GST Credit Blocks Automatically Expire After One Year; Continued Restriction is Illegal Under Rule 86A.

The Dispute: Statutory Sunset vs. Administrative Inertia

The Conflict: The petitioner’s Electronic Credit Ledger (ECL) was blocked by the department on November 21, 2024.

The Petitioner’s Stance: By the time the petition was filed in early 2026, the block had subsisted for over 14 months. The petitioner argued that under Rule 86A(3), the restriction carries a maximum life of one year and must vanish thereafter.
The Revenue’s Stance: The credit remained blocked on the portal, effectively preventing the taxpayer from using their legitimate Input Tax Credit (ITC) to discharge liabilities.

The Judicial Verdict: Automatic Cessation

The High Court ruled in favour of the Assessee, declaring the continued blocking illegal based on the following:

1. The Mandate of Rule 86A(3)

The Court highlighted the explicit language of Rule 86A(3), which states:

“Such restriction shall cease to have effect after the expiry of a period of one year from the date of imposing such restriction.”

The Court held that this is an automatic provision. It does not require a second order from the Commissioner to “unblock” the credit; the legal authority to keep it blocked simply expires after 12 months.

2. “Deemed” Unblocking

The Court declared that the block “deemed to have ceased” on November 21, 2025 (exactly one year after imposition). Any restriction beyond this date was characterized as an “illegal continuance” of a lapsed power.

3. Draconian Nature of the Power

Consistent with other 2025-26 precedents (like NZS Traders and Elitecon International), the Court noted that blocking credit is a “draconian” measure that cripples a business’s cash flow. Therefore, the time limit prescribed by the statute must be strictly enforced.

Strategic Takeaways for Taxpayers in 2026

Monitor the “Block Date”: Check the “Electronic Credit Ledger” tab on the GST portal to find the exact date the credit was blocked. Set a calendar alert for the 365th day.
The “Re-blocking” Trap: Some officers attempt to “re-block” the credit on the 366th day using the same grounds. Recent judgments from the Punjab & Haryana High Court (2025) have held that re-blocking on the same material is illegal and an attempt to bypass the law.
Writ is the Fastest Remedy: If your credit is still blocked on the portal after one year, do not wait for an appeal. A Writ Petition is the standard remedy to seek a direction for “immediate unblocking.”
Adjudication Must Follow: Rule 86A is a provisional measure. The Department’s proper course of action during that one year is to issue a Show Cause Notice under Section 73 or 74 to determine the final eligibility of the credit. They cannot use the block as a substitute for adjudication.

HIGH COURT OF KARNATAKA

Jupiter Ventures

Assistant Commissioner of Central Tax^*

S Sunil Dutt Yadav, J.

WRIT PETITION NO. 3353 OF 2026 (T-RES)

FEBRUARY 25, 2026

Shreehari and Kiran Naidu, Advs. for the Petitioner. K. Hema Kumar, AGA and Akash B. Shetty, Adv. for the Respondent.

ORDER

1. Learned counsel for the petitioner seeks for correction of the array of parties. Accepting the oral request, petitioner is permitted to correct the array of respondents number. Sri. Akash B. Shetty, learned counsel accepts notice for respondents No.1 to 3. Sri. K. Hemakumar, learned Additional Government Advocate accepts notice for respondents No.4 and 5.

2. The petitioner has called in question the validity of action of respondent No.1 in blocking the petitioner’s Electronic Credit Ledger by invoking power under Rule 86A of the Central Goods and Services Tax Rules, 2017. Reliance is placed on the printout of the Electronic Credit Ledger at Annexure-B which petitioner submits would indicate the blocking of the credit ledger.

3. The petitioner has raised various contentions including that prior to exercise of power under Rule 86A, there ought to have been pre-decisional hearing. It is further submitted that despite the lapse of one year and two months as on the date of filing the petition and despite the automatic cessation of an order blocking the Electronic Credit Ledger, the order has continued and that it ought to have ceased as the same loses force by virtue of stipulation under Rule 86A(3). It is also submitted that the respondent authorities are not permitted to block the Electronic Credit Ledger where there is a nil credit or negative balance.

4. However, it is noticed that the blocking of Electronic Credit Ledger is purportedly effected on 21.11.2024. The Rule 86A(3) reads as follows:

“Rule 86A. Conditions of use of amount available in electronic credit ledger:-

(3) Such restriction shall cease to have effect after the expiry of a period of one year from the date of imposing such restriction.”

5. In light of the above, the restriction imposed by blocking the Electronic Credit Ledger ought to cease to have effect after the expiry of period of one year from the date of imposing such restriction. Taking note of the assertion of the petitioner that the act of blocking the credit ledger is subsisting till date, in light of the mandate under Rule 86A(3), it is declared that the blocking of Electronic Credit Ledger ought to have stopped operation as on one year from 21.11.2024 and accordingly, it is declared that the action of continuance of blocking of Electronic Credit Ledger is illegal and blocking is deemed to have ceased to be in operation after a period of 12 months. Accordingly, the respondent authorities to unblock the Electronic Credit Ledger forthwith.

Accordingly, petition is disposed of.