Rule 86A blocking of input tax credit cannot create a negative balance; only available ledger credit may be blocked.

Rule 86A permits blocking of input tax credit only to the extent credit is actually available in the electronic credit ledger when the power is exercised. The provision was construed strictly and literally, so future credit cannot be blocked and a negative balance cannot be created. On that basis, the Bombay HC held that blocking beyond the available credit was impermissible and quashed the order to that extent, while sustaining the block only for the credit then available in the ledger.

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Issues: Whether Rule 86A permits blocking of input tax credit beyond the credit available in the electronic credit ledger, including insertion of a negative balance.

Analysis: Rule 86A was held to operate only on credit actually available in the electronic credit ledger at the time the blocking power is exercised. The provision was construed strictly as a fiscal rule, and its language was read literally to mean that the proper officer may block only the amount then available. Blocking future credit or creating a negative balance was treated as beyond the rule's ambit. However, to the extent credit of Rs. 43,19,259 was available in the ledger, the blocking was valid.

Conclusion: Negative blocking of input tax credit is impermissible under Rule 86A, and the impugned order was quashed to the extent it blocked Rs. 4,38,80,741, while the block of Rs. 43,19,259 was sustained.

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