Facts of the case:

In this case, the petitioner challenged an order requesting passed by the Assistant Commissioner of State Tax, whereby the petitioners’ request for unblocking of the electronic credit ledger (ECL) as well as their request for initiation and conclusion of adjudication proceedings, was rejected. The electronic credit ledger of the petitioner had been blocked under Rule 86A of the CGST Rules, on the allegation that the petitioner had availed Input Tax Credit (ITC) merely on the basis of paperwork without actual movement of goods and had passed on such ITC to beneficiaries without supply of goods.

The petitioner contended that continued blocking of the electronic credit ledger had crippled its business operations, and further asserted that during the subsistence of the blocking, the entire amount corresponding to the blocked credit had already been realized by the department.

Issue:

Whether the Proper Officer, after invoking Rule 86A, could refuse to initiate adjudication proceedings by holding that the alleged violation was “not suitable for adjudication”. Whether blocking of the electronic credit ledger under Rule 86A can be continued indefinitely without adjudication.

Held that:

The Court observed that Rule 86A is a temporary, preventive provision intended to protect the revenue where there is reason to believe that ITC has been fraudulently availed or is ineligible. Such blocking is clearly an interim measure pending adjudication and cannot replace the adjudicatory mechanism provided under the CGST Act. The Court categorically rejected the Proper Officer’s reasoning that the alleged violation was “not suitable for adjudication,” holding that once Rule 86A is invoked, adjudication must necessarily follow. The Proper Officer cannot both block the electronic credit ledger and simultaneously abdicate the statutory duty to adjudicate the allegations by issuing a show cause notice.

It was further observed that the electronic credit ledger of the petitioner had already remained blocked for over seven months, and continuation of such blocking without adjudication would be contrary to the scheme and spirit of the CGST Act, 2017. Blocking the ledger indefinitely without initiating proceedings would effectively paralyse the taxpayer’s business and violate principles of natural justice.

The High Court allowed the writ petition and held that the impugned order was legally unsustainable to the extent it refused adjudication. The Court further held that if adjudication is not concluded within the prescribed timeline, the electronic credit ledger must be unblocked automatically.

Case Name: Gopal Metal Stores and Anr. Versus The Assistnat Commissioner of State Tax, NS Road and MR Charge and Ors. dated 27.01.2026

To read the complete judgement 2026 Taxo.online 214