Blocking ITC in excess of the available ECL balance is illegal and ultra vires Rule 86A.

Issue

Can the GST department, under Rule 86A, block an amount of Input Tax Credit (ITC) that is more than the credit balance actually “available in” the taxpayer’s Electronic Credit Ledger (ECL) at the time the order is passed?

Facts

The GST department passed an order under Rule 86A to block the petitioner’s ITC.
The amount specified in the blocking order was “far in excess” of the actual ITC balance that was available in the petitioner’s Electronic Credit Ledger (ECL) on that date.
This action effectively amounted to a “negative blocking” of credit, which would restrict future credits.
The petitioner challenged this action, arguing that blocking credit that isn’t available is ultra vires (beyond the legal power) of Rule 86A.
The department (respondents) argued for a “broader reading” of the rule, suggesting they could restrict the utilization of credit pending adjudication.

Decision

The High Court ruled decisively in favour of the assessee.
It held that the power under Rule 86A can only be exercised on the ITC that is “actually available in the ECL on the date of making… the blocking order.”
The court found that blocking an amount in excess of the available balance is impermissible and illegal.
The impugned blocking order was held to be ultra vires and was quashed.
The department was directed to restore any ITC that had been recovered or affected by this illegal order.

Key Takeaways

No “Negative Blocking” Allowed: Rule 86A does not permit the “negative blocking” of an ECL. The power is strictly restricted to the credit balance available in the ledger at the moment the order is passed.
Strict Construction of the Rule: The court applied a strict interpretation to the rule’s language (“available in”), refusing to read into it any implied power to block future or non-existent credits.
Jurisdictional Error: An officer who blocks an amount greater than the available balance is acting in excess of their jurisdiction, making the order legally void.

HIGH COURT OF BOMBAY

Hindustan Steel

Deputy Commissioner of State Tax^*

M.S. Sonak and Advait M. Sethna, JJ.

WRIT PETITION (L) NO.28684 OF 2025

OCTOBER 16, 2025

Vivek Laddha and Aniket Kamtam for the Petitioner. Himanshu Takke, AGP, Ms. Shruti D. Vyas and Ashutosh Mishra for the Respondent.

ORDER

1. Heard Mr. Vivek Laddha, learned counsel who appears with Mr. Aniket Kamtam for the Petitioner and Mr. Takke, learned AGP for the 1^st and 2^nd Respondent, Ms. Vyas, at our request appears for the 3^rd Respondent which, in this case, is only a formal Respondent.

2. Rule. The Rule is made returnable immediately at the request of and with the consent of the learned counsel for the parties.

3. The Petitioner challenges the impugned order dated 15 July 2025 (Exhibit – A) made by the first Respondent in purported exercise of powers conferred by Rule 86A of the CGST Rules 2017 blocking the Petitioner’s Electronic Credit Ledger to the extent of Rs.95,74,850/-.

4. As on the date of the making of the impugned order, the ITC available in the Petitioner’s Electronic Credit Ledger was to the extent of only Rs.600/-. Therefore, Mr. Laddha, learned counsel for the Petitioner urged that the Respondents were not entitled to invoke the provisions of Rules 86A and such invocation was completely ultra vires. He relied upon the decision of this Court in the case of Rawman Metal & Alloys v. Dy. CST [Writ Petition (L) No.10928 of 2025, dated 7-10-2025] and some of the decisions of the Gujarat, Telangana and Delhi High Courts supporting his contention.

5. Mr Takke, learned AGP submits that necessary intimation has already been given to the Petitioner and the Petitioner has also responded to the same. He submitted that the hearings are on and therefore, at this stage, this Court should not interfere with the impugned order. He further submitted that the object of Rule 86A was to ensure that any credit that has been fraudulently obtained by a party is recovered at the earliest. He submitted that such an intention cannot be frustrated by any narrow construction by restricting the blocking order only to the input tax available in the Electronic Credit Ledger at the time when the impugned order was made or served. In the alternate, Mr Takke submits that directions may be issued to the Petitioner not to utilize the credit that might be restored until the conclusion of the adjudication proceedings for which the hearing have already been commenced.

6. The rival contentions now fall for our determination.

7. The issue now raised before us squarely the issue involved in the case of Rawman Metal & Alloys (supra) therein by following the decisions of the Gujarat High Court in the case of Samay Alloys India (P.) Ltd. v. State of Gujarat GST 338/61 GSTL 421 (Guj)/ Special Civil Application No.18059 of 2021 decided on 03/02/2022 the decision of the Telangana High Court in the case of Laxmi Fine Chem v. Asstt. Commissioner GSTL 197 (Telangana)/Writ Petition No.5256 of 2024 decided on 18/03/2024 and the decisions of the Delhi High Court in the cases of Best Crop Science (P.) Ltd. v. Principal Commissioner, CGST Commissionerate GSTL 131 (Delhi)/Writ Petition (c) No.10980/2024 decided on 24/09/2024 and Karuna Rajendra Ringshia v. Commissioner of CGST GST 164 (Delhi)/Writ Petition (c) No.7250 of 2024 decided on 21/10/2024 we have held that the powers under Section 86A of the CGST Rules can be exercised only in respect of the credit of input tax available in the Electronic Credit Ledger on the date of making and serving of the impugned blocking order. The contention now raised by Mr Takke was also raised on behalf of the Respondents in the said matter and the same has been considered and dealt with.

8. Therefore, by following the reasoning in Rawman Metal & Alloys (supra), we quash and set aside the order and direct the Respondents to restore the blocked input tax credit equivalent to that recovered by the Respondents for the months of June, July and August 2025 in pursuance of the impugned order which we have not quashed and set aside. This exercise must be completed within four weeks from today.

9. Nothing in this order will prevent the Respondents from resorting to any other legal means for recovering any amount which is found to be due and payable. However, at Mr Takke’s request, we direct the Petitioner not to utilise the restored amount, as that would amount to frustrating the relief which we have not granted to the Petitioner. Since, the blocking was based upon the impugned order, which, in our opinion, was ultra vires, we cannot restore the same position which prevailed on account of the issuance of such ultra vires order.

10. The Rule is made absolute in above terms without any costs order. All concerned to act upon an authenticated copy of this order.