2025 (12) TMI 699

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....sel for parties are ad idem that question which arises for consideration in the writ petition is: "Whether Rule 86-A of Goods and Services Tax Rules, 2017 (for short 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?" 3. Learned counsel for parties agree that in view of said sole question of law being the subject matter of adjudication, it is not necessary to postpone the hearing for filing of formal reply on behalf of respondents. 4. Learned counsel for petitioner submits that petitioner is an active business concern registered under the provisions of Central Goods and Services Tax Act, 2017 (for short - 'CGST Act'). Grievance raised is that respondent No. 2 without any prior intimation, notice and in alleged violation of principles of natural justice besides guidelines issued by Central Board of Indirect Taxes and Customs (CBIC), negatively blocked Input Tax Credit (ITC) of Rs. 9,39,56,076/- on 27.08.2025 and Rs. 4,38,448/- on 29.08.2025 in Electronic Credit Ledger (ECL) of petitioner under Rule 86A of Act/Rules, 2017. It is argued that th....

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....-2025 (M/s Shyam Sunder Strips versus Union of India and others) and other connected matters. 7. We have heard learned counsel for parties and have perused the file with their able assistance. 8. It is a matter of record that petitioner is registered with respondent authorities under CGST Act, 2017 having GST Identification No. (GSTIN 03AATFK6316Q2Z0). Learned counsel for respondent, on advance notice, was unable to deny that ECL of petitioner for a sum of Rs. 9,39,56,076/- and Rs. 4,38,448/- was negatively blocked on 27.08.2025 and 29.08.2025, respectively. 9. At this stage, it is relevant to refer to decision dated 04.11.2025 in the case of M/s Shyam Sunder Strips (supra) wherein judgments of Gujarat High Court in the case of Samay Alloys, of Delhi High Court, in Best Crop Science Pvt. Ltd. (supra); Kings Security Guard Services Pvt. Ltd. (supra) and Karuna Rajendra Ringshia (supra), in M/s Laxmi Fine Chem Vs. Assistant Commissioner (2024) SCC OnLine TS 2328 of Telangana High Court and of Bombay High Court in Rawman Metal and Alloys Vs. The Deputy Commissioner of State Tax, Thane, 2025(10) TMI 489 as well as decisions of Calcutta High Court in Basanta Kumar Shaw Vs The A....

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....dit ledger, ii) The Commissioner of an officer authorised by him should have reason to believe that such credit has been fraudulently availed or is ineligible, iii) The reason to believe are be recorded in writing. 30. In case the above referred conditions are satisfied, a proper officer can invoke Rule 86A. Upon invocation of Rule 86A, a proper officer can - a) Disallow debit from the electronic credit ledger for discharge of any liability under section 49 or for claim of any refund of any unutilised amount. b) Such restriction should be for an amount equivalent to the amount claimed to have been fraudulently availed or is ineligible. 31. Rule 86A (1) of CGST Rules, 2017 is broadly divided into two parts. The opening part of the rule deals with the conditions required to be fulfilled in order to invoke the powers under the rule. The second part of the rule provides for the consequences in case Rule 86A is invoked. 32. In other words, in case the conditions prescribed for the invocation of Rule 86A are not fulfilled, the officer cannot invoke the rule, and in such scenario, the consequences provided in the rule becomes ....

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....with the Government. The Government can certainly initiate proceedings under the provisions of section 73 or section 74, as the case may be, for recovery of credit wrongly claimed. Further, the Government in an appropriate case may initiate proceeding for Cancellation of registration (either of the supplier of the recipient or both) under Section 29 of CGST Act. Furthermore, the Government can also provisionally attach any property, including bank account, belonging to the taxable person under Section 83 of CGST Act. 43. Accordingly, the fact or possibility of registered person availing and utilising the fraudulent credit persistently and continuously cannot be the basis to invoke Rule 86A. 44. The power to restrict debit from the electronic credit ledger is extremely harsh in nature. The rule outreaches the detailed procedure provided in the legislature for determination of input tax credit wrongly availed or utilised provided in Section 73 and 74 of CGST Act and empowers the officer to unilaterally impose certain restrictions in compelling circumstances. In other words, Rule 86A is invoked at a stage which is anterior to the finalization of an assessment or the ....