King Enterprises Vs Union of India (Bombay High Court)
The Bombay High Court heard a writ petition challenging a communication/order dated 8 January 2025 issued under Rule 86A of the Central Goods and Services Tax Rules, 2017, by which the authorities blocked the use of Input Tax Credit (ITC) in the petitioner’s electronic credit ledger to the extent of ₹2.66 crores.
At the outset, the Court noted that as on the date of the impugned communication/order, the actual ITC balance available in the petitioner’s electronic credit ledger was only ₹7,06,770. Despite this, the authorities proceeded to block ITC amounting to ₹2.66 crores. This resulted in what the Court described as “negative blocking” of ITC, insofar as the blocked amount exceeded the credit actually available in the ledger.
The respondents defended the action by relying on an affidavit filed by the Principal Commissioner of CGST and Central Excise, Pune. It was contended that Rule 86A empowers the Commissioner or an authorised officer to disallow the debit of an amount equivalent to fraudulently availed and utilised ITC, even if such amount exceeds the existing ledger balance. According to the respondents, the petitioner had earlier availed ineligible ITC and used it to discharge GST liabilities, causing loss to government revenue. The blocking of ITC beyond the available balance was justified by treating the action as a lien on future credits rather than as a recovery measure.
