Time-limited Input Tax Credit block under Rule 86-A lapses automatically after one year, enabling de-blocking.

Rule 86-A permits temporary disallowance of debit of the electronic credit ledger where Input Tax Credit is believed to be fraudulently availed or otherwise ineligible, but the restriction is expressly time-limited. The rule also allows lifting the block when the stated conditions no longer exist, and sub-rule (3) provides that the restriction ceases after one year from the date of imposition. Because the block in this matter continued beyond that period, the Court held that it could not survive and that the taxpayers were entitled to de-blocking and use of the blocked Input Tax Credit.

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Issues: Whether the restriction on debiting Input Tax Credit in the electronic credit ledger could continue beyond one year from the date on which it was imposed under Rule 86-A.

Analysis: Rule 86-A empowers the Commissioner or authorised officer to disallow debit of the electronic credit ledger where there is reason to believe that Input Tax Credit has been fraudulently availed or is ineligible. Sub-rule (2) permits lifting the restriction when the conditions for disallowing debit no longer exist. Sub-rule (3) expressly provides that the restriction shall cease to have effect after the expiry of one year from the date of imposition. As the restriction in the present case had already continued beyond one year, the Court held that the statutory restriction could not survive.

Conclusion: The restriction had ceased to operate on expiry of one year and the petitioners were entitled to de-blocking of the Input Tax Credit and to utilise the amount blocked in the electronic credit ledger.

Ratio Decidendi: A restriction imposed on utilisation of Input Tax Credit under Rule 86-A is inherently time-limited and automatically lapses after one year from the date of imposition.

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