Blocked GST ITC u/r 86A Must Be Released if Appeal is Filed by Depositing 10% Disputed Tax: Madras HC [Read Order]

The Madurai bench of Madras High Court has directed the Commercial Taxes Department to unblock Input Tax Credit (ITC) in cases where the assessee has filed an appeal against an assessment order after depositing 10% of the disputed tax amount as required under Section 107 of the GST ( Goods and Services Tax ) Act.

The petitioner, Arise Steels Private Limited, had approached the High Court through two writ petitions, seeking directions to unblock their ITC worth over ₹3.29 crore, which had been blocked by the authorities on 22.05.2025 and 27.11.2024. The blockage was enforced under Rule 86A of the CGST Rules, which empowers authorities to restrict debit from the electronic credit ledger in cases of suspected fraud or ineligibility.

How to deal with GST special audit and departmental audit? Register Now

The petitioner had already challenged the assessment order dated 04.02.2025 by filing an appeal on 12.05.2025 and had made the requisite 10% pre-deposit through the electronic cash ledger in accordance with statutory provisions. Despite this, the authorities argued that the restriction under Rule 86A must continue for a full year as per Rule 86A(3).

However, the Court rejected this contention, relying on its earlier decision in Tvl. New Royal Traders v. Assistant Commissioner (RAL), Alandur Assessment Circle dated 13.09.2023. In that case, the Court held that once an appeal is filed and the statutory pre-deposit is made, the continued blocking of ITC is unwarranted and contrary to the spirit of the GST appeal mechanism.

The Court explained that while Section 107 has previously been complied with by paying the minimum 10% deposit, Rule 86A(3), which allows the blocking of ITC for a maximum of one year, does not replace the right of appeal and cannot be utilized to impede the appellate process.

Justice C. Saravanan, relying on Tvl.New Royal Traders Vs Assistant Commissioner RAL, observed that “if an appeal is filed by depositing 10% of the disputed tax, the restrictions under Rule 86A(3) of the CGST Act will come to an end. I find no other judgments that has a taken a contra view.”

The court, while delivering the order, held that there was no contrary judicial view on the issue and directed the department to immediately unblock the ITC amounts involved in both writ petitions.

The bench observed that continuation of such a block, despite the filing of a valid appeal, would be detrimental to the taxpayer's ability to continue business operations and against the principles of natural justice.

Accordingly, the writ petitions were disposed of with the above direction.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates