2026 (3) TMI 1681 - HC - GST

Electronic credit ledger blocking cannot continue beyond one year under Rule 86A(3); credit must be restored.

Rule 86A(3) of the CGST Rules limits blocking of an electronic credit ledger to one year from the date of imposition; once that period expires, the ... Time limit for blocking electronic credit ledger - Cessation of restriction by operation of lawRule 86A(3) - Electronic credit ledger blocking - Statutory cessation of restriction - Blocking of the petitioner's electronic credit ledger could not continue beyond one year from the date of imposition under Rule 86A(3) of the CGST Rules, 2017. - HELD THAT: - The Court held that Rule 86A(3) clearly limits the life of a restriction on the electronic credit ledger to one year from the date of its imposition. Since the blocking was imposed on 16th February 2024, it ceased to have effect on expiry of one year and the credit was required to be unblocked by operation of law. The Department itself acknowledged this position in its affidavit. The Court further held that the petitioner did not require any separate declaration for such relief, and the Department's contention based on cancellation of registration or possible future proceedings could not justify continuation of the expired restriction. Questions regarding any other legal consequences, including eligibility or utilisation of credit, were left to be dealt with independently in accordance with law. [Paras 7, 8, 9, 10, 11]The impugned blocking of credit was held to have ceased to operate on expiry of the statutory period of one year, and was accordingly set aside, with all other contentions kept open.Final Conclusion: The petition was disposed of on the sole ground that the blocking of the electronic credit ledger had lapsed by operation of Rule 86A(3) after one year. The impugned blocking was set aside, while all other issues, including those relating to ITC and other proceedings under the Act and Rules, were expressly kept open. Issues: Whether the blocking of the electronic credit ledger could continue beyond the one-year period prescribed under Rule 86A(3) of the Central Goods and Services Tax Rules, 2017, and whether the blocked credit was required to be unblocked.Analysis: Rule 86A(3) expressly limits the operation of a restriction on the electronic credit ledger to one year from the date of imposition. The restriction in question was imposed on 16 February 2024, and the statutory period had expired by February 2025. Once that period elapsed, the restriction could not continue in law. The entitlement to restoration of credit followed directly from the rule, and the departmental affidavit also acknowledged the same legal position. Consequences arising from cancellation of registration and any further action under the Act and Rules were left open.Conclusion: The blocking of the credit ledger had ceased to operate by efflux of time, and the impugned attachment was liable to be set aside with the credit unblocked.