SPL Motors (P) Ltd. Vs Union of India And Others (Punjab and Haryana High Court)
The Punjab and Haryana High Court examined the legality of blocking a taxpayer’s Electronic Credit Ledger (ECL) by creating a negative balance under Rule 86A of the Central Goods and Services Tax Rules, 2017. The writ petition was confined to challenging the action of the tax authorities in blocking Input Tax Credit (ITC) through an entry dated 29.04.2024, which resulted in a negative ITC balance, allegedly in violation of Rule 86A and principles of natural justice.
Both parties agreed that the sole question for consideration was whether Rule 86A permits the Commissioner or an authorized officer to block a taxpayer’s ECL by an amount exceeding the credit actually available at the time of passing the order. It was undisputed that the petitioner was a registered taxpayer under the CGST and HGST Acts and that its ECL was blocked on 29.04.2024, reflecting a negative balance.
The petitioner contended that Rule 86A only empowers authorities to restrict the debit of ITC that is available in the ECL and does not authorize creation of an artificial negative balance. According to the petitioner, such negative blocking effectively disables the taxpayer from utilizing legitimately availed ITC for discharging tax liabilities and results in recovery without following the statutory procedure. It was argued that the power under Rule 86A is confined strictly to the quantum of ITC available at the relevant time in the ECL.
