The Madras High Court has held that filing an appeal and making the mandatory pre-deposit under Section 107 of the Goods and Services Tax enactments does not, by itself, affect an order blocking input tax credit under Rule 86A of the GST Rules.
The bench of Justice Senthilkumar Ramamoorthy observed that the deemed stay arising from the statutory pre-deposit prevents the tax authorities from recovering the balance of the disputed demand. However, the deemed stay does not automatically result in the unblocking of the taxpayer’s electronic credit ledger.
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The petitioner’s electronic credit ledger was blocked through an intimation dated May 5, 2026, in relation to input tax credit claimed on supplies received from Vasanth Enterprises.
The total amount blocked was ₹26,60,554, comprising Central GST credit of ₹13,30,277 and State GST credit of ₹13,30,277.
The petitioner approached the High Court seeking a direction to the Assistant Commissioner and Deputy Commissioner of State Tax, Ambattur Zone, to unblock the credit. The petitioner also sought permission to debit the corresponding amount from the electronic credit ledger.
The petitioner submitted that the authorities had initiated proceedings concerning the alleged wrongful availment of input tax credit and subsequently passed orders dated June 8, 2026.
The petitioner challenged those orders by filing statutory appeals. The required pre-deposits were made from the petitioner’s electronic cash ledger.
It was contended that once the appeals were filed and the mandatory pre-deposits were made, recovery of the remaining disputed tax stood stayed by operation of Section 107(7) of the GST enactments. On that basis, the petitioner argued that the electronic credit ledger was liable to be unblocked.
The High Court noted that an order blocking input tax credit is issued under Rule 86A of the applicable GST Rules.
The provision requires the competent authority to record reasons before restricting the use of the amount available in an electronic credit ledger. Since an order under Rule 86A is a provisional measure, its operation cannot extend beyond one year.
The Court then examined the relationship between the deemed stay available under Section 107(7) and the blocking of credit under Rule 86A.
It explained that the consequence of filing an appeal and making the statutory pre-deposit is that recovery proceedings for the balance disputed amount are deemed to be stayed. Therefore, once the pre-deposit is made, the authorities cannot appropriate the disputed balance either from the electronic cash ledger or from the blocked electronic credit ledger.
The Court clarified that the protection under Section 107(7) is confined to recovery and appropriation of the disputed demand.
“Beyond that,” the Court said, the filing of an appeal and the deemed stay would have no impact on the blocking order issued under Rule 86A.
Consequently, a taxpayer cannot claim automatic unblocking of the electronic credit ledger merely because an appeal has been filed and the statutory pre-deposit has been paid.
The taxpayer may, however, separately apply to the competent authority for lifting the restriction under Rule 86A.
The Court recorded that the petitioner had already submitted a representation on June 17, 2026, seeking the unblocking of its electronic credit ledger.
Accordingly, the High Court directed the tax authorities to consider the petitioner’s request.
The Court stated that if the request is accepted, the authorities are not required to pass a speaking order. If the request is rejected, however, the authorities must issue a reasoned speaking order within one month from the date of receipt of a copy of the High Court’s order.
The writ petition was disposed of without any order as to costs.
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