The GST Council has recommended amending Rule 86A of the Central Goods and Services Tax Rules, 2017, to introduce an express mechanism allowing taxpayers to object to the blocking of amounts in their electronic credit ledger and obtain a personal hearing before the proper officer decides their objection.

The proposal would give businesses a structured opportunity to explain why their input tax credit should be released. Crucially, the recommendation provides for a hearing before deciding the objection against blocking; it does not expressly require a hearing before the initial blocking action.

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What Does Rule 86A Currently Say?

Rule 86A empowers the Commissioner, or an officer authorised by the Commissioner who is at least an Assistant Commissioner, to restrict the use of input tax credit where there are reasons to believe that it was fraudulently availed or is ineligible.

The specified grounds cover invoices issued by a supplier found non-existent or not operating from its registered premises; credit claimed without receiving goods or services; supplies on which the tax charged has not been paid to the Government; a credit claimant found non-existent or not operating from its registered premises; and credit claimed without the prescribed supporting documents.

The officer must record reasons in writing. The restriction prevents the taxpayer from debiting an equivalent amount of credit to discharge liabilities under Section 49 or claim a refund of unutilised credit. In practical terms, the disputed credit becomes unavailable for use while the restriction operates.

Can Blocked Credit Be Released Under The Existing Rule?

Sub-rule (2) already permits release when the officer is satisfied that the grounds for blocking no longer exist. Sub-rule (3) provides that the restriction expires after one year from its imposition.

CBIC’s guidelines dated November 2, 2021, also recognise that the officer may reconsider blocking on the basis of submissions and supporting evidence furnished by the taxpayer, and release eligible credit wholly or partly. They caution against mechanical blocking and require an assessment based on material evidence.

However, Rule 86A’s existing text does not expressly prescribe a dedicated objection procedure accompanied by a mandatory personal hearing before that objection is decided. The proposed amendment would make this procedural safeguard explicit within the rule.

What Will Change After The Amendment?

Under the recommendation supplied, taxpayers would have a formal mechanism to challenge the blocking of any amount in their electronic credit ledger. They would also be able to present their case at a personal hearing before the proper officer takes a decision on the objection.

This would allow a business to explain the transactions underlying the disputed credit and submit relevant evidence. Depending on the grounds for blocking, such evidence could include invoices, delivery records, transport documents, payment records or documents establishing that the business operates from its registered premises.

The central change is therefore a clearer process for reviewing the blocking action. Existing provisions permit reconsideration and release; the proposed amendment would expressly connect a taxpayer’s objection with an opportunity to be heard before its disposal.

Hearing Before Objection Decision Does Not Mean Hearing Before Initial Blocking

The timing of the proposed hearing is significant. The recommendation refers to an objection against blocking and a hearing before the officer decides that objection.

Accordingly, it should not be described as a proposal prohibiting every initial blocking action without a prior hearing. The wording supplied contemplates a remedy against the blocking action, with a personal hearing at the objection stage.

Nor does filing an objection, by itself, imply automatic release of the blocked credit. The officer would have to consider the taxpayer’s explanation and evidence before deciding whether the restriction should continue or be lifted.

Why The Proposal Matters For Businesses

Blocking credit can affect working capital because businesses may need to use cash to meet tax liabilities that would otherwise be discharged through eligible ITC. CBIC’s existing guidelines acknowledge this impact and call for investigations and adjudication to be completed promptly.

An express objection and hearing mechanism could help taxpayers obtain departmental reconsideration of disputed blocking and address factual errors at an earlier stage. Its practical effectiveness will depend on the procedure ultimately notified, including any deadlines for filing objections and deciding them.

The Council’s recommendation should therefore be reported as a proposed procedural protection. The final amending notification and its effective date will determine when and how taxpayers can use the new mechanism.

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