M/S. Ssap Traders vs. The Deputy Commissioner (CT)
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The petitioner, M/s. SSAP Traders, filed a writ petition seeking a mandamus to unblock their Electronic Credit Ledger (ECL) amounting to Rs. 97,84,048/-. The ECL was blocked on May 13, 2026, and June 9, 2026, for a total sum of Rs. 1,34,93,312/-. The blocking was based on a communication from the Joint Commissioner (ST) to the Assistant Commissioner (ST). The petitioner contended that the blocking violated principles of natural justice, citing a previous High Court decision. The respondents stated that an inspection of a supplier, Tvl. G.M. Traders, revealed they were not operating from their registered address. A physical inspection report of the petitioner's premises was generated on June 9, 2026, followed by a Show Cause Notice (SCN) in Form GST REG-17 on the same date, leading to an order in Form GST REG-19 on July 10, 2026. Subsequently, an SCN in DRC-01 was issued on June 10, 2026, revised on August 18, 2026, culminating in an order in GST DRC-07 on August 27, 2026.
Held
The Court held that the relief sought by the petitioner, to unblock the ECL, could not be granted on the strength of the decision in Tvl. J.M. Traders. The reasoning was that the respondents had taken subsequent actions, including issuing Show Cause Notices and passing orders related to cancellation of GST registration and determination of amounts due. The Court noted that the blocking of Input Tax Credit (ITC) is for a period of one year from the date of restriction as per Rule 86A(3). It was incumbent upon the petitioner to move an application for unblocking under Rule 86A(2). The Court found that the petitioner had not pursued this remedy and was instead trying to take advantage of the earlier decision. Therefore, the writ petition was dismissed. However, liberty was granted to the petitioner to challenge the subsequent orders cancelling GST registration and determining the amount due, and thereafter, to request for unblocking of ITC, subject to a valid challenge to the order in GST DRC-07 dated August 27, 2026.
Key Issues
1. Whether the blocking of the petitioner's Electronic Credit Ledger (ECL) to the tune of Rs. 97,84,048/- was done in violation of the principles of natural justice, specifically concerning the communication of reasons for blocking under Rule 86A of the SGST/CGST Rules, 2017? Petitioner's Contention: The petitioner argued that the blocking of their ECL was in violation of natural justice, relying on the High Court's decision in Tvl. J.M. Traders vs. The Deputy Commissioner (ST), Chennai, which held that while Rule 86A does not mandate a prior notice, it requires contemporaneous communication of reasons in writing to the assessee. The petitioner asserted that no reasons were provided beyond mentioning the supplier's name. Respondents' Contention: The respondents submitted that an inspection of the supplier revealed non-operation from the registered address. They also conducted a physical inspection of the petitioner's premises, issued a Show Cause Notice (Form GST REG-17) on June 9, 2026, which led to an order (Form GST REG-19) on July 10, 2026. Further, they issued an SCN in DRC-01 on June 10, 2026, revised on August 18, 2026, culminating in an order in GST DRC-07 on August 27, 2026. The respondents also pointed out that the blocking of ITC is for one year as per Rule 86A(3) and the petitioner had not approached the authorities under Rule 86A(2) after the blocking.
Sections Cited
Rule 86A, Rule 86A(2), Rule 86A(3)
AI-generated summary — verify with the full judgment below
Cause title — parties, addresses and appearances
O R D E R The petitioner has filed this Writ Petition for issuance of a Writ of Mandamus directing the first and second respondents and/or anyone acting under or through them, being the competent authorities, to unblock the petitioner's Electronic Credit Ledger to the tune of Rs.97,84,048/-, which was blocked on 13.05.2026 and 09.06.2026, within the period stipulated by this Court.
The petitioner's Input Tax Credit has been blocked on 13.05.2026 and 09.06.2026 for a total sum of Rs.1,34,93,312/-. The blocking of the Input Tax Credit is based on the communication dated 01.06.2026 bearing reference Roc.No.1921/2026/B5, received by the Blocking Authority, _____________ Page No. 2 of 8 https://www.mhc.tn.gov.in/judis namely, the second respondent, from the third respondent. The said communication is given below:-
The case of the petitioner is that the blocking of the Input Tax Credit in the petitioner's Electronic Credit Ledger has been done in violation of the principles of natural justice. A reference is made to the _____________ Page No. 3 of 8 https://www.mhc.tn.gov.in/judis decision of this Court in Tvl. J.M. Traders vs. The Deputy Commissioner (ST), Zone 1, Chennai North, Chennai, in W.P.No.1387 of 2024, wherein, in paragraph 5, it has been stated as follows:- “5. The power under Rule 86A may be exercised by any of the persons specified in sub-rule (1) thereof if such person has reasons to believe that the ITC available in the electronic credit ledger was fraudulently availed or that the registered person was not eligible for such credit. The text of Rule 86A indicates two requirements: the objective satisfaction of the officer concerned and the communication of reasons for so believing in writing to the assessee concerned. While Rule 86A does not stipulate a prior notice, the language thereof and the nature of power exercised by resort thereto require the contemporaneous communication of reasons in writing to the assessee. In the case at hand, apart from mentioning the name of the supplier in the electronic credit ledger, no reasons were provided. Therefore, the petitioner is entitled to the unblocking of ITC.”
The learned Government Advocate (Taxes) for the respondents, on the other hand, submits that an inspection was carried out at the premises of the supplier, namely, Tvl.G.M.Traders and it was found that Tvl.G.M.Traders was not carrying on business at the registered place of business. It is further the case of the respondents that the petitioner's place was also inspected, pursuant to which a physical inspection report was _____________ Page No. 4 of 8 https://www.mhc.tn.gov.in/judis generated on 09.06.2026. It is submitted that thereafter, the petitioner was also issued a Show Cause Notice in Form GST REG-17 on 09.06.2026, which culminated in the order dated 10.07.2026, with effect from 18.09.2025, in Form GST REG-19. 5. The learned counsel for the petitioner confirms the same and submits that the petitioner is working out the remedy insofar as the cancellation of the GST registration is concerned.
The learned Government Advocate (Taxes) for the respondents, at this stage, submits that, following the above developments, the petitioner has also been issued with a Show Cause Notice in DRC-01 dated 10.06.2026, followed by a revised Show Cause Notice in DRC-01 dated 18.08.2026, which has culminated in the order in GST DRC-07 dated 27.08.2026. 7. The blocking of the Input Tax Credit is for a period of one year from the date of imposing such restriction. This is evident from a reading of Rule 86A(3) of the SGST/CGST Rules, 2017. After the credit was blocked, it is incumbent on the part of the petitioner to move an _____________ Page No. 5 of 8 https://www.mhc.tn.gov.in/judis application inviting the Commissioner to pass an order under Rule 86A(2) subject to a valid challenge to the order in GST DRC-07 dated 27.08.2026, confirming the demand that was originally proposed in the Show Cause Notice in DRC-01 dated 10.06.2026, followed by a revised Show Cause Notice in DRC-01 dated 18.08.2026. _____________ Page No. 6 of 8 https://www.mhc.tn.gov.in/judis
With the above liberty, this Writ Petition stands dismissed. There shall be no order as to costs. 11.09.2026 JEN NCC : Yes / No Index : Yes / No To 1.The Deputy Commissioner (CT), Thanjavur Zone, Commercial Taxes Building, 1st Floor, 20/3, Sachidananda Moopanar Road, Thanjavur - 613 001. 2.The Assistant Commissioner (ST), Thanjavur -II Circle, Thanjavur Zone, Commercial Taxes Building, 1st Floor, 20/3, Sachidananda Moopanar Road, Thanjavur - 613 001. 3.The Joint Commissioner (ST), Thiruvarur Division, Thanjavur Zone, Commercial Taxes Building, 1st Floor, 20/3, Sachidananda Moopanar Road, Thanjavur- 613 001. _____________ Page No. 7 of 8 https://www.mhc.tn.gov.in/judis C.SARAVANAN, J. JEN
2026 _____________ Page No. 8 of 8 https://www.mhc.tn.gov.in/judis
Reproduced from the public record of the Madras High Court. Verify against the court's own copy before relying on it. Income tax judgments are on bharattax.net.