2026 (3) TMI 1356 - HC - GST

Rule 86A only permits blocking available input tax credit; negative ledger balances are not authorised.

Rule 86A of the CGST Rules permits only a temporary preventive freeze of input tax credit that is actually available in the Electronic Credit Ledger, and ... Blocking of electronic credit ledger (ECL) - Input Tax Credit - Negative balance in input tax credit - Violation of provisions of Rule 86A of Central Goods and Services Tax Act, 2017 and in violation of principles of natural justice - Whether Rule 86-A of Goods and Services Tax Rules, 2017 (Rules, 2017) permit the Commissioner or an officer authorized by him to block a tax payer’s ECL by an amount exceeding the credit available at the time of issuance of said order? Electronic credit ledger - Rule 86A - Negative blocking - HELD THAT:- The Court followed its earlier decision in M/s Shyam Sunder Strips [2025 (11) TMI 486 - PUNJAB AND HARYANA HIGH COURT] and endorsed the view taken by the Gujarat, Delhi, Telangana and Bombay High Courts that the availability of input tax credit in the electronic credit ledger is a condition precedent for invocation of Rule 86A. The rule authorises only a temporary restriction on debit of the credit that is available; it does not empower the authorities to create an artificial negative balance or to block credit in excess of what stands to the taxpayer's credit. The Court also noted that, though prior notice is not required for invoking Rule 86A in an emergent situation, the absence of available credit makes such negative blocking impermissible, leaving the authorities free to adopt other statutory modes of recovery in accordance with law. [Paras 9, 10, 11, 12, 13] The negative blocking of the petitioner's electronic credit ledger was held unsustainable, and the writ petition was allowed in terms of the earlier decision, with liberty to the respondents to pursue other remedies for recovery in accordance with law. Final Conclusion: The Court held that Rule 86A can operate only against input tax credit actually available in the electronic credit ledger and cannot be used to create a negative balance. The writ petition was accordingly allowed in terms of the earlier binding decision, while leaving it open to the respondents to pursue recovery by other statutory means. Issues: Whether Rule 86A of the Central Goods and Services Tax Rules, 2017 permits the Commissioner or an authorised officer to block a taxpayer's Electronic Credit Ledger by an amount exceeding the credit available at the time of the order.Analysis: The Court adopted the view that Rule 86A is a temporary preventive measure and can be invoked only when input tax credit is actually available in the Electronic Credit Ledger and there is reason to believe, recorded in writing, that such credit is fraudulently availed or ineligible. On a plain reading of the rule, the power is limited to withholding debit of available credit for an equivalent amount; it does not authorise creation of a negative balance or debit entries beyond the credit then standing in the ledger. If credit is unavailable or already utilised, the rule cannot be invoked, and recovery, where permissible, must be pursued under the statutory machinery under Sections 73 and 74 of the Central Goods and Services Tax Act, 2017.Conclusion: Negative blocking in excess of the credit available in the Electronic Credit Ledger is not permitted under Rule 86A; the impugned blocking was unsustainable and the writ petition was allowed in favour of the petitioner.Ratio Decidendi: Rule 86A authorises only a limited preventive restriction against debit of available input tax credit and cannot be used to create a negative ledger balance or to block more than the credit existing when the order is passed.