Facts of the Case

M/s. AD Ideas Private Limited challenged the blocking of its electronic credit ledger, which had been ordered by the GST authorities on 21st August 2021 under Rule 86A of the CGST Rules, 2017. The petitioner contended that Sub-Rule (3) of Rule 86A caps the validity of such blocking at one year, and since more than a year had passed without any fresh order of extension, the blocking had lost its force but the respondents continued to keep the ledger blocked.

Issues Involved

  1. Whether blocking of an electronic credit ledger under Rule 86A of the CGST Rules automatically ceases to have effect after one year in the absence of a fresh extension order.

Petitioner's Arguments

  • The blocking order dated 21st August 2021 had, by operation of Sub-Rule (3) of Rule 86A, lost its validity and force after one year, i.e., after 21st August 2022, and the department was obliged to unblock the ledger.

Respondent's Arguments

  • On being asked to take instructions on whether any further order extending the blocking had been passed, the Additional Government Pleader confirmed on instructions that no such further order of extension had been passed.

Court Order / Findings

  • On the Revenue's own concession that no order extending the blocking had been passed, the Court proceeded to declare the legal consequence flowing from Rule 86A(3).
  • Blocking of an electronic credit ledger under Rule 86A(3) of the CGST Rules automatically loses its force on the expiry of one year from the date of the blocking order, and continued blocking thereafter without a fresh order is impermissible; the legal consequence of automatic unblocking follows without requiring further adjudication.
  • The writ petition and the connected application were disposed of by declaring that the impugned blocking had lost its force and could not continue, with the respondents directed to take suitable action to give effect to this declaration.

Important Clarification

  • A blocking of input tax credit in the electronic credit ledger under Rule 86A of the CGST Rules is not indefinite: it automatically expires one year after the blocking order unless a fresh order recording independent satisfaction is passed before that date; taxpayers facing continued blocking beyond one year without any extension order are entitled to have the ledger unblocked as a matter of law.

Sections Involved

  • Rule 86A, CGST Rules, 2017 - conditions for restricting use of amount available in the electronic credit ledger, with Sub-Rule (3) capping such restriction at one year.

Decision – In Favour of

The writ petition was allowed in favour of the Assessee, with the Court declaring the blocking to have lost its force and directing consequential unblocking action.

Case Details

Court: High Court at Calcutta
Case No.: W.P.A. 18066 of 2021 with C.A.N. 1 of 2022
Coram: Justice Md. Nizamuddin
Date of Order: 19.09.2022

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