without issuance of any show cause notice to the petitioner. Secondly, the input tax credit has been blocked in contravention to the provisions of Rule 86 (A) of the CGST Rules 2017, where the blocking can only be done so far as the input tax credit available in the electronic credit ledger of the petitioner and could not have been by way of making negative credit.

4. On the previous date of hearing, we have asked the Standing Counsel for the State to seek instructions on these issues.

5. Today, the learned Standing Counsel for the State submits that upon instructions he has been informed to state that the impugned action of blocking the input tax credit was without issuance of any show cause notice. Thus the said action on the part of the respondents in passing the order of blocking the input tax credit to the tune of Rs.50,06,000/- by making a negative credit in the electronic credit ledger of the petitioner is per se bad in law and violative of principles of natural justice. As regards the second ground, there is a recent decision of the Division Bench of the Gujarat High Court, in the case of Samay Alloys India Pvt.Ltd. vs. State of Gujarat¹ decided on 03.02.2022, dealing with the aspect of Rule 86(A) of the CGST Rules 2017, wherein in paragraph Nos.38 to 44 and

57 has held as under:

38. The revenue may legitimately argue that such an interpretation may make the entire Rule 86A toothless as parties can claim and immediately utilise the credit fraudulently availed by filing monthly returns. Accordingly, C/SCA/18059/2021 JUDGMENT DATED: 03/02/2022 it may be practically impossible to invoke Rule 86A in large number of cases. This may be the actual implication of the present interpretation, however, the Government in its wisdom has framed Rule 86A and this rule is not framed to recover the credit fraudulently availed. In case where credit is fraudulently availed and utilised, appropriate proceeding under the provisions of section 73 or section 74, as the case may be, can be initiated. Secondly, Rule 86A is not the rule which provides for debarring the registered person from using the facility of making payment through the electronic credit ledger. In case the intention was to disallow future debits or credit in electronic credit ledger, the text of the rule would be entirely different.

39. Accordingly, even though Rule 86A may be invoked in very limited number of cases, this cannot be the basis to invoke the rule in the C/SCA/18059/2021.

cases which are not supported by the plain language of the rule.

40. The Rule 86A empowers the proper officer to disallow debit from the electronic credit ledger for an amount equivalent to the amount claimed to have been fraudulently availed. Accordingly, the rule provides for restriction on an amount and not on the very credit which is fraudulently availed. Accordingly, the rule can be invoked even when the credit fraudulently availed is utilised.

41. In the aforesaid regard, first the language of an amount equivalent appears in t