Deemed Stay Under Section 107 Prevents Revenue Appropriation From Blocked Electronic Credit Ledger Pending Statutory Appeal

By | September 12, 2026
0 Comment
Deemed Stay Under Section 107 Prevents Revenue Appropriation From Blocked Electronic Credit Ledger Pending Statutory Appeal
Issue
  • Whether filing a statutory appeal under Section 107 of the CGST/TNGST Act along with the mandatory 10% pre-deposit from the Electronic Cash Ledger creates a deemed stay that prohibits the Revenue from recovering or appropriating remaining demands from a blocked Electronic Credit Ledger (Rule 86A).
  • Whether the operation of a deemed stay automatically unblocks an Electronic Credit Ledger restricted under Rule 86A of the CGST/TNGST Rules.
Facts
  • Blocking of Credit Ledger: The petitioner’s Electronic Credit Ledger was blocked under Rule 86A of the CGST/TNGST Rules in respect of Input Tax Credit (ITC) claimed on inward supplies.
  • Adjudication & Demands: Adjudication proceedings alleging wrongful ITC utilization culminated in adverse demand orders against the petitioner.
  • Appeals & Pre-deposits: The petitioner filed statutory appeals under Section 107 against the demand orders, fulfilling the statutory pre-deposit requirement using its Electronic Cash Ledger.
  • Writ Petition: The petitioner approached the High Court challenging the continued blocking of its Electronic Credit Ledger and seeking protection against recovery/appropriation of remaining tax demands during the pendency of the appeals.
Decision
  • Deemed Stay of Recovery: The High Court held that filing a statutory appeal accompanied by the requisite pre-deposit under Section 107(6) triggers an automatic deemed stay on the recovery of the balance tax demand under Section 107(7).
  • Appropriation Impermissible: Due to the active deemed stay, the Revenue is legally prohibited from making any recovery or appropriating amounts from either the Electronic Cash Ledger or the blocked Electronic Credit Ledger.
  • Rule 86A Operation Distinct: The Court clarified that while the deemed stay prevents fresh recovery, it does not automatically invalidate or undo an existing blocking under Rule 86A, which carries an independent one-year provisional cap and specific procedural conditions.
  • Representation Directed: The petitioner was permitted to seek unblocking before the competent authority, and the respondents were directed to consider the petitioner’s representation objectively in accordance with the law [Paras 3 and 4].
Key Takeaways
  • Protection via Mandatory Pre-Deposit: Paying the 10% statutory pre-deposit under Section 107(6) via the Electronic Cash Ledger legally bars the Revenue from initiating recovery proceedings under Section 79 for the balance 90% demand.
  • No Fund Appropriation During Appeal: Revenue authorities cannot unilaterally adjust or draw down funds from a taxpayer’s blocked Electronic Credit Ledger or cash ledger toward a demand that is subject to a statutory deemed stay.
  • Separation of Rule 86A and Section 107: Rule 86A blocking is a provisional measure with a statutory time limit of one year; securing a stay of demand on appeal does not automatically lift an unexpired Rule 86A block without independent administrative review.
HIGH COURT OF MADRAS
Peersaly Mohamed Yousuff
v.
Assistant Commissioner (ST) (RAL) (FAC)*
Senthilkumar Ramamoorthy, J.
WP No. 33986 of 2026
SEPTEMBER  3, 2026
R. Balachandar for the Petitioner. R.Sethu Prabakaran, Govt. Adv. (Tax) for the Respondent.
ORDER
1. Intimation dated 05.05.2026 blocking the electronic credit ledger of the petitioner with regard to credit relating to supplies from Vasanth Enterprises is challenged in this writ petition.
2. Learned counsel for the petitioner submits that orders dated 08.06.2026 were issued after initiating proceedings against the petitioner in respect of the alleged wrongful availment of Input Tax Credit (ITC). He adds that appeals were lodged against said orders by making pre-deposits from the electronic cash ledger of the petitioner. On account of making such pre-deposit, learned counsel submits that there is an interim stay under Section 107 of applicable GST enactments. Consequently, it is contended that the electronic credit ledger is liable to the unblocked. Learned counsel relies upon the judgment of this Court in Arise Steels (P.) Ltd. v. Assistant Commissioner (ST) 100 GSTL 352 (Madras)/(2025) 32 Centax 444 (Mad.).
3. An order to block credit is issued under Rule 86A of applicable Rules under GST law. Rule 86A requires that reasons be recorded in support of such order. Being a provisional measure, the life of a blocking order shall not exceed one year. Consequence of filing an appeal and making the pre-deposit is that recovery proceedings for the balance amount shall be deemed to be stayed in terms of sub-section (7) of Section 107. Therefore, the effect of making the pre-deposit is that no appropriation shall be made either from the electronic cash ledger or the blocked electronic credit ledger. Beyond that the lodging of an appeal and the deemed stay would have no impact on the blocking order under Rule 86A. Rule 86A, however, enables the person concerned to apply for unblocking. The petitioner has submitted a representation on 17.06.2026 seeking such unblocking.
4. For reasons aforesaid, this writ petition is disposed of by directing the respondents to consider the petitioner’s request for unblocking. If such request were to be accepted, it is not necessary to issue a speaking order. On the other hand, if the request were to be rejected, a speaking order of refusal shall be issued within one month from the date of receipt of a copy of this order. There will be no order as to costs.