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Is Negative Blocking Back on the Table?

Shrey Bhatnagar
Conflicting rulings on GST Rule 86-A create uncertainty over input tax credit blocking and replenishment under Sections 73/74 A split of high-court decisions has created acute uncertainty under GST Rule 86-A: one court set aside an order blocking input tax credit because the electronic credit ledger showed a nil balance and held Rule 86-A cannot impose 'negative blocking' of future credits, aligning with prior appellate rulings, while another court subsequently upheld partial blocking and expressly directed the taxpayer to replenish previously utilised credits before the next tax payment. The conflicting approaches - prohibition of negative blocking versus conditional replenishment pending adjudication under sections 73/74 - leave ITC utilisation unsettled until higher adjudication or clarificatory guidance. (AI Summary)

A critical divergence in the interpretation of GST Rule 86-A is emerging immediately following the landmark Bombay High Court ruling, creating urgent uncertainty for taxpayers relying on Input Tax Credit (ITC) utilization.

The Precedent: Bombay High Court (07 October 2025)

The Bombay High Court, in Rawman Metal & Alloys Versus The Deputy Commissioner of State Tax, Thane. - 2025 (10) TMI 489 - BOMBAY HIGH COURT, delivered a decisive Oral Judgment on 07 October 2025. The Court quashed an impugned order dated 9 December 2024 that sought to block ITC worth Rs. 12,84,273/- under Rule 86-A. The core finding was that since the Petitioner’s Electronic Credit Ledger (ECL) balance was “Nil” when the order was made, the power under Rule 86-A could not be invoked.

The Bombay High Court explicitly upheld the strict legal principle that Rule 86-A applies only to ITC 'available in the Electronic Credit Ledger' and does not permit 'negative blocking'—the blocking of future credits. This view followed the Gujarat High Court (Samay Alloys India Pvt Ltd) and the Delhi High Court (Karuna Rajendra Ringshia Proprietor R.R. Enterprises Versus Commissioner of Central Goods And Service Tax & Ors. - 2024 (11) TMI 190 - DELHI HIGH COURT), noting that the Supreme Court had already declined to interfere with the Delhi ruling on 09 July 2025 (COMMISSIONER OF CENTRAL GOODS AND SERVICE TAX & ORS. Versus KARUNA RAJENDRA RINGSHIA - 2025 (7) TMI 791 - SC Order).

The Intrigue: Madras High Court (17 October 2025)

Just ten days later, the High Court of Judicature at Madras, in the case of Tvl. Red Rose Garments Versus Assistant Commissioner (ST), Commercial Tax Officer/Assistant Commissioner (ST), Tirupur - 2025 (11) TMI 352 - MADRAS HIGH COURT, issued an order that appears to conditionally sanction the very concept of replenishment and negative blocking that was rejected by the Bombay, Delhi, and Gujarat High Courts.

The Petitioner had challenged an order blocking ITC totalling Rs. 62,33,318/- based on purchases made from non-existent dealers. While Rs. 14,20,766/- was available in the ECL upon blocking, a negative blocking for the balance sum of Rs. 48,93,551/- remained.

Acknowledging the precedent that Rule 86A(1) does not contemplate an order requiring a taxpayer to replenish the ECL, the Madras High Court nevertheless issued a partial stay. The Court ordered that the 'negative blocking shall continue for a sum of Rs. 37,05,811/-' and explicitly directed the petitioner to 'replenish the aforesaid block credit of Rs. 48,93,551/-' before the next due date for tax payment.

This order—which mandates the replenishment of credit used in the past to offset liabilities—raises critical questions about the application of Rule 86-A pending final adjudication under Sections 73/74.

Goods and Services Tax - GST
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