Sonalika Enterprises Vs State of Haryana and Others (Punjab and Haryana High Court)
The case concerns the scope and limits of powers under Rule 86A of the Central Goods and Services Tax Rules, 2017, particularly whether authorities can block Input Tax Credit (ITC) in excess of the balance available in a taxpayer’s Electronic Credit Ledger (ECL) and create a negative balance.
The petitioner, a registered dealer under the Haryana Goods and Services Tax Act, challenged the action of the authorities in blocking ITC through an entry dated 02.12.2024. It was contended that the respondents, without prior notice and in violation of principles of natural justice and applicable guidelines, blocked ITC in such a manner that the ECL reflected a negative balance. According to the petitioner, Rule 86A does not authorize blocking of ITC beyond what is actually available in the ledger, and creation of an artificial negative balance restricts utilization of future ITC, thereby adversely affecting business operations.
The central question before the Punjab and Haryana High Court was whether Rule 86A permits blocking of an amount exceeding the credit available at the time of issuing such an order.
The petitioner argued that the power under Rule 86A is limited to ITC available in the ECL at the relevant time and cannot extend to creating a negative balance. Reliance was placed on various High Court decisions, including those of Gujarat and Delhi High Courts, which had interpreted Rule 86A similarly. It was further pointed out that decisions of the Delhi High Court had been upheld by the Supreme Court of India by dismissal of special leave petitions.
