Provisionally Blocking 10% of Tax Demand Allowed Under Rule 86(A) CGST for Partial Negative Credit Ledger Blocking

The HC allowed respondents to provisionally block 10% of the tentative demanded tax amount under rule 86(A) of the CGST Rules, 2017, permitting partial negative blocking of the electronic credit ledger. This decision contrasts with prior rulings by Allahabad and Calcutta HCs. The issue requires further examination, and the ITC shall be unblocked to the extent of the blocked amount. The matter is adjourned for further hearing on 10.12.2024.

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The Punjab & Haryana High Court, through Justices Sanjeev Prakash Sharma and Sanjay Vashisth, addressed conflicting High Court rulings regarding the respondents' authority under Rule 86(A) of the CGST Rules, 2017 to negatively block the electronic credit ledger. While Delhi, Gujarat, and Telangana High Courts held no such power exists, Allahabad and Calcutta High Courts upheld it. Citing the Punjab & Haryana High Court's precedent in *K.J. International Vs. State of Punjab* 2023 (12) Centax 106 (P&H), the Court noted that "negative blocking of the input tax credit ledger beyond 10% of the demand is unjustified," aligning this limit with the pre-deposit condition under Sections 73 and 74 of the CGST Act for appeals. The Court provisionally allowed respondents to block only 10% of the tentative tax demand and directed unblocking of ITC accordingly, deferring a detailed examination to a later date. The matter is listed for further hearing on 10.12.2024.

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