Blocked Input Tax Credit Under Rule 86A Cannot Be Treated as Pre-Deposit: Delhi HC Draws the Line Between Blocking and Appropriation

Headnote

The Delhi High Court declined the Petitioner's prayer to appropriate blocked input tax credit under Rule 86A of the CGST Rules towards the mandatory 10% pre-deposit under Section 107(6) of the CGST Act for filing a statutory appeal. The Court held that a mere restriction on debiting credit does not amount to its payment or appropriation, and that the officer who imposed the restriction (a State authority) was not before the Court. It permitted the Petitioner to file the appeal within four weeks, protected against limitation and coercive recovery, while clarifying the pre-deposit need not be made exclusively through cash and leaving the Rule 86A restrictions open to separate challenge.

Background

1. The Petitioner, a GST-registered company, was alleged by DGGI to have wrongfully availed input tax credit of ₹33,32,568/- from a non-genuine supplier, resulting in an Order-in-Original confirming an equivalent IGST demand with interest and penalty.
2. FORM GST DRC-07 erroneously reflected an aggregate of ₹66,65,136/- under "penalty" and referred to the wrong financial year, causing the GST portal to compute pre-deposit at double the correct amount; this error was rectified by the Department only on 16.03.2026 after the writ petition was filed.
3. Separately, input tax credit aggregating ₹17,96,088/- stood blocked under Rule 86A — partly by DGGI (since released) and partly by an Excise and Taxation Officer of Haryana (not impleaded) — while the mandatory pre-deposit required was only ₹3,33,257/-.
4. The Petitioner sought a direction to appropriate ₹3,33,257/- from the blocked credit towards the pre-deposit, relying on Section 49(4) CGST Act, Rule 86(2) CGST Rules, and the decisions in Oasis Realty and Yasho Industries Limited.
5. The Petitioner also faced a technical inability to file the appeal electronically despite the FORM DRC-07 error being corrected, and sought exclusion of the intervening period for limitation purposes.

Court's Observations

1. Oasis Realty and Yasho Industries Limited concern utilisation of credit ordinarily available in the Electronic Credit Ledger and do not deal with credit restricted under Rule 86A; they were held inapplicable to the wider controversy raised.
2. A restriction under Rule 86A merely prevents debit of the specified amount and does not, by itself, amount to payment or appropriation of that amount towards an adjudicated demand; the OIO itself distinguished appropriation (done for a co-noticee) from mere confirmation of demand (done for the Petitioner).
3. The subsisting Rule 86A restrictions were imposed by a Haryana State officer who was not impleaded, and none of the existing Respondents controlled those restrictions; a direction to appropriate blocked credit would impermissibly modify an order of an authority not before the Court.
4. The orders imposing the restrictions and the reasons recorded under Rule 86A were not placed on record, and the Blocked Credit Ledger alone could not substitute for the officer's recorded satisfaction or establish an available running balance.
5. Since the FORM GST DRC-07 error was attributable to the Adjudicating Authority and was rectified only during the pendency of the petition, the Petitioner could not be deprived of its statutory appellate remedy on account of time lost in securing rectification.
6. The Court balanced the Revenue's interest with the Petitioner's remedy by permitting the appeal within four weeks (protected from limitation and coercive recovery), clarifying that pre-deposit need not be made exclusively through cash, while leaving the correctness of the Rule 86A restrictions open to challenge before the competent authority.

Legal Provisions Discussed

1. Section 107(6) and Section 49(4) of the Central Goods and Services Tax Act, 2017.
2. Rule 86A and Rule 86(2) of the Central Goods and Services Tax Rules, 2017.
3. Section 161 of the CGST Act (rectification of errors).
4. Circular No. 172/04/2022-GST dated 06.07.2022.
5. Precedents considered: Oasis Realty v. Union of India; Yasho Industries Limited v. Union of India.

Case Details

Court Name

High Court of Delhi at New Delhi

Case Number

W.P.(C) 3418/2026

Case / Party Name

Spherion Solutions Private Limited v. Additional Commissioner Adjudication CGST Delhi North & Ors.

Court

High Court of Delhi (Division Bench)

Coram / Judges

Hon'ble Mr. Justice Anil Kshetarpal; Hon'ble Ms. Justice Shail Jain

Date of Decision

03.09.2026