Case Law Details
Deputy Director & Anr. Etc. Vs Ramesh Kumar Yadav & Anr. Etc. (Supreme Court of India)
The Hon’ble Supreme Court in Deputy Director & Anr. Etc. v. Ramesh Kumar Yadav & Anr. Etc. [SLP (C) Diary No. 31866/2025 dated July 11, 2025] held that no interference is warranted in the interim High Court order restricting ITC blocking to 10% of demand, relying on K.J. International v. State of Punjab
Facts:
Deputy Director & Anr. (“the Petitioners”) filed a Special Leave Petition challenging the interim relief granted by the Punjab & Haryana High Court to Ramesh Kumar Yadav & Anr. (“the Respondents”).
The Petitioners challenged an interim order of the Punjab & Haryana High Court whereby the Respondents were granted relief in relation to the blocking of input tax credit under Rule 86A of the CGST Rules. The High Court had relied on its earlier decision in K.J. International v. State of Punjab [CWP-22514-2023 Judgment dated October 6, 2023], wherein it was held that only 10% of the demand amount can be blocked as a pre-deposit under Section 107 for the purpose of appeal. The main writ petition in the present matter was still pending before the High Court.
Issue:
Whether the Supreme Court should interfere with the High Court’s interim order which restricts the blocking of ITC to 10% of the assessed demand amount under Rule 86A of the CGST Rules?
Held:
The Hon’ble Supreme Court in SLP (C) Diary No. 31866/2025, held as under:
- Observed that, the impugned interim order merely follows the reasoning laid down in J. International v. State of Punjab, where the High Court had considered the requirement of 10% pre-deposit for appeal under Section 107 of the CGST Act.
- Noted that, the main writ petition in the present case is still pending before the High Court.
- Held that, no case was made out for interference with the interim order passed by the High Court. Accordingly, dismissed the Special Leave Petitions filed by the Revenue and condoned the delay in filing.
Our Comments:
The Delhi High Court, in the case of Best Crop Science Pvt. Ltd. v. Principal Commissioner[W.P.(C) 10980/2024 and CM Nos.45297/2024 and 45298/2024, Judgment dated September 24, 2024], CGST, held that Rule 86A cannot authorize negative blocking, as it only applies to the ITC balance actually available in the ECL.
In contrast, the Madras High Court, in the case of Tvl. Skanthaguru Innovations Pvt. Ltd [W.P.No.29872 of 2024 Judgment dated November 28, 2024], permitted such blocking, reasoning that the phrase “available in the ECL” should be read functionally and not restrictively, thus validating Rule 86A even where the ledger reflects nil or negative balances.
The Calcutta High Court in the case of Basanta Kumar Shaw vs Assistant Commissioner of Revenue, Commercial Taxes And State Tax[ MAT 976 OF 2022 Judgment dated July 28,2022] took the broader reading of Rule 86A, holding that blocking may apply even in absence of a positive balance in the ECL, and that Rule 86A is intended to prevent fraudulent availment, not just recover it.
Therefore, the Supreme Court has issued notice to resolve this interpretational divergence, and the matter is listed for hearing in August 2025. Until such authoritative pronouncement, High Court directions such as in K.J. International v. State of Punjab continue to guide interim relief.
Relevant Provisions:
Section 107 – Appeals to Appellate Authority
“An appeal to the Appellate Authority under sub-section :
(1) shall be filed only after the appellant has paid—
a. the full amount of tax, interest, fine, fee and penalty arising from the impugned order, as is admitted by him, and
b. a sum equal to ten percent of the remaining amount of tax in dispute…”
Rule 86A – Conditions of use of amount available in electronic credit ledger
(1) The Commissioner or an officer authorised by him in this behalf, not below the rank of an Assistant Commissioner, having reasons to believe that credit of input tax available in the electronic credit ledger has been fraudulently availed or is ineligible in as much as-
a) the credit of input tax has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36-
i. issued by a registered person who has been found non-existent or not to be conducting any business from any place for which registration has been obtained; or
ii. without receipt of goods or services or both; or
b) the credit of input tax has been availed on the strength of tax invoices or debit notes or any other document prescribed under rule 36 in respect of any supply, the tax charged in respect of which has not been paid to the Government; or
c) the registered person availing the credit of input tax has been found non-existent or not to be conducting any business from any place for which registration has been obtained; or
d) the registered person availing any credit of input tax is not in possession of a tax invoice or debit note or any other document prescribed under rule 36, may, for reasons to be recorded in writing, not allow debit of an amount equivalent to such credit in electronic credit ledger for discharge of any liability under section 49 or for claim of any refund of any unutilised amount.
(2) The Commissioner, or the officer authorised by him under sub-rule (1) may, upon being satisfied that conditions for disallowing debit of electronic credit ledger as above, no longer exist, allow such debit.
(3) Such restriction shall cease to have effect after the expiry of a period of one year from the date of imposing such restriction.”
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
Delay condoned.
Challenge in the present petitions is to an interim order passed by the High Court relying upon the judgment of the High Court in the case of K.J.International v. State of Punjab 2023 (12) Centax 106 (P&H). The main writ petition is still pending.
In view of the aforesaid fact, we do not find that any case is made out for interference with the impugned order. The Special Leave Petitions are accordingly dismissed.
Pending application, if any, also stands disposed of.
Reply as well as rejoinder have been filed.
Learned counsel for the petitioner submits that while the High Courts of Delhi, Gujarat and Telangana have held that there is no power available with the respondents under Rule 86 (A) of the CGST Rules, 2017 (for short “the Act”) to negatively block the electronic credit ledger whereas the High Courts of Allahabad and Calcutta have held it otherwise.
Learned counsel for the petitioner has also invited attention to the judgment passed by the Punjab and Haryana High Court in ‘K.J. International Vs. State of Punjab’ 2023 (12) Centax 106 (P&H), to submit that the negative blocking of the input tax credit ledger beyond 10% of the demand is unjustified. In other words, the Court has observed that the account cannot be blocked beyond 10% of the penalty amount assessed as that is the condition of pre-deposit for filing of an appeal against the order passed under Section 73 and 74 of the Act.
The issue requires to be examined at length, however, at this stage, we allow the respondents to block 10% of the tentative amount of demanded tax, which may be assessed provisionally and unblock the ITC to that extent.
List on 10.12.2024.
A photocopy of this order be placed on the file of another connected case.
****
(Author can be reached at info@a2ztaxcorp.com)
Author Bio
