CONDITIONS TO UTILISE AMOUNT AVAILABLE IN ELECTRONIC CREDIT LEDGER

The right to avail and utilize input tax credit is clearly a statutory right subject to conditions. 

Rule 86A of the Central Goods and Service Tax Rules, 2017 empowers the Commissioner of his subordinates to freeze the debit in the Electronic Credit Leger, if he has reasons to believe that the credit of input tax credit available in the electronic credit ledger has been fraudulently availed or is ineligible.  

Rule 86A is broadly divided into two parts.  The opening part of the rules deals with the conditions required to be fulfilled in order to invoke the powers under this Rule.  The second part of the Rule provides for the consequences if the said Rule is invoked.

In JAIKARA FASTNERS Versus COMMISSIONER, CENTRAL GOODS AND SERVICES TAX AND ANOTHER - 2026 (3) TMI 1356 - PUNJAB AND HARYANA HIGH COURT, the grievance of the petitioner in this case that the Department without any prior intimation, notice and in violation of principles of natural justice negatively blocked input tax credit.  The petitioner filed the present writ petition before the High Court against the negative blocking of its electronic credit ledger.  The petitioner submitted the following before the High Court-

• Rule 86A does not mandate or authorise blocking of input tax credit in excess of the input tax credit already available to the credit of registered dealer in its electronic credit ledger.
• An artificial negative balance is created in the petitioner’s electronic credit ledger which disables it from utilising the input tax credit availed by it for making payment of its dues leading to a situation where it is only the remaining input tax credit after adjusting negative balance which would become available to the petitioner after discharging its dues.
• The power of the Department officer is confined to the input tax credit which is available at the relevant time in the tax payers electronic credit ledger.
• The case of the present petition is covered by the judgment in M/s. Shyam Sunder Strips, M/s. Shivam Trading Co., and Kamaldeep Metalics Pvt. Ltd. Versus Union Of India And Others - 2025 (11) TMI 486 - PUNJAB AND HARYANA HIGH COURT and the writ petition is to be allowed.

Even though the Department opposed the petition, it is not able to deny that controversy and the issue is squarely covered in favour of the petitioner and against the Department in view of the decision in Shyam Sundar Strips (supra).

The High Court considered the submissions of both the parties.  The High Court framed the question for its consideration is as to whether Rule 86A of Central Goods and Services Tax Rules, 2017 permit the Commissioner or an officer authorised by him to block a taxpayer’s electronic credit ledger by an amount exceeding the credit available at the time of issuance of the said order.

The High Court observed that the Department was unable to deny that the electronic credit ledger of the petitioner was blocked on 02.09.2025 and negative balance is reflected from the copy of the electronic credit ledger entries.  The High Court relied on the judgment of ‘Shyam Sundar Strips’ (supra).  In the said case, the High Court observed that in order to block the electronic credit ledger, the input tax credit shall be available in the electronic credit ledger.

The High Court further observed that the powers under Rule 86A can be invoked only if the following cumulative conditions are satisfied-

• The credit of input tax credit should be available in the electronic credit ledger.
• The Commissioner of an Officer authorised by him should have reason to believe that such credit has been fraudulently availed is or ineligible.
• The reason to believe are to be recorded in writing.

The High Court held that where credit of input tax is not available in the electronic credit ledger is not available in the electronic credit ledger or such credit has already been utilised, the powers conferred under Rule 86A cannot be invoked. 

The said rule merely allows the proper officer to disallow the registered person debit from electronic credit ledger for the limited period of time and on a provisional basis.  In case the debits are made by the proper officer, the same will tantamount to permanent recovery of input tax credit and certainly permanent recovery is governed by statutory provisions and it certainly travels beyond the plain language and underline intent Rule 86A.

The High Court further observed that the power to restrict debit from electronic credit ledger is extremely harsh in nature.  The rule gives a detailed procedure under Section 73 and 74 of the Act for determination of input tax credit wrongly availed or utilised and empowers the officer to unilaterally imposed certain restrictions in compelling circumstances.  In other words, Rule 86A is invoked at a stage which is anterior to the finalization of an assessment or the raising of the demand.

The High Court, in the present writ petition, held that there is no ambiguity I the plain language of Rule 86A and neither does literal construction of his Rule lead to any absurdity; not allowing input tax credit is only temporary measure which is to be imposed only if the conditions set out in Rule 86A are satisfied, thus enabling the Commissioner to withhold available input tax credit in electronic credit ledger when there is a reason to believe that the same has been fraudulently availed or is ineligible.

The High Court held that without availability of credit in the electronic credit ledger there cannot be ‘negative blocking’.  It is always open to the authorities to resort to statutory measures available for recovery of amount – Whether input tax credit is wrongly availed or utilised should be determined by the Competent authority under Sections 73 or 74 of the Central Goods and Service Tax Act, 2017.