Facts of the Case

M/S Vee Kay Concast Private Limited (GSTIN 03AACCS1850M1ZF), registered under the CGST and PGST Acts, found its Electronic Credit Ledger (ECL) blocked in negative on 30.09.2025, without prior notice, under Rule 86A of the CGST/PGST Rules, 2017. Since the ITC available in the ECL was less than the amount blocked, the entry created an artificial negative balance from 01.08.2025 to 30.09.2025, disabling the petitioner from utilising even its remaining, undisputed credit. By consent of both parties, the writ petition was heard on the sole question of law framed: whether Rule 86A permits a Commissioner to block ECL by an amount exceeding the credit actually available at the time of the order.

Issues Involved

  1. Whether Rule 86A of the CGST/PGST Rules, 2017 permits a proper officer to block a taxpayer's Electronic Credit Ledger by an amount exceeding the credit actually available in it at the time of the blocking order.

Petitioner's Arguments

  • Rule 86A confines the power to the ITC actually available in the ECL at the relevant time and does not authorise creation of an artificial negative balance.
  • Relied on Samay Alloys India Pvt. Ltd. v. State of Gujarat (Gujarat HC), Best Crop Science Pvt. Ltd., Kings Security Guard Services Pvt. Ltd., and Karuna Rajendra Ringshia (all Delhi HC — the latter two upheld by the Supreme Court dismissing SLPs), and the same High Court's own recent ruling in M/s Shyam Sunder Strips v. Union of India (CWP-23675-2025, decided 04.11.2025) which endorsed this view.

Respondent's Arguments

  • Did not deny that the issue stood squarely covered against the Department by the decision in M/s Shyam Sunder Strips and other connected matters.

Court Order / Findings

  • Following its own decision in M/s Shyam Sunder Strips — which had endorsed the view of the Gujarat, Delhi, Telangana and Bombay High Courts and respectfully disagreed with the Calcutta, Allahabad and Andhra Pradesh High Courts — held that availability of credit in the ECL is a condition precedent for invoking Rule 86A.
  • Held that Rule 86A merely allows the proper officer to disallow debit from the ECL for a limited, provisional period; it is not a mechanism for permanent recovery, which is governed by Sections 73/74 of the CGST Act.
  • Held that not allowing debit of ITC is a temporary, preventive measure requiring available credit in the ECL — 'negative blocking' beyond available credit is impermissible, though prior notice (SCN) is not required to invoke the provision in a genuine emergent situation.
  • Allowed the writ petition in the same terms as Shyam Sunder Strips, setting aside the impugned blocking/entries to the extent they disallowed debit beyond the ITC actually available in the ECL at the relevant time.
  • Clarified that the Department remains at liberty to resort to other statutory recovery measures, including proceedings under Sections 73/74 or 83 of the CGST Act.

Important Clarification

  • Rule 86A of the CGST Rules can restrict debit from the Electronic Credit Ledger only to the extent of ITC actually available in it at the time the power is invoked; it cannot be used to manufacture an artificial 'negative balance' exceeding available credit. Being a temporary, preventive measure anterior to final determination, Rule 86A is distinct from — and cannot substitute — the substantive recovery machinery under Sections 73 and 74 of the CGST Act.

Sections Involved

  • Rule 86A, CGST/PGST Rules, 2017 — conditions for restricting use of amount available in the electronic credit ledger.
  • Section 73 & 74, CGST Act, 2017 — statutory mechanism for recovery of wrongly availed/utilised ITC.
  • Section 83, CGST Act, 2017 — provisional attachment of property to protect revenue.

Decision – In Favour of

In favour of the Assessee.

Case Details

High Court of Punjab and Haryana at Chandigarh; CWP-32284-2025; Coram: Justice Lisa Gill & Justice Parmod Goyal; Date of Decision: 19.11.2025.

Link to Download the Order

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