Limits on ITC Blocking under Rule 86A

??Date:- 24th September 2024

??Case summary- "Limits on ITC Blocking under Rule 86A"

??1. Issue

The case addresses whether Rule 86A(1) of the CGST Rules allows the Commissioner to block Input Tax Credit (ITC) in the taxpayer's Electronic Credit Ledger (ECL) beyond the credit available at the time of the order, particularly in cases where ITC was allegedly fraudulently availed or deemed ineligible.

??2. Reasoning

The court emphasized that Rule 86A is an emergent measure intended to temporarily prevent the misuse of ITC by blocking the credit available in the ECL, but not to act as a tool for recovering dues. The provision does not permit the authorities to block ITC that has already been used or to compel a taxpayer to replenish past fraudulent availments. The court referred to various precedents, including the Gujarat and Telangana High Courts, and interpreted that the rule should be read strictly, limiting its application to the ITC available at the time the order was passed.

?3. Decision

The court ruled that the orders disallowing the use of ITC in excess of what was available in the ECL at the time of the order were invalid. It set aside the orders that created an artificial negative balance in the taxpayer's ECL.

??4. Conclusion

The court concluded that Rule 86A of the CGST Rules only permits blocking of ITC that is presently available in the ECL. Any attempt to block ITC beyond that amount is unlawful. The judgment reiterates that taxpayers should not be forced to replenish the ECL for credits already utilized, and emphasizes the need for a strict interpretation of Rule 86A to prevent administrative?overreach.