ITC Can’t be Blocked Beyond One Year Under Rule 86A

Held by

Hon’ble Delhi High Court

In the matter of

M/s SHRI SAI RAM ENTERPRISES VERSUS PR. ADG, DGGI, GURUGRAM & ANR.

(No.- W. P. (C) 5438/2025)

The Petitioner filed a writ petition challenging the blocking of Input Tax Credit by DGGI on 15th January, 2024. Further, another Order in Original was also issued against the petitioner, creating a demand of INR 55.38 Lacs. The petitioner contended that the ITC was blocked for the period from 1st January, 2024, to 30th November, 2024. However, the same is still blocked till April 2025. The petitioner relied on Rule 86A of the CGST Act, 2025, and contended that in any event, the credit ledger cannot be blocked beyond the period of one year, as stipulated under Rule 86A of the CGST Rules, 2017. The Respondent contended that the blocking of ITC was made due to the allegation of the Petitioner being a non-existent firm.

Hon’ble High Court held that the blocking of the ITC shall be lifted because it has been more than one year. This is independent of any other action that the adjudicating authority may have taken, under law, against the Petitioner.

Read Also: Transfer of ITC in case of Death of Sole Proprietor

1. Brief facts of the case:

• M/s Shri Sai Ram Enterprises (“The Petitioner”) has filed the writ petition challenging the blocking of the Input Tax Credit of Rs. 3,91,23,722/- by the Deputy Director, Directorate General of GST Intelligence on 15th January,2024.
• The Petitioner contended that the ITC was blocked for the period from 1st January, 2024, to 31st November, 2024. However, the same has not been unblocked even at present, i.e., as of April 2025.
• The Petitioner relied on Rule 86A of the Central Goods and Services Tax Rules, 2017 (“CGST Rules”), which lays down the conditions of use of the amount available in the electronic credit ledger.
• Another Show Cause Notice issued:
  • Further, a show cause notice was also issued to the petitioner on 03.08.2024.
  • Consequently, Order-in-Original was passed on 12th February, 2025, denying the ITC to the tune of Rs. 29,13,246/-.
  • Further, in OIO, the demand is confirmed at Rs. 55,38,110/-.

2. Relevant Legal Extract:

Relevant legal extract is reiterated for ready reference:

• The matter under discussion is governed by Rule 86A of the CGST Rules.
• Relevant extract of Rule 86A of CGST Rules is reiterated below:

“1 [Rule 86A: Conditions of use of amount available in electronic credit ledger

xxxxxx

(3) Such restriction shall cease to have effect after the expiry of a period of one year from the date of imposing such restriction.]”

3. Contention of the Petitioner:

The Petitioner contended that:

• The ITC was booked for the period from 1st January, 2024 to 31st November, 2024. However, the same has not been unblocked even at present, i.e., as of April 2025.
• Further, Reliance was placed on Rule 86A of the CGST Rules, which lays down the conditions of use of the amount available in the electronic credit ledger.
• The Petitioner is in the process of filing an appeal challenging the Order-in-Original dated 12th February, 2025.
• However, in any event, the credit ledger cannot be blocked beyond the period of one year, as stipulated under Rule 86A of the CGST Rules, 2017.

4. Contention of the Respondent

The Respondent contended that:

• The blocking of ITC was made due to the allegation of the Petitioner being a non-existent firm.
• However, he concedes that there can be no doubt that the blocking will last for one year.

5. Final Decision by Hon’ble High Court

Hon’ble High Court held that:

• Considering the statutory position, the blocking of the ITC shall be lifted in view of the fact that it has been more than one year.
• This is independent of any other action that the adjudicating authority may have taken, under law, against the Petitioner.

‍