Facts of the Case:

In this case, the Petitioner filed a writ petition challenging the blocking of its Electronic Credit Ledger (ECL) by the GST Department under Rule 86A of the CGST Rules, 2017. The Petitioner contended that the blocking was done without issuance of any show cause notice, order, or opportunity of hearing. Despite repeated representations asserting that the Input Tax Credit (ITC) was validly availed, the Department failed to respond or lift the restriction. The Petitioner further argued that as per Rule 86A(3), such restriction automatically ceases after one year, i.e., in February 2025, but the credit remained blocked even thereafter. Reliance was placed on Seya Industries Ltd. vs. State of Maharashtra.

The Department, in its affidavit, acknowledged that the restriction under Rule 86A cannot continue beyond one year but contended that the Petitioner’s GST registration had been cancelled and further action may be initiated.

Issue:

Whether blocking of ITC under Rule 86A can continue beyond one year from the date of imposition. Whether cancellation of registration affects the statutory right to unblocking of ITC after expiry of one year.

Held That:

The Court held that Rule 86A(3) clearly provides that restriction on utilization of ITC cannot continue beyond a period of one year from the date of imposition. In the present case, since the restriction was imposed on 16.02.2024, it automatically ceased upon expiry of one year in February 2025. The Court noted that even the Department had admitted this legal position.

It was held that the Petitioner’s entitlement to unblocking of ITC flows by operation of law, and therefore, continuation of the restriction beyond one year was illegal. The contention of the Department regarding cancellation of registration was rejected for the purpose of continuing the blocking, as such issues must be dealt with separately under the Act.

Accordingly, the Court set aside the impugned blocking/attachment of ITC, holding that it had already ceased to operate. Liberty was granted to both parties to take appropriate action in accordance with law on other issues, including ITC eligibility.

Case Name: NZS Traders Pvt. Ltd. Versus Union of India & Ors. dated 25.03.2026

To read the complete judgement 2026 Taxo.online 749