Facts of the Case

The petitioners challenged the action of the respondents in continuing the blocking of the petitioners’ electronic credit ledger.

The electronic credit ledger had been blocked by an order dated 21 August 2021. The petitioners contended that, under sub-rule (3) of Rule 86A, the validity of such blocking was limited to a period of one year.

According to the petitioners, since one year had elapsed from the date on which the electronic credit ledger was blocked, the restriction had expired and lost its legal force. Despite the expiry of the prescribed period, the respondents had not unblocked the electronic credit ledger.

During the hearing, the learned Additional Government Pleader appearing for the respondents was asked to obtain instructions as to whether any further order extending the blocking in question had been passed. On instructions, it was submitted that no further order of extension had been passed.

Issues Involved

  1. Whether the blocking of the petitioners’ electronic credit ledger could legally continue beyond one year in view of Rule 86A(3).
  2. Whether the restriction imposed on 21 August 2021 had lost its force after the expiry of one year.
  3. Whether the respondents could continue the blocking when no further order of extension had been passed.
  4. Whether the legal consequences contemplated under Rule 86A(3) would automatically follow upon expiry of the permissible period.

Petitioner’s Arguments

The petitioners argued that the period of validity of blocking an electronic credit ledger is one year under sub-rule (3) of Rule 86A.

It was submitted that:

  • the blocking order had been made on 21 August 2021;
  • the statutory period of one year had expired;
  • after expiry of one year, the blocking had lost its force;
  • despite such expiry, the respondents had failed to unblock the electronic credit ledger; and
  • continuation of the restriction beyond the permissible period was contrary to Rule 86A(3).

Accordingly, the petitioners sought relief against the continued blocking of the electronic credit ledger.

Respondent’s Arguments / Stand

The learned Additional Government Pleader appearing for the respondents was specifically asked to obtain instructions regarding whether any further order extending the blocking had been passed.

On instructions, the respondents submitted that no further order of extension had been passed.

This factual position was significant because the original blocking had been imposed on 21 August 2021, while the matter was considered after the expiry of one year.

Court Order / Findings

The Calcutta High Court considered:

  • the submissions made by both parties;
  • the facts appearing from the record;
  • the date on which the electronic credit ledger had been blocked;
  • the statutory effect of Rule 86A(3); and
  • the respondents’ confirmation that no further extension order had been passed.

The Court declared that the impugned blocking of the petitioners’ electronic credit ledger had lost its force and could not be continued in view of sub-rule (3) of Rule 86A.

The Court further observed that the legal consequence would automatically follow from such declaration.

Accordingly, the writ petition, being W.P.A. 18066 of 2021, along with the connected application, being C.A.N. 1 of 2022, was disposed of.

The respondents concerned were directed to take suitable action in view of the Court’s declaration.

Important Clarification

The key clarification emerging from the order is that a restriction imposed upon the electronic credit ledger under Rule 86A cannot continue indefinitely.

Where:

  • the electronic credit ledger was blocked on a specified date;
  • the period contemplated under Rule 86A(3) has expired; and
  • no further order of extension has been passed,

the blocking loses its force and cannot be continued. The legal consequences arising from the expiry of the prescribed period follow accordingly.

The Court’s decision is specifically based on the facts before it, including the admitted position that no further extension order had been passed.

Section / Rule Involved

Rule 86A(3) of the Central Goods and Services Tax Rules, 2017 – Cessation of restriction imposed on the use of the amount available in the electronic credit ledger after the expiry of one year from the date of imposition of such restriction.

Link to download the order -https://www.mytaxexpert.co.in/uploads/1783505399_2105compressed.pdf

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