Facts :The petitioners’ goods were intercepted in transit and proceedings were initiated under Section 129 of the CGST Act for detention and seizure. Subsequently, authorities issued notices in Form GST MOV-10 invoking Section 130 for confiscation without completing Section 129 proceedings. The petitioners challenged such action contending that post-amendment, Sections 129 and 130 are independent and confiscation cannot be initiated midway. They also argued that confiscation requires intent to evade tax and cannot be presumed at interception stage.Court Decision:The Court held that Sections 129 and 130 of the CGST Act are independent and mutually exclusive provisions. It was held that even after amendment, there is no bar on invoking Section 130 at the stage of detention if the authority forms an opinion of tax evasion. However, invocation of Section 130 requires existence of material indicating intent to evade tax and cannot be based on mere suspicion. The Court recognized that confiscation can be initiated at threshold, but reasons must be recorded and the case must justify such action. It upheld the legal position that proceedings under Sections 129, 130, and 73/74 operate in distinct fields and are not dependent on each other.Cases Referred:Synergy Fertichem Pvt. Ltd. vs State of GujaratASP Traders vs State of U.P. & Ors.Dhanlaxmi Metals vs State of GujaratRajiv Traders vs Union of IndiaState of West Bengal vs Kesoram Industries Ltd.State of West Bengal vs Sujit Kumar RanaMohammad Abdul Samad vs State of Telangana

Facts :The petitioner, a registered GST dealer, challenged the action of the respondents in blocking its Electronic Credit Ledger (ECL) on 29.04.2024 by creating a negative balance.It was contended that such blocking exceeded the available Input Tax Credit and was done without prior notice, violating Rule 86A and principles of natural justice.The petitioner argued that Rule 86A only allows restriction of credit actually available in the ECL and does not permit creation of artificial negative balance.Court Decision:The Court held that Rule 86A can be invoked only when Input Tax Credit is available in the Electronic Credit Ledger.Blocking of ITC beyond the available amount, resulting in a negative balance, is without jurisdiction and impermissible.Rule 86A only allows temporary restriction on utilisation of existing credit and does not empower authorities to create debit entries or negative balances.The impugned action was set aside to the extent it blocked credit in excess of the available ITC, and the writ petition was allowed.The Court clarified that authorities are free to take recourse to statutory recovery mechanisms under Sections 73 and 74 of the CGST/HGST Acts.Cases Referred:Samay Alloys India Pvt. Ltd. vs State of GujaratBest Crop Science Pvt. Ltd. vs Principal CommissionerKings Security Guard Services Pvt. Ltd. vs Deputy Director, DGGIKaruna Rajendra Ringshia vs Commissioner of CGSTShyam Sunder Strips vs Union of IndiaLaxmi Fine Chem vs Assistant CommissionerRawman Metal and Alloys vs Deputy Commissioner of State TaxBasanta Kumar Shaw vs Assistant Commissioner of RevenueRM Dairy Products LLP vs State of U.P.Sugna Sponge and Power Pvt. Ltd. vs Superintendent of Central Tax

The writ petition was allowed. The assessment and demand order dated 29.08.2024, as well as the consequential attachment order dated 11.09.2025, were quashed and set aside.The Court held that the show cause notice for the financial year 2019–20 proposed recovery of tax amounting to Rs. 29,07,002/- and did not contain any proposal for imposition of interest or penalty.However, the impugned order imposed interest and penalty under CGST and SGST totaling Rs. 55,71,191/-. The Court found that such imposition was contrary to Section 75(7), which provides that the amount of tax, interest and penalty demanded in the order shall not be in excess of the amount specified in the notice and no demand shall be confirmed on grounds other than those specified in the notice.Since the show cause notice contained no reference to interest or penalty, the impugned order was held to be unsustainable and arbitrary.The matter was remitted to the adjudicating authority to pass fresh orders in accordance with law. 

Background.  On an application by UCO Bank under Section 7 of the Insolvency and Bankruptcy Code, 2016, CIRP was initiated against the first petitioner and admitted by the NCLT, Kolkata Bench on 07.03.2019. The process failed to produce a viable resolution plan and the company was admitted into liquidation on 05.03.2020. In liquidation it was sold as a going concern, the sale being confirmed by the NCLT on 11.12.2023 with waivers extinguishing claims arising prior to the initiation of CIRP which had not been lodged. An order in original dated 31.08.2024 under Section 73 nonetheless raised a demand of Rs. 4,28,33,922 with interest and penalty for FY 2019-20. The challenge to Notification No. 56 of 2023-Central Tax was not pressed.Observations of the Court.  Following its own decision in Kashvi Power Steel P. Ltd., and having regard to the waterfall in Section 53 of the Code under which operational creditors falling within the residual category of remaining debts and dues cannot claim priority over the preceding categories, the Court found no reason to take a divergent view.It observed that promotion of corporate revival is the avowed object of the Insolvency and Bankruptcy Code, 2016, and that a buyer of a corporate debtor as a going concern should, in cases such as the one at hand, not be saddled with past dues. The proceeding for FY 2019-20 initiated by the CGST authorities, which culminated in the impugned order, could not have been initiated at all.Final verdict.  The order in original dated 31.08.2024 was quashed and the writ petition was disposed of.

BackgroundThe petitioner,  Pilcon Infrastructure Pvt. Ltd., had its ITC amounting to Rs. 13,96,220/- blocked in its Electronic Credit Ledger (ECL) by Respondent No. 2 (State Tax Authority) vide e-mail communication dated 24.07.2025.The sole reason recorded in the ECL for blocking was "Supplier found non-functioning", with a reference to attachment bearing ECL No. 20250709584828, which turned out to be an Alert Notice dated 13.06.2025 received by the Commissioner of State GST from the Directorate General of GST Intelligence (DGGI), Raipur Zonal Unit.The DGGI communication stated that  Maa Kamakhaya Trading, Surguja  was found non-operational and had allegedly passed on fraudulent ITC without supply of goods through bogus invoices to various taxpayers, including those in Uttar Pradesh. The petitioner was one such recipient listed in Annexure-A of that communication.The petitioner contended that no 'reasons to believe' were recorded in writing by Respondent No. 2 as mandatorily required under Rule 86A(1) of the U.P. GST Rules, 2017, rendering the blocking action illegal and without jurisdiction. Court Observations (Verbatim)"Once the Rule requires 'reasons to believe' to be 'recorded in writing', the jurisdiction and authority to be exercised under Rule 86A of the Rules must subscribe to that mandatory condition. Though such reasons may be recorded ex-parte against the assessee, at the same time, the requirement of the statute to record the reasons is a non-negotiable condition. It is wholly mandatory.""Reliance placed by learned Standing Counsel on the 'Reason' as mentioned in the Electronic Credit Ledger, namely, 'Supplier found non-functioning', does not fulfill the requirement of Rule 86A(1) of the Rules, to the extent it does not reflect any application of mind to reach that conclusion.""That the goods claimed to have been supplied to the petitioner by the said supplier  Maa Kamakhaya Trading, Sarguja was a bogus transaction, may not be readily inferred, merely on the generic allegation made by DGGI, Raipur Zonal Unit that that dealer had made some non-generic transactions.""When the Rules require recording of 'reasons to believe', 'in writing', there must not only exist material that may give rise to the belief necessary to be recorded by respondent no.2 but the reasons must spring from material on record/leading to the necessary belief. It necessarily involves application of mind by the competent authority, here respondent no.2, to the facts brought before it.""Even though exercise of power under Rule 86A(1) of the Rules remained ex-parte to the assessee, yet, more especially for that reason, the requirement of the statute to first record 'reasons to believe', 'in writing' must be strictly enforced on the revenue authorities.""It may not be 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 fulfilling the mandatory requirement of law — to record 'reasons to believe', 'in writing'." Final VerdictThe blocking of ITC vide e-mail dated 24.07.2025 was set aside. The Court directed that the blocked ITC be unblocked forthwith. Liberty granted to Respondent No. 2 to take fresh action strictly in accordance with law under Rule 86A(1), if warranted. Petition allowed. No order as to costs.