Rule 86A Cannot Create Artificial Negative ITC Balance: P&H HC

Vee Kay Concast Private Limited Vs Union of India (Punjab and Haryana High Court)

The writ petition before the Punjab and Haryana High Court was confined to the action of the respondents in blocking the petitioner’s Electronic Credit Ledger (ECL) by creating a negative balance entry dated 30.09.2025 under Rule 86A of the Central Goods and Services Tax Rules, 2017. The petitioner, a registered entity under the CGST and PGST Acts, contended that the Input Tax Credit (ITC) was negatively blocked without prior notice and in violation of Rule 86A and principles of natural justice. The central question before the Court was whether Rule 86A permits the Commissioner or an authorized officer to block a taxpayer’s ECL by an amount exceeding the credit available at the time of issuance of the order.

The petitioner argued that Rule 86A does not authorize blocking of ITC beyond the amount available in the ECL and that the creation of an artificial negative balance effectively disabled utilization of legitimately availed ITC. Reliance was placed on multiple High Court decisions, including those of Gujarat, Delhi, Telangana, and Bombay High Courts, as well as a prior decision of the Punjab and Haryana High Court dated 04.11.2025 in M/s Shyam Sunder Strips, which had endorsed the view that negative blocking is impermissible.