Blocked GST Credit Cannot Be Used for Appeal Pre-Deposit: Madras High Court

Tvl. Nualco Private Limited Vs Assistant Commissioner (ST) (Madras High Court)

Summary: The Madras High Court considered a writ petition filed by Tvl Nualco Private Limited challenging a notice dated 16.06.2026 blocking the Input Tax Credit (ITC) available in its electronic credit ledger in relation to alleged supplies received from Vetrivel Traders. The notice had been issued under Rule 86A of the applicable GST Rules, and the petitioner sought unblocking of the ledger. The petitioner submitted that proceedings under Section 74A had culminated in an order dated 25.08.2026 and that it consequently had a statutory right to appeal under Section 107. It contended that, under Section 107(7), recovery of the balance amount would be deemed stayed after satisfying the pre-deposit requirement and that the pre-deposit could be made by utilising amounts available in the electronic credit ledger under Section 49(4). The petitioner therefore argued that invocation of Rule 86A deprived it of a statutory right and that Rule 86A was subordinate to the statute. It also stated that it had furnished relevant documents to establish eligibility for ITC under Section 16.

The Revenue opposed the contention and stated that the credit had been blocked in relation to supplies received from Vetrivel Traders. Referring to the assessment order, the Revenue pointed out that the premises of Vetrivel Traders had been inspected and no physical stock was found there. A finding had also been recorded that Vetrivel Traders was a bill trader. The Revenue therefore contended that the circumstances justified blocking of the credit. The Court then examined Section 16(1), which enables rules to be framed imposing conditions and restrictions regarding availment and utilisation of ITC, and noted that Rule 86A had been framed pursuant thereto.