Facts of the Case: The petitioner challenged the order passed by the first respondent under Rule 86A of the CGST Rules, 2017, whereby the petitioner’s Electronic Credit Ledger (ECL) was blocked of ₹95,74,850. 

At the time of issuance of the impugned blocking order, the available balance in the ECL was only ₹600. The petitioner contended that the invocation of Rule 86A in such circumstances was ultra vires, as there was no ITC balance to block. Reliance was placed on the Bombay High Court judgment in Rawman Metal & Alloys v. Deputy Commissioner of State Tax, Thane (W.P. (L) No. 10928 of 2025, decided on 7 October 2025), as well as similar rulings of the Gujarat, Telangana, and Delhi High Courts.

The Revenue defended the order stating that Rule 86A was intended to prevent fraudulent availment of credit and that the restriction should apply even if the ECL balance was nil or negligible, as a preventive measure. Alternatively, the department requested that the petitioner be restrained from utilising the credit restored until the adjudication proceedings conclude.

Issue: Whether the powers under Rule 86A of the CGST Rules, 2017 can be exercised to block Input Tax Credit (ITC) when no credit balance exists in the Electronic Credit Ledger on the date of the blocking order.

Held that:

The Court reaffirmed that Rule 86A empowers authorities to block ITC only to the extent of existing credit in the ledger and cannot be used as a blanket preventive measure. Blocking of a non-existent or future ITC balance is ultra vires and amounts to arbitrary exercise of power.

The Court reiterated its earlier ruling in Rawman Metal & Alloys v. DCST, Thane (supra) that powers under Rule 86A can only be invoked to the extent of the credit balance available in the ECL at the time the blocking order is made and served.

The Court relied on the Gujarat High Court ruling in Samay Alloys Pvt. Ltd. v. State of Gujarat, the Telangana High Court’s ruling in Laxmi Fine Chem v. Assistant Commissioner and  the Delhi High Court decisions in Best Crop Science Pvt. Ltd. v. Principal Commissioner, CGST, Meerut and Karuna Rajendra Ringshia v. Commissioner of CGST. 

Since the available ITC at the time of issuance of the impugned order was only ₹600, blocking of ₹95,74,850 was beyond the scope of Rule 86A and hence ultra vires. The Court clarified that the quashing of the blocking order does not prevent the department from initiating recovery proceedings through lawful means if dues are established upon adjudication. Accepting the Revenue’s alternate plea, the Court directed that the petitioner shall not utilise the restored ITC until completion of adjudication proceedings.

Case Name: Hindustan Steel Versus Deputy Commissioner of State Tax Goregaon East. dated 16.10.2025