Union of India And Ors. Vs K.K. Alloys (Supreme Court of India)
The dispute concerned the scope of Rule 86A of the Central Goods and Services Tax Rules, 2017, specifically whether tax authorities can block a registered person’s Electronic Credit Ledger (ECL) by creating a negative balance exceeding the Input Tax Credit (ITC) actually available at the time of passing the order.
Read Punjab And Haryana High Court Judgment in this case: P&H HC Sets Aside Negative GST ITC Blocking as Rule 86A Applies Only to Available Credit
The petitioner challenged the action of the GST authorities, who had blocked ITC by making negative entries in the Electronic Credit Ledger without prior notice. It was argued that Rule 86A authorizes the blocking only of ITC that is actually available in the Electronic Credit Ledger and does not permit the creation of an artificial negative balance that restricts the future utilization of ITC. The petitioner further contended that such action violated the statutory framework and the principles of natural justice.
Before the High Court, both parties agreed that the central legal issue was whether Rule 86A permits blocking of an amount exceeding the credit available in the Electronic Credit Ledger. The petitioner relied on several High Court decisions, including those of the Gujarat and Delhi High Courts, which had consistently held that Rule 86A applies only where ITC is available in the ledger. It was also pointed out that the Supreme Court had already dismissed Special Leave Petitions challenging the Delhi High Court decisions in Kings Security Guard Services Pvt. Ltd. and Karuna Rajendra Ringshia, thereby leaving those judgments undisturbed. The Revenue was unable to dispute that the controversy was covered by the Punjab and Haryana High Court’s earlier decision in M/s Shyam Sunder Strips.
