Facts of the Case:

In this case, the petitioner firm availed Input Tax Credit (ITC) under Section 16 of the GST Act. On 21.11.2023, the petitioner’s ITC amounting to ₹82,50,038/- was blocked in its Electronic Credit Ledger (ECL) under Rule 86A on the allegation that one of its suppliers, M/s M.S. Trading Company, was found non-existent at its registered business premises. The petitioner contended that the ITC was blocked without any prior notice, opportunity, or inquiry to establish the genuineness of its purchases. At the time of blocking, the petitioner had only ₹55,01,203/- available in its ECL, resulting in blocking in the negative.

Subsequently, upon the petitioner’s representation dated 01.01.2024, the authorities unblocked ₹27,48,835/- on 16.02.2024, corresponding to the negative blocking. However, the balance ITC remained blocked. Despite the statutory one-year expiry under Rule 86A(3), the authorities again blocked ITC of ₹82,50,038/- on 05.12.2023 on the same grounds relating to the investigation of the same supplier. No fresh proceedings or new incriminating material was brought against the petitioner. Relying on the Supreme Court’s judgment in Kesari Nandan Mobile v. Assistant Commissioner (2025), the petitioner challenged the repeated blocking as arbitrary and illegal.

The Revenue opposed the petition, alleging fraudulent ITC availment and asserting that re-blocking was permissible since Rule 86A did not expressly prohibit renewal. 

Issue:

Whether the authorities can re-block or extend the blocking of ITC under Rule 86A beyond the statutory period of one year on the same set of facts and grounds, in absence of any fresh material or proceedings?

Held that:

The Court observed that Rule 86A(3), which limits the effect of ITC restriction to one year, is pari materia with Section 83(2) of the CGST Act relating to provisional attachment. Relying on reasoning from the Supreme Court judgment in Kesari Nandan Mobile (2025), the Court held that both provisions are “draconian” in nature and must be strictly construed to prevent misuse. The Supreme Court had held that provisional attachment under Section 83 cannot be renewed or reissued on identical grounds after expiry of the statutory one-year period, as doing indirectly what the statute forbids directly is impermissible. The High Court extended this reasoning to Rule 86A, stating that repeated blocking of ITC on the same facts would render Rule 86A(3) invalid and violate the principle that a pre-emptive measure cannot be converted into a tool of indefinite fiscal restraint.

Since no fresh proceedings had been initiated against the petitioner and no new grounds had emerged, the re-blocking of ITC after 21.11.2024 was held to be arbitrary and illegal. Accordingly, the renewed blocking order was set aside. The Court clarified, however, that the revenue authorities remain free to proceed against the petitioner in accordance with law if new material emerges.

The High Court held that the re-blocking of ITC beyond the statutory period of one year—on the same grounds and without any fresh material—was unsustainable in law.

Case Name: NB International Versus Commissioner, Central Goods And Services Tax And Others dated 28.11.2025

To read the complete judgement 2025 Taxo.online 3250