The Delhi High Court has ruled that blocking of Input Tax Credit (ITC) under Rule 86A of the Central Goods and Services Tax (CGST) Rules, 2017 cannot be continued beyond a period of one year. This ruling came in a case filed by Shri Sai Ram Enterprises challenging the prolonged restriction imposed on its Electronic Credit Ledger (ECL).
The division bench of Justice Prathiba M. Singh and Justice Rajneesh Kumar Gupta, while hearing the petition [W.P.(C) 5438/2025], noted that the credit ledger was blocked by the Directorate General of GST Intelligence (DGGI), Gurugram, on 15 January 2024, and had remained blocked even as of April 2025.
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"The blocking of the ITC shall be lifted in view of the fact that it has been more than one year," stated the bench, referring to the statutory limit under Rule 86A(3) of the CGST Rules.
Case Background:
The petitioner argued that the blocking was in violation of Rule 86A(3), which clearly provides:
“Such restriction shall cease to have effect after the expiry of a period of one year from the date of imposing such restriction.”
During the investigation, the ITC of ₹3,91,23,722 (₹1,95,61,861 each as CGST and SGST) was blocked. However, the credit available was only ₹24,05,827, leading to a negative balance of ₹-3,67,17,895 in the electronic credit ledger.
A Show Cause Notice dated 3 August 2024 was issued to the petitioner, alleging it to be a non-existing firm. Despite replying to the notice on 21 October 2024, the authorities proceeded to deny the ITC through Order-in-Original No. 204/ADC/D.N./Bhavan Meena/2024-25 dated 4 February 2025, which disallowed ITC worth ₹29,13,246 and imposed penalties.
Additionally, a demand of ₹55,38,110 (including IGST) was confirmed in Form DRC-07 dated 12 February 2025.
“The said action by the respondent is against the law laid down by this Hon’ble Court in *Best Crop Science Pvt. Ltd. Vs Pr. Commissioner, CGST (2024) 22 Centax 531 (Del.),” argued the petitioner.
The petition also noted that the petitioner is in the process of filing an appeal against the Order-in-Original.
The Court acknowledged that although the authorities may proceed with independent actions against the petitioner under applicable laws, the restriction on the credit ledger must cease once one year has passed.
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“This is however independent of any other action that the adjudicating authority may have taken, in accordance with law, against the Petitioner,” observed the bench.
With this, the High Court disposed of the petition and ordered the immediate lifting of the ITC block, confirming the one-year maximum cap for restrictions under Rule 86A.
Appearance: Mr. Jitin Singhal, Mr. Pravesh Bahuguna and Ms. Megha Advocates for Petitioner; Mr. Harpreet Singh, SSC with Ms. Suhani Mathur and Mr. Jai Ahuja, Advocates for Respondent
Case title: Shri Sai Ram Enterprises v. Pr. ADG, DGGI, Gurugram & Anr.
Case no.: W.P.(C) 5438/2025
