Facts of the Case:

In this case, the petitioner a registered taxpayer, was investigated by DGGI in connection with an alleged non-genuine entity, Crimson International Pvt. Ltd., which was stated to have issued invoices without actual supply. The Petitioner was alleged to have wrongly availed ITC of ₹33,32,568 for FY 2020-21 and 2021-22. The Adjudicating Authority confirmed the entire tax demand along with equivalent penalty. However, the summary in FORM GST DRC-07 incorrectly reflected the combined tax and penalty amount of ₹66,65,136 as penalty, resulting in the GST portal calculating the Section 107(6) pre-deposit at ₹6,66,514 instead of ₹3,33,257. The error was subsequently rectified by uploading a fresh DRC-07.

The Petitioner also sought permission to utilise ₹3,33,257 from ITC blocked under Rule 86A towards the mandatory appellate pre-deposit, contending that ₹17,96,088 of ITC was under subsisting restrictions and requiring a further cash payment would impose an undue burden.

Issue:

Whether ITC blocked/restricted under Rule 86A of the CGST Rules can be appropriated or treated as payment towards the mandatory 10% pre-deposit under Section 107(6) of the CGST Act for filing an appeal against the adjudication order; and whether the Petitioner should be permitted to file the appeal despite the delay caused by the erroneous DRC-07 and GST portal difficulties.

Held That:

The Delhi High Court declined to treat the ITC blocked under Rule 86A as payment of the mandatory pre-deposit. The Court held that Rule 86A is a preventive mechanism which merely restricts debit of the specified credit from the Electronic Credit Ledger; mere blocking of ITC does not amount to payment or appropriation towards an adjudicated demand. Unless the blocked amount is actually debited or the restriction is removed/modified by the competent authority, it cannot satisfy the requirement of Section 107(6). The Court distinguished decisions permitting utilisation of ordinarily available ECL balance because those cases did not concern credit specifically blocked under Rule 86A.

The Court further noted that the subsisting restrictions of ₹17,96,088 had been imposed by the Haryana State tax authority, which was not a party to the proceedings. The orders and reasons recorded for those restrictions were also not before the Court. Therefore, the Court could not direct appropriation of the blocked credit or modify restrictions imposed by an authority not before it. The Petitioner was left free to approach the competent authority for removal or modification of the Rule 86A restrictions.

However, recognising that the incorrect DRC-07 was attributable to the Department and had prevented the Petitioner from effectively exercising its appellate remedy, the Court permitted the Petitioner to file the Section 107 appeal within four weeks, without the appeal being rejected on limitation, subject to compliance with the statutory pre-deposit requirement. The Respondents were directed to assist in electronic filing; if the portal continued to prevent filing, the Petitioner could file the appeal manually. The Court also granted four weeks’ protection from coercive recovery.

Key takeaway: ITC blocked under Rule 86A is not equivalent to ITC actually utilised or appropriated. Such blocked credit cannot, by itself, be counted towards the Section 107(6) pre-deposit. The validity of the Rule 86A restrictions and the merits of the ITC demand were expressly left open.

Case Name: SPHERION SOLUTIONS PRIVATE LIMITED vs. ADDITIONAL COMMISSIONER ADJUDICATION CGST DELHI NORTH & ORS. dated 03.09.2026

Citation No. 2026 Taxo.onlinw 2651