A business usually pays GST when it buys goods or services and collects GST when it makes taxable sales. Subject to the legal conditions, it can use the GST paid on eligible purchases to reduce the GST payable on its sales. This adjustment is called input tax credit, or ITC. It helps prevent tax from being charged repeatedly on the same value as goods and services move through the supply chain.

Take a simplified example. A trader has ₹18,000 of eligible GST credit from purchases and owes ₹27,000 as GST on sales. If the credit is available for use, the trader can use ₹18,000 of credit and pay the remaining ₹9,000 in cash. This example leaves aside the separate rules governing different GST components and restrictions on using credit.

The credit is recorded in an online account on the GST portal called the electronic credit ledger. It is not the same as money in a bank account. It can be used only in the ways the GST law permits. If the department blocks the trader's entire ₹18,000 credit in this example, the trader may have to find ₹27,000 in cash to pay the GST due on its sales. That creates an immediate additional cash requirement of ₹18,000, even before the credit dispute is finally decided.

This is why the right to challenge a block needs a clear timetable. A business can suffer a serious cash shortage while waiting for a hearing. The 57th GST Council's recommendation on Rule 86A addresses this problem by proposing an objection mechanism and a personal hearing before the officer decides the objection. The recommendation itself does not amend the Rules. It must also be distinguished from a promise of a hearing before every initial block.^[1]

What blocking GST credit means

Rule 86A allows the Commissioner, or an authorised officer of at least Assistant Commissioner rank, to prevent the use of a specified amount of credit on defined grounds. The officer must have reasons to believe that the credit was wrongly or fraudulently claimed and must record reasons in writing. The restriction can affect use of the amount for paying tax or claiming a refund. It is a temporary protective measure, not a final decision that the taxpayer owes that amount.^[2]

The grounds include invoices from suppliers found not to exist, purchases where goods or services were not received, tax charged on invoices that was not paid to the Government, and missing prescribed invoices or documents. Each ground raises a different question. Proof that goods arrived may answer an allegation of non-delivery, but may not answer a separate allegation that the supplier failed to pay the tax.

The department has a legitimate reason to act against fake invoices and improper credit claims. But an officer must connect the restriction to the relevant facts. CBIC's 2021 guidelines require objective material and caution against mechanical action. They also provide for reconsideration when the taxpayer produces evidence, including release of part of the restricted credit where justified.^[3]

What a hearing should achieve

A hearing gives the business a chance to understand the allegation, present its documents and explain why the credit should be released. The officer must then consider that explanation. Merely allowing the taxpayer to upload documents is of little help if nobody decides whether the block should continue.

Courts have examined when this opportunity must be given. In Dee Vee Projects Ltd v Government of Maharashtra, the Bombay High Court recognised that urgent action may be needed but required a hearing after the block. It indicated that a reasonable period might not extend beyond two weeks. This is a judicial benchmark from that case, not a two-week deadline written into Rule 86A for every taxpayer across India.^[4]

There is also authority supporting a hearing before the initial restriction, except in exceptional circumstances. In Elitecon International Ltd v Union of India, the Bombay High Court in March 2026 followed the Karnataka appellate approach on this issue. It also enforced the one-year limit on a block. The applicable court decisions and the circumstances of the particular case therefore matter. It would be misleading to say that a prior hearing is always unnecessary.^[5]

Tell the business what it needs to answer

The taxpayer should be told the legal ground, the invoices or period concerned, the amount blocked and the essential facts supporting the action. A portal message saying only that credit has been blocked does not explain what the business must prove. Sensitive investigative information may need protection, but the taxpayer still needs enough detail to give a useful response.

Suppose the allegation is that goods were never delivered. The business may produce transport records, delivery acknowledgements and stock entries. If the officer remains unconvinced, the decision should explain why. If the evidence supports release of only part of the blocked amount, that possibility should be considered. The review should examine the evidence rather than simply repeat the original allegation.

A hearing date is only half the solution

The proposed procedure should set short periods for communicating the reasons, receiving an objection, holding the hearing and issuing a decision. Without a decision deadline, an officer could hear the taxpayer and leave the matter pending while the credit remains unusable. If more time is needed, the officer should explain why and give a revised date.

These are suggestions for designing the procedure. They should not be presented as deadlines already created by the Council's announcement. Likewise, automatic release following a missed deadline would need a clear legal basis; it cannot be assumed from the promise of a hearing.

Rule 86A already contains an important outer limit. Sub-rule (2) allows the restriction to be lifted when the conditions justifying it no longer exist. Sub-rule (3) makes it cease after one year. That maximum period does not justify ignoring evidence supporting earlier release. Equally, expiry of the block does not finally settle whether the underlying credit was lawfully claimed.^[6]

What a business should do when credit is blocked

The first step is to record the date, amount, officer details and stated reason for the block. The business should seek the grounds if they have not been communicated. Its response should connect the disputed invoices to the relevant evidence, rather than simply say that all purchases were genuine.

The request for relief should be specific. Depending on the facts, the business may seek release of an unsupported amount, reconsideration of particular documents, a hearing, a reasoned decision or recognition that the one-year restriction has expired. Challenging the temporary block and defending a later demand are separate tasks. Winning one does not automatically resolve the other.

If the administrative process does not provide relief, the taxpayer should assess the available legal remedy and the relevant court decisions. Article 226 enables High Court review, while Article 14 protects against arbitrary State action. A representation to the officer should not be assumed to pause any separately applicable time limit.^[7]

The proposed reform will succeed if it produces a decision while the business can still benefit from the relief. Explaining the allegation, hearing the response and deciding promptly would protect genuine taxpayers while preserving action against improper credit. A hearing held after months of unexplained delay may satisfy a formality, but it will not restore the cash the business needed when its credit was first blocked.

1. Ministry of Finance, Recommendations of the 57th Meeting of the GST Council, PIB, 8 October 2026, release ID 2320934, paragraph 14. ↑

2. Central Goods and Services Tax Act, 2017, sections 16 and 49(4); Central Goods and Services Tax Rules, 2017, rule 86A(1); CBIC, Guidelines for disallowing debit of electronic credit ledger under Rule 86A, file CBEC-20/16/05/2021-GST, 2 November 2021, paragraph 3.1.1, reproducing the Rule. ↑

3. CBIC guidelines dated 2 November 2021, paragraphs 3.1.3–3.1.4, 3.3.1–3.3.2 and 3.4.1. ↑

4. Dee Vee Projects Ltd v Government of Maharashtra and Others, Writ Petition No 2693 of 2021, Bombay High Court, Nagpur Bench, 11 February 2022, paragraphs 32–38, especially paragraph 35. ↑

5. Elitecon International Ltd v Union of India and Others, 2026:BHC-AS:18524-DB, Writ Petition No 4899 of 2025, Bombay High Court, 25 March 2026, paragraphs 10–13 and operative order; paragraph 12 reproduces the Karnataka High Court discussion in K-9 Enterprises. ↑

6. CGST Rules, 2017, rule 86A(2)–(3); CBIC guidelines dated 2 November 2021, paragraphs 3.4.1–3.4.3; Elitecon International Ltd, 2026:BHC-AS:18524-DB, paragraph 10 and operative order. ↑

7. Constitution of India, Articles 14 and 226; CGST Rules, 2017, rule 86A. The appropriate procedural remedy depends on the challenged decision and the jurisdiction. ↑

   Author is an Advocate practicing at Calcutta High Court. Views are personal.