Blocking Beyond the Balance Available in Electronic Credit Ledger (Negative blocking) is not Allowed Under Rule 86A

Held by

Hon’ble High Court of Punjab & Haryana

In the matter of

M/s Mannat Steels Vs Union of India & others (CWP-34077-2025 dated 17.11.2025)

The Petitioner is registered under GST in the state of Punjab. The Petitioner has raised the grievance that the respondent has negatively blocked the ITC of INR 8 Lacs in the Electronic Credit Ledger of the Petitioner under Rule 86A of the CGST Rules, 2017.

The petitioner contended that the provision of the GST law does not mandate or authorise the blocking of ITC in excess of the ITC available in the electronic credit ledger of the registered dealer. As per Rule 86A of the CGST Rules, the power of the competent Officer is confined to the ITC which is available at the relevant time in the taxpayer's ECL.

Hon’ble High Court relied on its judgment in the case of M/s Shyam Sunder Strip dated 04.11.2025 (CWP-23675-2025) wherein it was held that the power under Rule 86A can be exercised when the following cumulative conditions are satisfied:

1. Credit of ITC be available in the ELC.
2. The Commissioner of an officer authorised by him should have reason to believe that such credit has been fraudulently availed of or is ineligible, 
3. The reasons to believe are be recorded in writing

Therefore, where ITC is not available in the electronic credit ledger or such credit has already been utilised, the powers conferred under Rule 86A cannot be invoked.

Therefore, without the availability of credit in the ECL, there cannot be ‘negative blocking.

Hon’ble High Court held that Keeping in view the facts and circumstances as above, the present writ petition is allowed in the same terms as CWP-23675-2025 (M/s Shyam Sunder Strips versus Union of India and others) decided on 04.11.2025

1. Brief facts of the case

• The petitioner is registered under GST in the state of Punjab. 

• The Petitioner has raised the grievance that the respondent has negatively blocked the ITC of INR 8 Lacs in the Electronic Credit Ledger of the Petitioner under Rule 86A of the CGST Rules, 2017.

• Such blocking is in violation of principles of natural justice, besides guidelines issued by the Central Board of Indirect Taxes and Customs (CBIC).

Read also: GSTN Issued FAQs on Newly Released Form GSTR-9/9C for FY 2024-25

2. Relevant Legal Extract

Relevant provisions of the GST Law are reiterated below for ready reference:

1. Rule 86A of the CGST Rules, 2017 is reiterated below for ready reference:

“Rule 86A. Conditions of use of the amount available in electronic creditdger.-

(1) The Commissioner or an officer authorised by him in this behalf,

not below the rank of an Assistant Commissioner, having reasons to

believe that the credit of input tax is available in the electronic credit ledger

has been fraudulently availed of or is ineligible in as

….

May, for reasons to be recorded in writing, not allow debit of an amount equivalent to such credit in the electronic credit ledger for discharge of any liability under section 49 or for claim of any refund of any unutilised amount

(2) The Commissioner, or the officer authorised by him under sub-rule(1) may, upon being satisfied that conditions for disallowing debit of electronic credit ledger as above no longer exist, allow such debit.

(3) Such restriction shall cease to have effect after the expiry of a period of one year from the date of imposing such restriction."]

3. Contention of the petitioner

The Petitioner contended that:

• The provision of the GST law does not mandate or authorise the blocking of ITC in excess of the ITC available in the electronic credit ledger of the registered dealer.

• Also, an artificial negative balance is created in the Electronic Credit Ledger (“ECL”) of the petitioner, which disables it from utilising the ITC availed by it for payment of its dues.

• Only the ITC remaining after adjusting the negative balance would become available to the petitioner for discharging its dues. 

• As per Rule 86A of the CGST Rules, the power of the competent Officer is confined to the ITC which is available at the relevant time in the taxpayer's ECL.

• The petitioner placed reliance of following precedences:
  
  • Gujarat High Court in Samay Alloys India Pvt. Ltd. Vs. State of Gujarat, 2022(2) TMI 843;
  • Delhi High Court in Best Crop Science Pvt. Ltd. Vs. Principal Commissioner and another, 2024 (9) TMI 1543, 
  • Kings Security Guard Services Pvt. Ltd. Vs. Deputy Director, Directorate General of GST Intelligence, 2024(12) TMI 1513; and
  • Karuna Rajendra Ringshia Vs. Commissioner of Central Goods and Service Tax and others, 2024(11) TMI 190. 

• Delhi High Court in the matter of Kings Security and Karuna Rajender Ringshias’ cases (supra), has upheld with SLP(c) Nos. 014493/2025 and 017723/2025 challenging said decisions being dismissed bythe  Hon’ble Supreme Court on 17.05.2025 and 09.07.2025, respectively. 

• This High Court vide decision dated 04.11.2025 in CWP-23675-2025 and other writ petitions has endorsed the view taken by the Delhi High Court in the cases of Best Crop Science Pvt. Ltd. (supra), Kings Security Guard Services Pvt. Ltd. (supra) and Karuna Rajendra Ringshia (supra). 

• The present writ petition is squarely covered in favour of the petitioner in view of abovesaid decision dated 04.11.2025 passed in CWP-23675-2025 (M/s Shyam Sunder Strips versus Union of India and others). 

4. Contention of the Respondent

The Respondent contended that:

• He is unable to deny that the controversy and issue as raised is squarely covered in favour of the petitioner and against the Department/Revenue in terms of the decision dated 04.11.2025 passed in CWP-23675-2025 (M/s Shyam Sunder Strips versus Union of India and others) and other connected matters.

5. Findings and Analysis by Hon’ble High Court

Hon’ble High Court has made the following findings and Analysis:

• The petitioner is registered with the respondent authorities under the CGST/PGST Act, 2017, since November 2019.

• Negative block of INR 8 Lacs was created while the available credit balance in the petitioner’s ECL was Rs. 66/-.

• In this case, the reliance is placed on the decision of this court in the matter of M/s Shyam Sunder Strip dated 04.11.2025, wherein different Judgments of the Gujarat High Court, Telangana High Court and Bombay High Court were noted and discussed in detail.

• Analysis of the judgment of this court in the case of M/s Shyam Sunder Strip dated 04.11.2025 is as follows:
  
  • Right to avail and utilise the ITC is clearly a statutory right subject to conditions as set out in the applicable statutory provisions. 

• Gujarat High Court in the matter of Samay Alloys India Pvt. Ltd. concluded that the availability of credit in the ECL is a condition precedent for the exercise of power under Rule 86-A of the Rules, 2017. 

• In the matter of Samay Alloys India Pvt. Ltd., the Gujarat High Court held that:
  
  • Rule 86A of the CGST Rules empowers the Commissioner or his subordinates to freeze the debit in the electronic credit ledger.

• Thus, the condition precedent is that the ITC should be available in the electronic credit ledger before the power under Rule 86-A is invoked by the authority.

• In the given case, the amount of ITC in ECL on the date of blocking of the ledger was Nil. Therefore, if no ITC was available in the ledger, the blocking of ELC under Rule 86-A of the Rules and insertion of a negative balance in the ledger would be wholly without jurisdiction and illegal.

• As per the opening part of Rule 86A(1) of the CGST Rules, 2017, it transpires that the power conferred under Rule 86A can be exercised by the Commissioner or an officer authorised by him (not below the rank of an Assistant Commissioner). 

• Therefore, power can be exercised when the following cumulative conditions are satisfied. 

1. Credit of input tax should be available in the electronic credit ledger.
2. The Commissioner of an officer authorised by him should have reason to believe that such credit has been fraudulently availed of or is ineligible, 
3. The reason to believe are be recorded in writing.

• In case the above-referred conditions are satisfied, a proper officer can invoke Rule 86A. 

• Upon invocation of Rule 86A, a proper officer can:

1. 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.

2. Such a restriction should be for an amount equivalent to the amount claimed to have been fraudulently availed or is ineligible

• Rule 86A (1) of CGST Rules, 2017 is broadly divided in following 2 parts:

1. One deals with the conditions required to be fulfilled in order to invoke the powers under the rule.

2. Second provides for the consequences in case Rule 86A is invoked.

• Therefore, if conditions prescribed for the invocation of Rule 86A are not fulfilled, the officer cannot invoke the rule, and in such a scenario, the consequences provided in the rule become ex facie inapplicable.

• One of the primary conditions is that the Credit of ITC should be available in the electronic credit ledger. Further, such credit should be claimed to have been (supported by reason to believe recorded in writing) fraudulently availed.

• Accordingly, in case where:

1. ITC is not available in the electronic credit ledger or
2. Such credit has already been utilised, 

The powers conferred under Rule 86A cannot be invoked.

• The view expressed by the High Courts of Gujarat, Delhi, Telangana and Bombay was endorsed by this Court to the effect that there is no ambiguity in the plain language of Rule 86A of the 2017 Rules. Literal construction of this Rule does not lead to any absurdity; not allowing debit of ITC is a temporary measure which is to be imposed only if the conditions set out in Rule 86A of the 2017 Rules are satisfied.

• Thus, enabling the Commissioner to withhold available ITC in ECL when there is a reason to believe that it has been fraudulently availed or is ineligible. 

• Therefore, without the availability of credit in the ECL, there cannot be ‘negative blocking’. 

6. Final Order

Hon’ble High Court of Punjab & Haryana has held that:

• Keeping in view the facts and circumstances as above, the present writ petition is allowed in the same terms as CWP-23675-2025 (M/s Shyam Sunder Strips versus Union of India and others) decided on 04.11.2025

7. List of Cases Reviewed:

• Shyam Sunder Strips v. Union of India [2025] 180 taxmann.com 414 (Punj & Har) (para 12) followed