The Legal Validity Of Re-Blocking Electronic Credit Ledgers Under Rule 86A And Section 74

This ruling for AY 2025-26 (delivered in March 2026) addresses a critical tension between the “one-year cap” on blocking Input Tax Credit (ITC) and the Department’s power to protect revenue when a formal tax demand has been created.

I. The Conflict: Rule 86A Time Limits vs. Revenue Protection

The Legal Issue

Can the Department “re-block” an Electronic Credit Ledger (ECL) if the initial one-year limit under Rule 86A has expired, especially if a formal tax demand under Section 74 has since been issued?

The Petitioner’s Argument

The taxpayer argued that any blocking of the ECL under Rule 86A automatically expires after one year. They claimed the “re-blocking” was an illegal extension of jurisdiction intended to bypass the statutory sunset clause.

II. The Revenue’s Defense and Factual Disclosure

The Reality of the Case

The State Revenue authorities provided a different context that the petitioner had omitted:

The Section 74 Order: A formal Show Cause Notice (SCN) had already culminated in an Order-in-Original (OIO).
The Demand: This order disallowed ITC and imposed a total liability of ₹4.95 Crores (including tax, interest, and penalty).
The Fresh Block: The ledger was not simply “extended”; it was re-blocked on May 30, 2025, specifically to secure the newly confirmed demand of ₹4.95 Crores.

III. The Judicial Verdict: The Doctrine of Clean Hands

The High Court dismissed the petition and ruled in favour of the Revenue based on the following principles:

1. Fatal Non-Disclosure

The Court emphasized that Writ jurisdiction is an “equitable remedy.” By failing to disclose the existence of the Section 74 proceedings and the ₹4.95 Crore demand, the petitioner was guilty of suppressing material facts. This non-disclosure alone was enough to dismiss the case.

2. Validity of the “Fresh” One-Year Period

Rule 86A(3) states that a block shall cease to have effect after the expiry of one year from the date of imposing such restriction.

The Court held that since the re-blocking occurred on May 30, 2025, the one-year window is currently active and will only expire on May 29, 2026.
Because the blocking was founded on a crystallized demand (the OIO), it was not an arbitrary exercise of power.

3. Interference Unwarranted

Since the legal “one-year cap” had not yet been breached for the current blocking instance, there was no jurisdictional error for the Court to correct.

Key Takeaways for Taxpayers and Practitioners

Disclose All Proceedings: If you challenge a ledger block, you must mention any underlying SCNs or Orders. If the Court finds out from the State that a demand exists, your petition will likely be dismissed for “lack of clean hands.”
Rule 86A is a Temporary Shield: Rule 86A is designed to prevent the use of fraudulent credit while an investigation is pending. Once an investigation turns into a formal Order (OIO), the Department has stronger grounds to keep the credit restricted until the demand is paid or stayed by an appellate authority.
The “One-Year” Reset: While the Department cannot keep the same block active forever, a new event (like a final assessment order) can sometimes trigger a fresh blocking action, provided it follows the procedure and starts a new one-year clock.

HIGH COURT OF MADRAS

Asian Lifts and Escalator (P.) Ltd.

Assistant Commissioner of CGST & Central Excise^*

C.Saravanan, J.

W.P. No.2296 of 2026
W.M.P. Nos. 2545 and 2546 of 2026

FEBRUARY 6, 2026

M.Uma Shankar, Learned counsel for the Petitioner. Swaroop Oorilla, Learned Special Govt. Pleader for the Respondent.

ORDER

1. Heard Mr. M.Uma Shankar, learned counsel appearing for the petitioner and Mr. Swaroop Oorilla, learned Special Government Pleader for State Tax appearing for the respondents.

2. The petitioner assailed the blocking of its Electronic Credit Ledger allegedly beyond the period of one year on the ground that it is void ab initio, without jurisdiction and violative of the statutory Rules.

3. On 28.08.2025, when the matter was taken up, upon hearing learned counsel for the petitioner, learned Special Government Pleader for State Tax submitted that if the blocking of the Electronic Credit Ledger of the petitioner has remained for more than one year, it would be unblocked. He also sought to seek instructions on the blocking of the Electronic Credit Ledger on 30.05.2025 and 17.06.2025. The counter affidavit was filed thereafter. On 17.12.2025, after hearing the parties, the following order was passed taking note of the stand of the respondents in their counter affidavit:

“Sri M. Uma Shankar, learned counsel appears for petitioner.

Sri K. Sai Akarsh, learned Assistant Government Pleader appears for Sri Swaroop Oorilla, learned Special Government Pleader for State Tax, for respondents.

The counter-affidavit filed on behalf of respondent No.3 fails to answer whether any proceedings under Section 73/74 of the Central Goods and Services Tax Act, 2017 (for short ‘the Act’), have been issued for illegal or irregular availment of Input Tax Credit (ITC) by the petitioner. The counter-affidavit alleges that the Electronic Credit Ledger (ECL) of the petitioner was blocked because of availment of ITC against supplies from non-existent suppliers. ECL has been re-blocked on 30.05.2025, the day on which it was unblocked, in terms of Rule 86A of the Central Goods and Services Tax Rules, 2017. The petitioner is against the reblocking of ECL. It is submitted that there was no ITC available at the time of blocking.

Learned counsel for the respondents is allowed two (2) weeks’ time to seek instruction on the issue whether any proceedings have been initiated against the petitioner under Section 73/74 of the Act.

List after two (2) weeks.”

4. Learned Special Government Pleader for State Tax appearing for the respondents has produced the copy of the order-in-original dated 01.05.2025 passed against the petitioner on the basis of a show cause notice dated 17.10.2024 wherein the Proper Officer has imposed tax liability to the tune of Rs.1,36,05,587/- after disallowing the Input Tax Credit. It has also imposed further tax liability on account of Less Reported turnover in GSTR3B compared to P&L turnover and interest thereupon to the tune of Rs.81,66,124/-. Petitioner has also been imposed penalty under Section 122(1)(vii), Section 122(1)(ii) and Section 122(2)(b) as also under Section 125 of the Telangana Goods and Services Tax Act, 2017 (hereinafter referred to as ‘the TGST Act’) for not filing GSTR09C to the tune of Rs.2,76,47,444/-. Late fee has been imposed for delayed filing of GSTR09 to the tune of Rs.1,45,200/-. The grand total of the tax liability, interest, fee and penalty over all these heads comes to Rs.4,95,64,354/-. It is submitted that after passing of the order-in-original, the Electronic Credit Ledger of the petitioner was blocked on 30.05.2025 again. The period of one year in terms of Rule 86A of the Central Goods and Services Tax Rules, 2017 has not expired since the date of blocking. It is submitted that there were no Input Tax Credit available at the time of blocking.

5. The writ petition was filed in July, 2025. The writ affidavit, however, conspicuously fails to refer to any of these facts.

6. Learned counsel for the petitioner submits that the challenge in the present writ petition is limited to blocking of the Electronic Credit Ledger only. Therefore, other ancillary facts now being brought to the notice of the Court were not required to be referred to.

7. However, we do not appreciate the stand of the petitioner. In writ proceedings, a party has to come clean before the Court disclosing all relevant material facts germane to the issue in controversy. The blocking of the Electronic Credit Ledger was accompanied by a proceeding under Section 74 of the TGST Act. This was a material fact required to be disclosed in the writ petition for the Court to form an opinion on the cause of action raised herein. We do not encourage such an approach on the part of the petitioner. At the same time, since the re-blocking of the Electronic Credit Ledger has a background in the imposition of tax, interest, fee and penalty in a proceeding under Section 74 of the TGST Act to the tune of Rs.4,95,64,354/- and the period of one year has not expired since the blocking of the Electronic Credit Ledger on 30.05.2025, this Court does not find any reason to interfere in the matter.

8. The Writ Petition is, accordingly, dismissed. However, there shall be no order as to costs.

9. The order-in-original be kept on record.

10. Miscellaneous applications pending, if any, shall stand closed.