PRAYAGRAJ, May 26, 2026 — In a significant ruling reaffirming procedural safeguards for taxpayers, the Allahabad High Court has set aside an order blocking the Input Tax Credit (ITC) of a private dairy company after finding that the tax authorities failed to record “reasons to believe” in writing — a mandatory precondition under the GST framework.
A division bench comprising Justice Saumitra Dayal Singh and Justice Vivek Saran quashed the order dated April 9, 2026, passed by the Joint Commissioner (Corporate-2), State Tax, which had blocked the ITC of M/s Mohan Milkfoods Private Limited in its Electronic Credit Ledger under Rule 86-A of the Uttar Pradesh Goods and Services Tax Rules, 2017.
The petitioner, represented by Senior Advocate Rakesh Ranjan Agarwal along with counsel Nitin Kumar Kesarwani and Suyash Agarwal, contended that the essential precondition for exercising jurisdiction under Rule 86-A had not been fulfilled, as no “reason to believe” was recorded in writing before the extreme action of blocking ITC was taken.
During the proceedings, the court directed the Standing Counsel for the revenue to produce clear written instructions confirming the existence of such recorded reasons. When the written instructions dated May 25, 2026, were produced, the court found that while several paragraphs offered reasoning to support the blocking order, the impugned order itself contained no recital of such reasons — it merely stated the conclusion that the petitioner had fraudulently availed ITC.
Drawing on established constitutional jurisprudence, the court cited the Supreme Court’s landmark decision in Mohinder Singh Gill & Anr. vs. The Chief Election Commissioner, New Delhi & Ors. (1978), famously holding that “orders are not like old wine becoming better as they grow older” — an order must stand on its own strength and cannot be supplemented by subsequent affidavits or reasoning.
The bench also placed strong reliance on a coordinate bench ruling in M/s Pilcon Infrastructure Pvt. Ltd. vs. State of U.P. & Anr. (2025), which had elaborated extensively on what constitutes a valid “reason to believe.” That ruling emphasised that there must be a rational basis for the belief, that the grounds must be germane to the formation of the belief, and that the belief must be held in good faith and not as a mere pretence.
“It may not be forgotten, granting ITC and maintaining its chain is the soul of a successful GST regime,” the court had observed in Pilcon Infrastructure, a sentiment echoed by the present bench. “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.”
The court declared the impugned order “jurisdictionally deficient” and set it aside, while granting liberty to the revenue to pass a fresh order strictly in accordance with law.
The ruling underscores the judiciary’s consistent position that the requirement to record “reasons to believe” in writing is a non-negotiable, mandatory condition — even when the power is exercised ex-parte against the assessee.
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