Blocking of Electronic Credit Ledger: limits on withholding ITC affirmed; entries exceeding available credit set aside and recovery route directed

Interpretation of Rule 86A permits temporary withholding of available input tax credit in the electronic credit ledger where there is reason to believe credit was fraudulently availed or is ineligible, and prior show-cause notice is not mandatory for the emergent blocking measure; this enables withholding only up to the credit actually available at the time of the blocking, so entries disallowing debits in excess of available credit are unsustainable and struck down. Where no credit exists, 'negative blocking' is impermissible and authorities must use statutory recovery mechanisms to pursue alleged wrongful credit utilisation.

---

---

Issues: Whether Rule 86A of the Goods and Services Tax Rules, 2017 permits the Commissioner or an officer authorised by him to block a taxpayer's Electronic Credit Ledger by an amount exceeding the input tax credit available in the ledger at the time of issuance of the blocking order.

Analysis: Rule 86A authorises provisional restriction on debit from the Electronic Credit Ledger where (i) input tax credit is available in the ledger, (ii) the Commissioner or an authorised officer has reason to believe that such credit has been fraudulently availed or is ineligible, and (iii) reasons are recorded in writing. The provision's opening part sets out conditions precedent to invocation; the later part prescribes the consequences when those conditions are satisfied. Judicial decisions cited establish that the power under Rule 86A presupposes the existence of credit in the ECL and permits restriction only to an amount equivalent to the credit claimed to be fraudulent or ineligible. Rule 86A is a provisional, remedial measure and does not authorise making debit entries that create a permanent negative balance; statutory recovery and determination of wrongly availed credit are governed by Sections 73 and 74 of the CGST Act. Accordingly, blocking that results in a negative balance exceeding available ITC is beyond the scope of Rule 86A.

Conclusion: Rule 86A cannot be invoked to block or disallow debit from a taxpayer's Electronic Credit Ledger in excess of the input tax credit available in the ledger at the time of the order. Orders/entries that disallow debit from the ECL in excess of the available ITC are set aside. The writ petition is allowed in these terms in favour of the petitioner.

---