Rule 86A of CGST Rules Can’t Be Invoked to Block ITC When Electronic Credit Ledger Shows Nil Balance: Bombay HC Bars Negative Blocking

The Bombay High Court ruled that GST authorities cannot invoke Rule 86A to block Input Tax Credit (ITC) if the Electronic Credit Ledger (ECL) reflects a nil balance. The court held that the rule only allows blocking of available ITC, and does not extend to “negative blocking” where authorities pre-emptively block future credits. The petitioner had challenged the blocking of non-existent credits, arguing that it caused undue hardship and legal overreach. The court quashed the blocking order, noting that Rule 86A must be strictly interpreted and cannot be used to create restrictions beyond what is explicitly stated in the law. The decision strengthens legal safeguards for taxpayers by limiting arbitrary or excessive use of credit blocking powers under GST law, and mandates that action under Rule 86A must have a clear statutory basis with tangible credit in the ledger.