The Delhi High Court examined the legality of repeated and prolonged blocking of Input Tax Credit in the Electronic Credit Ledger under Rule 86A of the CGST Rules, 2017.

The Court held that:

  • Blocking of ITC is a drastic statutory power and must be strictly construed.

  • Rule 86A can be invoked only where ITC is fraudulently availed or ineligible strictly within the circumstances enumerated in the rule.

  • Alleged non-payment of consideration within 180 days under Section 16(2) does not render ITC ineligible for blocking; the statute provides a specific mechanism for reversal with interest under Rule 37.

  • ITC may be availed initially even if payment to the supplier is pending, subject to reversal if payment is not made within the prescribed period.

  • Restriction imposed under Rule 86A cannot continue beyond one year, and repeated or mechanical blocking without authority of law is impermissible.

Accordingly, the continued blocking of ITC in the petitioner’s Electronic Credit Ledger was held to be without authority of law, and the respondents were directed to forthwith unblock the ITC, without prejudice to lawful recovery proceedings in accordance with the CGST Act

Link to download the order
https://mytaxexpert.co.in/uploads/1766386612_SunnyJainVsUnionofIndiaDelhiHighCourt.pdf