NZS Traders Pvt. Ltd. Vs Union of India & Ors. (Bombay High Court)
In NZS Traders Pvt Ltd vs Union of India Bombay High Court, the petitioner challenged the blocking of its electronic credit ledger under Rule 86A of the CGST Rules, 2017, whereby an amount of ₹4.25 crore was attached on 16 February 2024 without prior notice, show cause notice, or personal hearing. The petitioner contended that the Input Tax Credit (ITC) availed was lawful and requested removal of the attachment, but no response was received. The grievance primarily centered on Rule 86A(3), which provides that such restriction shall cease after one year from the date of imposition.
The petitioner argued that the restriction expired in February 2025, yet the department failed to lift the block, thereby violating the statutory provision. The department, in its affidavit, acknowledged that under Rule 86A(3), the attachment cannot continue beyond one year, though it contended that the petitioner’s registration had been cancelled and further action could be taken.
The Court held that Rule 86A(3) clearly mandates that restriction on the credit ledger cannot continue beyond one year. Since the block was imposed on 16 February 2024, it ceased to operate upon expiry of that period by operation of law. The Court observed that the petitioner was entitled to relief without requiring judicial declaration, as the statutory provision itself mandated unblocking. The department’s contention regarding cancellation of registration was not accepted for continuation of the restriction.
