GST dept cannot Block ITC Exceeding available Credit in ECL: P& H HC directs for Recovery, quashes Negative Block Order [Read Order]
The High Court ruled that ITC blocking under Rule 86A cannot exceed the actual credit available in the Electronic Credit Ledger, rejecting creation of negative balance. Thus, pursued statutory remedies for recovery.
In the recent case, the Punjab & Haryana High Court ruled that the Goods and Services Tax (GST) department cannot block Input Tax Credit (ITC) beyond what is actually available in the taxpayer’s ECL under Rule 86A of CGST Rules.
The Court directed that creating a negative balance is illegal, and recovery of excess ITC must follow due process for proper recovery and quashes the Negative Block Order.
In this ruling dated November 17, 2025, the writ petition was concerning the blocking of an Electronic Credit Ledger (ECL) under Rule 86A of the Central Goods and Services Tax Act, 2017, and Punjab Goods and Services Tax Act, 2017.
The Petitioner, M/S Mannat Steels, an active business concern registered since November 2019, bearing GST Identification No. (GSTIN 03AGNPK0857E1ZL), challenged the actions of respondents on 03.10.2025, without prior intimation or notice, negatively blocked Input Tax Credit (ITC) of Rs. 8,00,164/- in the petitioner's ECL. This blocking occurred from 01.10.2025 to 12.11.2025 despite the available credit balance in the ECL being only Rs. 66/-.
Rule 86A of CGST Rules, 2017 explained that: Conditions of use of amount available in electronic credit ledger
“The Commissioner or an officer authorised by him in this behalf, not below the rank of an Assistant Commissioner, having reasons to believe that credit of input tax available in the electronic credit ledger has been fraudulently availed or is ineligible in as much as-
a) the credit of input tax has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36 -
i. issued by a registered person who has been found non-existent or not to be conducting any business from any place for which registration has been obtained; or
ii. without receipt of goods or services or both; or
b) the credit of input tax has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36 in respect of any supply, the tax charged in respect of which has not been paid to the Government; or
c) the registered person availing the credit of input tax has been found non-existent or not to be conducting any business from any place for which registration has been obtained; or
d) the registered person availing any credit of input tax is not in possession of a tax invoice or debit note or any other document prescribed under rule 36,
may, for reasons to be recorded in writing, not allow debit of an amount equivalent to such credit in electronic credit ledger for discharge of any liability under section 49 or for claim of any refund of any unutilised amount.”
The Legal question raised before the court was “Whether Rule 86-A of Goods and Services Tax Rules, 2017 (for short Rules, 2017) permit the Commissioner or an officer authorized by him to block a tax payer’s ECL by an amount exceeding the credit available at the time of issuance of said order?”
The Counsel for the Petitioner, Pankaj Gupta, argued that Rule 86A does not authorize the blocking of ITC in excess of the credit already available in the ECL, contending that such an action creates an artificial negative balance and violates principles of natural justice.
The Counsel further relied on several High Court Decisions including Samay Alloys India Pvt. Ltd. Vs. State of Gujarat, 2022(2) TMI 843 (Gujarat High Court), Best Crop Science Pvt. Ltd. Vs. Principal Commissioner and another, 2024 (9) TMI 1543, Kings Security Guard Services Pvt. Ltd. Vs. Deputy Director, Directorate General of GST Intelligence, 2024(12) TMI 1513, and Karuna Rajendra Ringshia Vs. Commissioner of Central Goods and Service Tax and others, 2024(11) TMI 190 (Delhi High Court).
Further, the Counsel kept in view the decision passed in the case of M/s Shyam Sunder Strips versus Union of India and others dated 04.11.2025, thus praying that the present writ petition was allowed.
On the other hand, the Counsel for the Respondent, Ajay Kalra, opposed the petition but could not deny that the issue was squarely covered in favour of the petitioner by the aforementioned precedents.
The Two-Member Bench consisted of Justice Lisa Gill and Justice Deepak Manchanda, heard and reviewed the matter filed by the Petitioner.
After considering the arguments and decisions given in M/s Shyam Sunder Strips (supra), which endorsed the views of the Gujarat, Delhi, Telangana, and Bombay High Courts, the High Court held that the plain language of Rule 86A does not permit "negative blocking" of the ECL. The Court reiterated that the power under Rule 86A can only be invoked if credit of input tax is available in the electronic credit ledger.
The authorities retained the liberty to resort to statutory measures for recovery under Sections 73 or 74 of the CGST/PGST Act.
The Section 73 or 74 of CGST/PGST Act 2017 explained that: Determination of tax, pertaining to the period up to Financial Year 2023-24 not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any willful- misstatement or suppression of facts
“Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty equivalent to the tax specified in the notice.”
Consequently, the High Court set aside the impugned orders to the extent that they disallowed debit from the petitioner's ECL in excess of the ITC available at the time of the decision. The respondents were granted liberty to pursue recovery remedies in accordance with the law.
Thus, the petition was allowed.
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