Facts of the Case

M/s New Vasan Electric Company, registered under the CGST/PGST Act, 2017, challenged the blocking of its Electronic Credit Ledger (ECL) by the department on four dates — 06.01.2025, 18.02.2025, 24.04.2025 and 09.05.2025 — under Rule 86A of the CGST/PGST Rules, 2017, without any prior intimation or notice. The blocking resulted in a negative balance in the petitioner's ECL, disabling it from utilising available ITC for discharging its dues. The petitioner's grievance was that Rule 86A does not authorise blocking of credit in excess of the ITC actually available in the ledger at the relevant time.

Issues Involved

  1. Whether Rule 86A of the CGST/PGST Rules, 2017 permits the Commissioner or an authorised officer to block a taxpayer's ECL by an amount exceeding the credit actually available in the ledger at the time the blocking order is issued.

Petitioner's Arguments

  • Rule 86A only permits disallowing debit of ITC that is actually available in the ECL; it does not authorise creating an artificial negative balance in excess of available credit.
  • Reliance was placed on the Gujarat High Court's ruling in Samay Alloys India Pvt. Ltd. and Delhi High Court rulings in Best Crop Science, Kings Security Guard Services, and Karuna Rajendra Ringshia, the last two upheld by the Supreme Court dismissing SLPs, and on this very Court's decision dated 04.11.2025 in M/s Shyam Sunder Strips vs. Union of India which had adopted the same view.

Respondent's Arguments

  • The department could not deny that its own ECL entries showed the blocking on the dates in question, and, on advance notice, was unable to dispute that the controversy stood squarely covered against it by the decision in Shyam Sunder Strips.

Court Order / Findings

  • The Court reiterated the detailed reasoning of the Gujarat High Court in Samay Alloys that availability of credit in the ECL is a condition precedent for invoking Rule 86A — if no ITC is available on the date of blocking, the blocking is without jurisdiction and illegal.
  • Rule 86A is a temporary, preventive measure and not a substitute for the detailed adjudicatory procedure under Sections 73 and 74 for recovering wrongly availed credit; it cannot be used to make permanent debit/negative entries.
  • Endorsing the view of the Gujarat, Delhi, Telangana and Bombay High Courts (as followed in Shyam Sunder Strips), and respectfully disagreeing with the contrary views of the Calcutta, Allahabad and Andhra Pradesh High Courts, the Court held that without availability of credit in the ECL, there cannot be 'negative blocking'.
  • The impugned blocking entries were set aside to the extent they disallowed debit from the ECL in excess of the ITC actually available at the time, with liberty to the department to pursue statutory recovery remedies under Sections 73/74.

Important Clarification

  • Rule 86A can only restrict debit of ITC that is actually available in the electronic credit ledger on the date the order is passed; it cannot be used to create a negative balance beyond that available credit.
  • Permanent recovery of wrongly availed ITC must follow the adjudicatory route under Sections 73/74 of the CGST Act, not the summary mechanism of Rule 86A.

Sections Involved

  • Rule 86A, CGST Rules, 2017 — conditions for restricting use of the electronic credit ledger where ITC is believed to be fraudulently availed or ineligible.
  • Section 49, CGST Act, 2017 — payment of tax, interest, penalty and other amounts through the electronic ledgers.
  • Sections 73/74, CGST Act, 2017 — determination of tax, including wrongly availed ITC.

Decision – In Favour of

The writ petition was allowed in favour of the Assessee, with the negative blocking entries in excess of available ITC quashed, while leaving the department free to pursue statutory recovery.

Case Details

Court: High Court of Punjab and Haryana at Chandigarh
Case No.: CWP-25833-2025
Coram: Hon'ble Mrs. Justice Lisa Gill and Hon'ble Mr. Justice Parmod Goyal
Date of Order: 19.11.2025

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