Negative Blocking of ITC Ledger Beyond Available Balance Not Allowed

Case Details: Mannat Steels vs. Union of India [2025] 181 taxmann.com 196 (Punjab & Haryana)

Judiciary and Counsel Details

Mrs Lisa Gill & Deepak Manchanda, JJ.
Pankaj Gupta, Adv. for the Petitioner.
Ajay Kalra, Senior Standing Counsel for the Respondent.

Facts of the Case

The petitioner, challenged the blocking of its electronic credit ledger (ECL). It was submitted that, under Rule 86A of the CGST Rules and the corresponding Punjab GST Rules, a negative blocking entry was created on the ECL despite the available balance being insufficient, without any prior notice. It was contended that Rule 86A does not authorise blocking of ITC beyond the balance actually available and that such action was inconsistent with the statutory scheme, emphasising that eligibility and recovery under GST must be determined through proper adjudication. The matter was accordingly placed before the High Court.

High Court Held

The High Court held that Rule 86A permits the jurisdictional officer under CGST to impose a temporary restriction on the debit of ITC when there are reasons to believe that the credit has been fraudulently or ineligibly availed, and that such restriction may be imposed without prior show-cause notice. The Court observed that creating negative blocking entries exceeding the actual ITC balance is impermissible, and that authorities could resort to statutory recovery procedures instead. It was further held that determination of eligibility for ITC must occur through formal adjudication.

List of Cases Reviewed

Shyam Sunder Strips v. Union of India [2025] 180 taxmann.com 414 (Punj & Har) (para 12) followed

List of Cases Referred to

Samay Alloys India (P.) Ltd. v. State of Gujarat [2022] 135 taxmann.com 243/91 GST 338/ 61 GSTL 421 (Guj) (para 5)
Best Crop Science (P.) Ltd. v. Principal Commissioner, CGST Commissionerate, Meerut [2024] 166 taxmann.com 654/ 106 GST 440/90 GSTL 131 (Delhi) (para 5)
Kings Security Guard Services (P.) Ltd. v. Deputy Director, Directorate General of GST Intelligence, DZU [2024] 169 taxmann.com 409/[2025] 108 GST 490/95 GSTL 92 (Delhi) (para 5)
Karuna Rajendra Ringshia v. Commissioner of CGST [2024] 168 taxmann.com 249/[2025] 107 GST 164 (Delhi) (para 5)
Deputy Director, Directorate General of GST Intelligence, DZU v. Kings Security Guard Services (P.) Ltd [SLP (C) No. 14493 of 2025, dated 17-5-2025] (para 5)
Commissioner of Central GST v. Karuna Rajendra Ringshia [SLP (C) No. 17723 of 2025, dated 9-7-2025] (para 5)
Shyam Sunder Strips v. Union of India [2025] 180 taxmann.com 414 (Punj & Har) (para 5)
Laxmi Fine Chem v. Asstt. Commissioner [2024] 161 taxmann.com 270/104 GST 245/87 GSTL 197 (Telangana) (para 9)
Rawman Metal & Alloys v. Dy. CST [2025] 179 taxmann.com 387 (Bom) (para 9)
Basanta Kumar Shaw v. Asstt. Commissioner of Revenue, Commercial Taxes and State Tax [2022] 141 taxmann.com 528/94 GST 259/65 GSTL 436 (Cal) (para 9)
R.M. Dairy Products LLP v. State of Uttar Pradesh [2021] 129 taxmann.com 37/88 GST 650/55 GSTL 524 (All) (para 9)
Sugna Sponge & Power (P.) Ltd. v. Superintendent of Central Tax [2025] 170 taxmann.com 521/95 GSTL 421 (AP) (para 9).