Madras HC Directs Review of Blocked GST ITC Claims Within Four Weeks

The Madras High Court has directed the tax officials to take another look at a case where a person’s Input Tax Credit was blocked. The court has asked them to make a decision and provide the necessary orders within the next four weeks.

V V Steels, a company that pays taxes, was monitored by the Assistant Commissioner of GST and Central Excise. The company was involved in business dealings with PSN Traders, which is overseen by a different authority at the state level.

As PSN Traders was operating with no physical place of business, proceedings were initiated against it, which consequence in the cancellation of its GST registration. As per these details, the first respondent thereupon blocked the Input Tax Credit of the applicant dated 12.12.2024.

The counsel of the applicant has stated that the first respondent had dated 28.05.2025, written to the second respondent, citing that the applicant had provided all documents, including e-way bills, invoices, payment slips, and bank details pertinent to PSN Traders, and that the transactions seemed to be in order.

As per the counsel, the first respondent must act u/s 86A(2) of the GST Rules. The counsel, referring to the Central Board of Indirect Taxes and Customs ( CBIC ) guidelines dated 02.11.2021, cited that the authorities can permit the use of blocked credit if it was thereafter discovered to be valid, and that these restrictions automatically ceased after 1 year.

The counsel of the first respondent cited that the request of the applicant for unblocking the ITC shall be considered based on the following developments. The applicant had approached the Court after filing the representation, leaving no time to pass an order under Rule 86A.

Both counsels for the respondents filed that the investigation of the PSN traders was in process and hence the blocked credit is not required to be released during the one-year restriction period under Rule 86A(2).

Justice C.Saravanan, after hearing both sides and observing the communication of the Superintendent in the Office of the first respondent to the second respondent, directed the first respondent to pass orders after getting necessary inputs from the second respondent.

The court directed that the process be completed as soon as possible, within four weeks from the date of receipt of the order.

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The applicant needs to be provided a chance of a hearing before any such order is passed. The writ petition was disposed of with such directions without any order as to costs, and the related other petition was closed.