GST ITC Blocking beyond 1 Year Unsustainable: Punjab & Haryana HC
Both Section 83(2) and Rule 86A(3) reflect the same legislative intent, that is the power to restrict credit or attach property cannot survive beyond one year unless expressly authorised by statute.
The Punjab and Haryana High Court has held that the blocking or attachment of Input Tax Credit ( ITC ) under the GST ( Good and Services Tax ) Act beyond 1 year is unsuitable. The court stated that it is intended only as a protective measure to protect revenue interests and cannot be used as a tool for recovery. The petitioner, NB International, a Haryana-based manufacturer of...
The Punjab and Haryana High Court has held that the blocking or attachment of Input Tax Credit ( ITC ) under the GST ( Good and Services Tax ) Act beyond 1 year is unsuitable. The court stated that it is intended only as a protective measure to protect revenue interests and cannot be used as a tool for recovery.
The petitioner, NB International, a Haryana-based manufacturer of brass and copper sheets, approached the Court after its ITC amounting to ₹82.50 lakh was repeatedly blocked under Rule 86A of the CGST/HGST Rules, despite no fresh proceedings or new grounds emerging after the one-year statutory limit.
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The firm argued that it had availed ITC legitimately based on valid purchase documents and that the blocking order initially passed on 21 November 2023 due to doubts regarding its supplier, M/s M.S. Trading Company was extended in effect through a second blocking dated 5 December 2023 without any legal basis, violating Rule 86A(3).
The petitioner submitted that Rule 86A restricts ITC blocking to a maximum of one year and that the re-blocking amounted to an unlawful extension of a lapsed provisional action.
On the contrary, the GST authorities contended that the petitioner had availed ineligible ITC fraudulently on the basis of invoices issued by a non-existent supplier and that continuing investigation justified the repeated blocking.
They distinguished the petitioner’s dependence on the Supreme Court’s recent ruling in Kesari Nandan Mobile, arguing that the case dealt with Section 83 provisional attachment, rather than Rule 86A blocking. Investigation, they maintained, was ongoing, and therefore, ITC could be blocked again to protect revenue.
The High Court rejected the Department’s reasoning, reading Rule 86A(3) together with Section 83(2) of the CGST Act, both of which impose a strict one-year cap on provisional restrictions. Referring extensively to the Supreme Court’s decision in Kesari Nandan Mobile, the Bench said that provisional attachment or any analogous restrictive measure, exists solely to protect revenue during investigation, not to function as an indefinite recovery mechanism.
The Court noted the Supreme Court’s clear warning that an act which cannot be done directly cannot be done indirectly, and that repeated attachments or renewals without fresh grounds render statutory safeguards meaningless. It observed that in the petitioner’s case, no further proceedings had been initiated, nor had any new grounds emerged after the initial blocking, making the continuation of the restriction unsustainable.
The Court held that both Section 83(2) and Rule 86A(3) reflect the same legislative intent, that is the power to restrict credit or attach property cannot survive beyond one year unless expressly authorised by statute, and revenue authorities cannot sidestep the time limit by issuing successive blocking orders on the same grounds.
Since the petitioner's ITC remained blocked past 21 November 2024 without any statutory basis, the Court set aside the renewed blocking order.
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