Facts of the Case

The petitioner, M/s Arneja Steel Trader, an active GST-registered business, challenged the action of the respondents in blocking its Electronic Credit Ledger (ECL) on 09.05.2025 and 29.08.2025 under Rule 86A of the CGST/PGST Rules, 2017, without any prior intimation, notice or hearing. The blocking resulted in a negative balance being reflected in the petitioner's ECL, disabling it from utilising available ITC to discharge its dues. The parties agreed that the sole legal question was whether Rule 86A permits the tax authority to block a taxpayer's ECL by an amount exceeding the credit actually available at the time the blocking order is issued, and it was agreed the matter could be decided on this legal question alone without waiting for a formal reply.

Issues Involved

  1. Whether Rule 86A of the CGST/PGST Rules, 2017 permits the Commissioner or an authorised officer to block a taxpayer's Electronic Credit Ledger by an amount exceeding the ITC actually available at the time the blocking order is passed.

Petitioner's Arguments

  • Rule 86A does not authorise blocking of ITC in excess of the credit already standing to the taxpayer's ECL; an artificial negative balance disables use even of the remaining, unrelated ITC.
  • The power under Rule 86A is confined to ITC actually available in the ECL, relying on Samay Alloys India Pvt. Ltd. (Gujarat HC), Best Crop Science Pvt. Ltd., Kings Security Guard Services and Karuna Rajendra Ringshia (Delhi HC), whose SLPs were dismissed by the Supreme Court.
  • This Court's own decision dated 04.11.2025 in CWP-23675-2025 (M/s Shyam Sunder Strips v. Union of India) had already endorsed this view and covers the present case squarely.

Respondent's Arguments

  • The Revenue opposed the petition but was unable to deny that the issue stood squarely covered against it by the decision dated 04.11.2025 in M/s Shyam Sunder Strips and connected matters.

Court Order / Findings

  • The Court reiterated, following Samay Alloys and Shyam Sunder Strips, that Rule 86A can be invoked only where (i) credit of input tax is actually available in the ECL, (ii) the officer has reason to believe it was fraudulently availed or is ineligible, and (iii) such reasons are recorded in writing.
  • Rule 86A does not entitle the officer to make debit entries creating a negative balance; it only allows disallowing debit of an amount equivalent to the credit actually available, on a temporary/provisional basis – permanent recovery must follow Section 73 or 74.
  • The Court expressly disagreed with the contrary views of the Calcutta, Allahabad and Andhra Pradesh High Courts and endorsed the view of the Gujarat, Delhi, Telangana and Bombay High Courts.
  • The impugned blocking entries were set aside to the extent they disallowed debit in excess of the ITC actually available in the petitioner's ECL at the relevant time, with liberty to the Revenue to pursue other statutory recovery remedies.

Important Clarification

  • Rule 86A is a temporary, protective measure confined strictly to ITC actually standing in the Electronic Credit Ledger at the time of the blocking order; it cannot be used to create an artificial 'negative balance' that effectively achieves permanent recovery without following the due process under Section 73/74 of the CGST Act.
  • Where no ITC is available in the ledger at all, blocking under Rule 86A is wholly without jurisdiction.

Sections Involved

  • Rule 86A, CGST Rules, 2017 – conditions for restricting use of amount available in the Electronic Credit Ledger where fraudulently availed or ineligible ITC is suspected.
  • Section 73 & 74, CGST Act, 2017 – the proper statutory route for permanent determination and recovery of wrongly availed ITC.
  • Section 83, CGST Act, 2017 – provisional attachment of property, cited as an alternative protective measure available to the Revenue.

Decision – In Favour of

Disposed of in favour of the Assessee; negative-balance blocking entries in excess of available ITC were set aside, with liberty to the Revenue to resort to other statutory recovery measures.

Case Details

High Court of Punjab and Haryana at Chandigarh; CWP-32273-2025; Coram: Hon'ble Mrs. Justice Lisa Gill and Hon'ble Mr. Justice Parmod Goyal; Order dated 19.11.2025.

Link to Download the Order

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