Negative ITC Blocking Under Rule 86A Not Allowed

Case Details: Hemang Bipin Varaiya vs. State of Maharashtra [2026] 185 taxmann.com 557 (Bombay)

Judiciary and Counsel Details

G. S. Kulkarni & Aarti Sathe, JJ.
Nirmal Pagaria for the Petitioner.
Ms Shruti D. Vyas, Addl. Govt. Pleader & Aditya R. Deolekar, AGP for the Respondent.

Facts of the Case

The petitioner challenged the action of blocking Input Tax Credit (ITC) in the electronic credit ledger under Rule 86A of the CGST Rules and Maharashtra GST Rules. It was contended that a show cause notice (SCN) was issued proposing such blocking; however, the electronic credit ledger was blocked even before the petitioner had a chance to reply and before the SCN proceedings were completed. The petitioner submitted that at the relevant time, the electronic credit ledger reflected a negative balance and no available credit existed, which could be subject to blocking. It was further contended that Rule 86A did not permit negative blocking. The matter was accordingly placed before the High Court.

High Court Held

The High Court held that Rule 86A of the CGST Rules empowers restriction of use of credit only to the extent of available balance in the electronic credit ledger under Section 49 of the CGST Act, and does not contemplate any concept of negative blocking. It was further held that where no ITC exists in the ledger, any action seeking to block beyond such available credit is ultra vires Rule 86A and inconsistent with the statutory scheme governing utilisation of ITC. It was concluded that the impugned action exceeded the permissible limits of law. Accordingly, the Court directed the unblocking of the electronic credit ledger.