“It may not forgotten, granting ITC and maintaining its chain is the soul of a successful GST regime. Therefore, any doubt or suspicion alone may not lead an action by the authorities to block the ITC of the assessee and disrupt the entire value addition chain and consequentially tax payments without fulfulling statutory tax requirements, without fulfilling the mandatory requirement of law - to record 'reasons to believe', 'in writing',” held the division bench comprising Justice Saumitra Dayal Singh and Justice Indrajeet Shukla.

The petitioner's Input Tax Credit was blocked by the Goods and Services Tax Network. This was communicated to them by email dated 24.07.2025. However, in doing so, the petitioner contended that 'reasons to believe' were not 'recorded in writing'. It was submitted that a mere entry in the Electronic Credit Ledger did not meet the standard as per Rule 86A of the U.P.G.S.T. Rules 2017. Accordingly, they prayed for unblocking of the credit before the High Court.

The Court held that when the Rule requires 'reasons to believe' to be 'recorded in writing', no consequences would follow under it without adhering to the said requirement. It was held that such reasons could be recorded ex-parte, however, the mandatory requirement would remain unchanged.

Further, the Court clarified that a mere mention in the Electronic Credit Ledger to the effect that the supplier was found non-functional would not suffice the condition under Rule 86A.

Accordingly, the petition was allowed.

Case Title: M/S Pilcon Infrastructure Pvt. Ltd. v. State of U.P. & Anr. [WRIT TAX No. - 4654 of 2025]

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