Kariina Rajendra Ringshia Vs Commissioner of Central Goods and Service Tax and & Ors. (Delhi High Court)
The Delhi High Court examined a writ petition filed under Article 226 of the Constitution, seeking directions to unblock the petitioner’s Electronic Credit Ledger (ECL) maintained under the Central Goods and Services Tax Act, 2017, and the Central Goods and Services Tax Rules, 2017. The petitioner submitted that as of April 29, 2024, the ECL reflected a credit balance of ₹7,60,581. However, the authorities had blocked ₹43,76,492, resulting in a negative balance of ₹36,18,911, which was challenged as unsustainable in law.
The Court referred to its earlier decision in Best Crop Science (P) Ltd. v. Commissioner, which comprehensively addressed the issue of “negative blocking.” In that ruling, it was held that blocking input tax credit (ITC) under Rule 86A of the CGST Rules is a temporary and protective measure, applicable only when the Commissioner or an authorized officer has reasons to believe that the ITC has been fraudulently availed or is otherwise ineligible. Such an order does not require prior initiation of proceedings against the taxpayer and can be issued at any stage if justified.
The judgment in Best Crop Science clarified that Rule 86A is designed to safeguard revenue and not as a mechanism for tax recovery. Any recovery or determination of wrongly availed ITC must be carried out under Sections 73 or 74 of the CGST Act. Further, orders issued under Rule 86A are operative only for a maximum period of one year unless revoked earlier when conditions for disallowing debit cease to exist. The Court also emphasized that Rule 86A cannot be interpreted to authorize the imposition of a negative balance or compel the taxpayer to replenish their ECL, as doing so would effectively amount to recovery action outside the statutory framework.
