Negative ITC Blocking Under Rule 86A Not Allowed | HC

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Rule 86A negative ITC blocking

Case Details: Hemang Bipin Varaiya vs. State of Maharashtra [2026] 185 taxmann.com 557 (Bombay)

Judiciary and Counsel Details

  • G. S. Kulkarni & Aarti Sathe, JJ.
  • Nirmal Pagaria for the Petitioner.
  • Ms Shruti D. Vyas, Addl. Govt. Pleader & Aditya R. Deolekar, AGP for the Respondent.

Facts of the Case

The petitioner challenged the action of blocking Input Tax Credit (ITC) in the electronic credit ledger under Rule 86A of the CGST Rules and Maharashtra GST Rules. It was contended that a show cause notice (SCN) was issued proposing such blocking; however, the electronic credit ledger was blocked even before the petitioner had a chance to reply and before the SCN proceedings were completed. The petitioner submitted that at the relevant time, the electronic credit ledger reflected a negative balance and no available credit existed, which could be subject to blocking. It was further contended that Rule 86A did not permit negative blocking. The matter was accordingly placed before the High Court.

High Court Held

The High Court held that Rule 86A of the CGST Rules empowers restriction of use of credit only to the extent of available balance in the electronic credit ledger under Section 49 of the CGST Act, and does not contemplate any concept of negative blocking. It was further held that where no ITC exists in the ledger, any action seeking to block beyond such available credit is ultra vires Rule 86A and inconsistent with the statutory scheme governing utilisation of ITC. It was concluded that the impugned action exceeded the permissible limits of law. Accordingly, the Court directed the unblocking of the electronic credit ledger.

List of Cases Reviewed

List of Cases Referred to

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Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied