Punjab & Haryana High Court Bars 'Negative Blocking' Of ITC Beyond Available Credit Under Rule 86A CGST Rules

The High Court of Punjab and Haryana has held that tax authorities cannot block a taxpayer's Electronic Credit Ledger (ECL) beyond the Input Tax Credit (ITC) actually available at the time of action, and that creating a negative ITC balance under Rule 86A of the CGST Rules, 2017 is without jurisdiction. A Division Bench of Justice Lisa Gill and Justice Parmod Goyal was hearing a writ petition filed by M/s Garg Furnace Limited, which challenged the blocking of its ECL on 01.10.2025 resulting in a negative ITC balance, allegedly without notice and in violation of Rule 86A and principles of natural justice. The Bench framed the core issue as whether Rule 86A permits blocking of ITC in excess of the credit available in the ECL on the date of the order. Answering it in the negative, the High Court observed that availability of credit in the ECL is a condition precedent for invoking Rule 86A and that the provision only enables temporary restriction on utilisation of existing credit, not creation of a negative balance. Relying on consistent judicial precedent including decisions of the Gujarat, Delhi, Telangana and Bombay High Courts and its own recent ruling in M/s Shyam Sunder Strips Vs Union of. India and Ors CWP-23675-2025, the Bench reiterated that Rule 86A is a harsh, preventive power and must be strictly construed. While prior show cause notice is not mandatory for invoking Rule 86A, the authorities cannot resort to “negative blocking” when no credit is available; recovery, if any, must be pursued through statutory mechanisms under Sections 73 or 74 of the CGST Act. Noting that the issue stood squarely covered against the Revenue and that similar Delhi High Court rulings have been upheld by the Supreme Court the Bench allowed the writ petition, set aside the impugned ECL blockage to the extent it exceeded available ITC, and granted liberty to the Department to proceed with lawful recovery measures. Case Title: M/s Garg Furnance Limited Vs. Union of India & Ors. Case No.: CWP-31754-2025 Appearance for Petitioner: Mr. Anurag Sharma Appearance for Respondents: Mr. Sourabh Goel, Senior Standing Counsel Click Here To Read/Download Order

Punjab & Haryana High Court Bars 'Negative Blocking' Of ITC Beyond Available Credit Under Rule 86A CGST Rules

Rajnandini Dutta

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