TaxTMI 
TaxTMI 
2026 (3) TMI 1678
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....r a Writ in the nature of Certiorari, or any other appropriate writ Order or direction to the Respondents to unblock the Input Tax Credit to the tune of Rs. 4.82 Crore blocked by Respondent no. 3. c) This Hon'ble Court be pleased to issue any appropriate Writ or order or direction under Article 226 of the Constitution of India to Respondents to remove negative balance of Rs. 4.38 Crore of Electronic Credit Ledger which is not permissible under Rule 86A of the Rules. d) Pending the hearing and final disposal of this writ petition be pleased to order to Respondents to remove negative balance of Electronic Credit Ledger which is impermissible under Rule 86A of the Rules." 2. In the present petition, the Petitioner has challenged the order dated 19th June 2025 passed by Respondent No. 3 under Rule 86A of Central/Maharashtra Goods and Services Tax Rules (hereinafter referred to as the "Rules") read with Central/Maharashtra Goods and Services Tax Act (hereinafter referred to as the "Act") on the ground that the same has been passed in breach of principles of natural justice and in contravention of Rule 86A of the Rules. 3. Briefly the facts are:- i. T....
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....e available in the electronic credit ledger of the ITC. This negative blocking is not sustainable in law and not as per the mandate of Rule 86A of the Rules. 5. Learned Counsel on behalf of the Petitioner also pointed out the electronic credit ledger (ECL), which is attached at Page 38 of the Petition, clearly shows that when the ITC was blocked on 19th June 2025 and 24th July 2025, there was a consistent negative balance in the ECL and particularly on 19th June 2025 and 24th July 2025, there was a debit balance in the ECL. In view thereof, this negative blocking was arbitrary and hence the impugned order was liable to be set aside. 6.Per contra, learned counsel on behalf of Respondent Department Ms. Vyas submitted that at the time of blocking, the ECL of the Petitioner did not show a negative balance and in fact an amount of Rs. 43,19,259/- was available in so far as the ITC was concerned. It is further her submission that the blocking of the ECL was done in view of the fact that the ITC which the Petitioner had availed was in respect of suppliers who were either non-existent, or their registration had been cancelled, and hence the provisions of Rule 86A of the Rules have be....
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....ity, it is ordinarily not open for the Court to adopt a construction or an interpretation that allegedly aligns with the intention, though not with the expressed or plain words employed to express such intention. 12. Further, the Rule with which we are concerned relates to taxes. Ordinarily, such a provision must be strictly construed, and there is no scope for implication. Nothing is to be read in such a provision unless there are exceptional circumstances. The argument that the Rule would be rendered otiose cannot be accepted because the Rule enables the proper officer to block the ITC as may be available in the Electronic Credit Ledger, upon there being reasons to believe that the same had been fraudulently availed or was ineligible. If the intention of the legislature or the rule makers was to enable the blocking of any future credit that might be available in the Electronic Credit Ledger, then the Rule would have been differently worded to expressly enable or permit such a consequence. 13. The Division Bench of the Gujarat High Court, comprising Hon'ble Mr Justice J. B. Pardiwala (as His Lordship then was) & Hon'ble Ms Justice Nisha M. Thakore, has analysed t....
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.... utilised. 41. In the aforesaid regard, first the language of an amount equivalent appears in the later portion of the rule which provides for the consequences in case the conditions for invocation of the rule are satisfied. As already discussed, the rule itself can be invoked only in case where the credit of input tax is available in the electronic credit ledger and accordingly, the consequence of the invocation cannot determine the applicability of the rule. Secondly, once the input tax credit is claimed in electronic credit ledger, the credit becomes part of one fungible pool and the credit cannot be separately identified. Having regard to the same, the rule provides for restriction on an equivalent amount and not the credit itself. However, the rule presupposes existence of such credit in the electronic credit ledger. 42. A doubt may also arise that a registered person may persistently and continuously avail and utilise the fraudulent credit and in such scenario the strict interpretation of Rule 86A will defeat the underlying purpose of enacting such a preventive provision. In this regard. Rule 86A is not the only measure available with the Government. The Gov....
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.... as reliance upon equity does not avail an assessee, so it does not avail the Revenue. The Court held that the principle of law discernible from the aforesaid two decisions of the Supreme Court is that there can be no action based on any supposed intendment of the provision. Since the plain language of Rule 86-A does not permit its exercise without the availability of credit, it could not have been invoked in the case where the ITC was nil on the date of exercise of the power. 17. The Gujarat High Court also relied upon Circular No. 4 of 2021 dated 24 May 2021 issued by the Commissioner of State Tax, State Goods & Services Tax Department Kerala emphasizing that if there was a nil balance or insufficient balance in the tax head to which the credit is to be blocked the credit available in other tax heads, equivalent to the amount fraudulent availed, can be blocked. In such a scenario, it should be kept in mind that this shall be subject to limitations imposed by law on cross-utilisation of ITC. That is, as cross-utilisation of CGST credit to SGST liability and vice versa is not permitted by the GST Laws. In case of blocking of CGST credit availed fraudulently, blocking of SG....
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....t the decision of the Delhi High Court in the case of Karuna Rajendra Ringshia (supra), the Revenue did carry the matter to the Hon'ble Supreme Court by instituting the Special Leave Petition (Civil) Diary No(s). 21136/2025. However, by order dated 9 July 2025, the Hon'ble Supreme Court declined to interfere with the decision of the Delhi High Court, leaving it open to the Revenue to pursue other remedies for recovery in accordance with law. 22. The Calcutta High Court in the case of Basanta Kumar Shaw (supra) has dissented from the decision of the Gujarat High Court in Samay Alloys India Pvt Ltd (supra). The Calcutta High Court has reasoned that Rule 86-A does not use the expression "negative blocking" and therefore, such a theory cannot be imported to justify the contention that there should be a positive balance to invoke Rule 86-A. The Court has also held that there was no requirement under Rule 86-A that the Electronic Credit Ledger should contain a sufficient balance to block the credit by invoking the Rule. The Court held that the Gujarat High Court's view, while laying excessive emphasis on the word "available", has not given due credence to the words "has been fra....
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....rtant to a people who hope to live under the rule of law, will never be satisfactory unless courts seek whenever possible to apply 'the golden rule' of construction, that is to read the statutory language, grammatically and terminologically, in the ordinary and primary sense which it bears in its context, without omission or addition. Of course, Parliament is to be credited with good sense; so that when such an approach produces injustice, absurdity, contradiction or stultification of statutory objective the language may be modified sufficiently to avoid such disadvantage, though no further". 29. The Rules stated above have been quoted with approval by the Hon'ble Supreme Court in the cases of Harbhajan Singh vs. Press Council of India and Guru Jambheshwar University vs. Dharam Pal. 30. Recently, in the case of M/s Shiv Steel Vs State of Assam and Ors, the Hon'ble Supreme Court reiterated that strict interpretation must be applied when analysing fiscal statutes, and tax liability can only be imposed if the case falls clearly within the statutory provisions. No tax can be levied by inference, analogy, or presumed legislative intent. The Court held that if t....