The Madurai Bench of the Madras High Court has affirmed the blocking of more than Rs ₹4.10 crore of Input Tax Credit (ITC) under Rule 86A of the GST Rules. It ruled that the GST department had adequate material to form a reason to believe that the credit was claimed fraudulently. Therefore, the Court dismissed the writ petition of the taxpayer contesting the blockage of its Electronic Credit Ledger.
Justice D. Bharatha Chakravarthy noted that Rule 86A, while conferring significant authority on tax officials, can be legitimately used if there is sufficient proof of fraudulent Input Tax Credit claims.
The applicant, a manufacturer of TMT steel bars, contested the order of the GST department refusing to unblock the ITC of nearly Rs 4.10 crore. The issue emerged after the searches performed at the premises of the company in September and October 2025 led to multiple ITC blockages.
The company said that the blockages had impacted its business operations and that the transactions could not be considered fraudulent before completion of assessment proceedings.
The taxpayer argued that any wrongdoing should be pursued against the suppliers, not the buyer. It was impractical for a buyer to perform an investigation concerning the affairs of every supplier.
Recommended: How GST Software Resolves GSTR-3B & 2A/2B ITC Mismatches
Investigation of four suppliers discovered serious discrepancies, suggesting that the underlying transactions were not genuine; the GST department upheld. Authorities discovered that the suppliers do not have the infrastructure needed to deal in TMT steel and scrap materials, and were allegedly engaged in fake bill trading.
Verification of vehicle movements, CCTV footage, E-Way Bills, and inward records shows inconsistencies that specifies doubt on the genuineness of the transactions.
The High Court analyzed the material placed on record and stated that the department had recorded detailed reasons upheld under objective proof and that the action was not taken mechanically. The Court then refused to interfere with the invocation of Rule 86A.
Read Also: Bombay HC Quashes Extended GST ITC Blocking, Says One-Year Limit Under Rule 86A Is Mandatory
The Court upheld the ITC blockage and asked the GST department to proceed with the consequential proceedings, including issuance of a show-cause notice, expeditiously and in accordance with law. Therefore, the writ petition was dismissed.
| Case Title | M/s.V.V. Iron Steel Company Private Limited vs The Assistant Commissioner |
| Case No. | W.P.(MD)No.10232 of 2026 |
| For Petitioner | Mr.T.Bashyam |
| For Respondent | Mr.R.Gowri Shankar Senior Standing Counsel |
| Madras High Court | Read Order |
