Supreme Court Affirms that Rule 86A Cannot Be Used for Negative Blocking of Electronic Credit Ledger { Union of India & Ors. v. M/s. K.K. Alloys 2026 Taxo.online 1720 (Supreme Court)}
Facts:
GST Department blocked the taxpayer’s Electronic Credit Ledger under Rule 86A by an amount exceeding the ITC actually available, thereby creating a negative balance to restrict utilisation of future credits. The Punjab and Haryana High Court held that Rule 86A permits blocking only of the existing ITC balance and not future credits. Aggrieved by the decision, the Revenue filed Special Leave Petitions before the Supreme Court.
Issue:
Whether Rule 86A of the CGST Rules empowers GST authorities to block the Electronic Credit Ledger beyond the ITC actually available at the time of the blocking order, thereby creating a negative balance and restricting future credits.
Held:
The Supreme Court dismissed the Revenue’s Special Leave Petitions and upheld the Punjab and Haryana High Court’s decision. It held that Rule 86A is a preventive provision that authorises blocking only of the existing ITC available in the Electronic Credit Ledger. It does not permit creation of a negative balance or blocking of future credits. Any recovery of wrongly availed or fraudulent ITC beyond the available balance must be undertaken through the adjudication and recovery mechanism under Sections 73, 74, or Section 74A (where applicable) of the CGST Act.
