GST | Negative Blocking Under R. 86A Is Not Permissible: Punjab & Haryana HC

The Punjab and Haryana High Court has held that the negative blocking under Rule 86A of the GST Rules is not permissible. The bench of Justice Lisa Gill and Justice Meenakshi I. Mehta has observed that in terms of Section 41(1) of the CGST Act, every registered person, subject to the conditions and restrictions as may be prescribed, is entitled to avail credit of eligible ITC. Such credit is to be availed by filing a return on self-assessment basis. Such an amount is then required to be credited in the taxpayer's ECL. Sub-section (2) of Section 41 of the CGST Act provides that if ITC has been availed by a registered person in respect of supplies of goods or services or both and the tax payable on such supplies has not been paid by the supplier then such input tax is required to be reversed along with applicable interest. “There is no cavil that ITC is availed by a registered person when he files a return and the same is credited in his ECL. The credit of input tax as available in the ECL is then available to the taxpayer for discharging his dues under the CGST Act or in given cases, for seeking its refund," the bench said. The writ petitions primarily pertain to and are restricted to the action of GST Department for blocking of Electronic Credit Ledger (ECL) of respective petitioners. The ECL of petitioners was blocked on the premise of it being availed fraudulently and petitioners not being eligible for the same with some suppliers not being in existence. Issue raised was whether Rule 86-A of Goods and Services Tax Rules, 2017 permit the Commissioner or an officer authorized by him to block a tax payer's ECL by an amount exceeding the credit available at the time of issuance of the order. Advocate Deepak Gupta, the counsel for the petitioners contended that all petitioners are duly registered under the Central Goods and Services Tax Act/Rules, 2017. The petitioners submitted that orders passed under Section 86-A of Act/Rules, 2017 blocking the Input Tax Credit (ITC) in excess of credit available in their respective ECLs is absolutely illegal, arbitrary and in clear cut violation of statutory provisions itself. An artificial negative balance is created in their ECLs which disables petitioners from utilizing the ITC availed by them for payment of their dues, leading to a situation where it is only the remaining ITC after adjusting negative balance which would become available to the tax payer for discharging its dues. Power of competent officers in terms of Rule 86-A of Rules, 2017, it was submitted is confined to the ITC that is available at the relevant time in the tax payer's ECL. The department contended that the action of blocking ECLs of petitioners in exercise of power under Section 86-A of Rules, 2017, is in accordance with law and calls for no interference by this Court. It was stated that there is no mandate to limit blocking of ECL only to the available balance or amount already present in the ECL. The department submitted that it cannot be the intention of the statute to protect a wrong doer or a person availing an incorrect or wrongful benefit which is impermissible, on the basis of a hyper-technicality. Rule 86-A of Rules, 2017 provides a salutary provision by which Commissioner or an officer authorized by him in this behalf having reasons to believe that credit of input tax available in the ECL has been fraudulently availed or is ineligible, can block or freeze the amount in question for discharge of any liability under Section 49 of Rules, 2017 or for claim of any refund of an unutilized amount. The court held that the action of blocking ECLs of petitioners in exercise of power under Section 86-A of Rules, 2017, is in accordance with law and calls for no interference by the Court. It was stated that there is no mandate to limit blocking of ECL only to the available balance or amount already present in the ECL. The court held that it cannot be the intention of the statute to protect a wrong doer or a person availing an incorrect or wrongful benefit which is impermissible, on the basis of a hyper-technicality. Rule 86-A of Rules, 2017 provides a salutary provision whereby Commissioner or an officer authorized by him in this behalf having reasons to believe that credit of input tax available in the ECL has been fraudulently availed or is ineligible, can block or freeze the amount in question for discharge of any liability under Section 49 of Rules, 2017 or for claim of any refund of an unutilized amount availment or utilization of ITC would be determined by competent authority under Sections 73 and 74 of CGST Act, 2017. The court quashed the orders/entries to the extent that they disallow debit from respective ECLs of petitioner(s) in excess of ITC available therein at the time of passing or taking of decision(s). Case Details Case Title: Shyam Sunder Strips Versus UPO Case No.: CWP 23675-2025 Date: 04/11/2025 Counsel For Petitioner: Advocate Deepak Gupta Counsel For Respondent: Advocate Ajay Kalra Click Here To Read Order Read More: GST Registration Doesn’t Substitute For Mandatory Licensing Requirement: J&K And Ladakh High Court

GST | Negative Blocking Under R. 86A Is Not Permissible: Punjab & Haryana HC

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