Hindustan Steel Vs Deputy Commissioner of State Tax
Date: October 15, 2025
Subject Matter
Powers under Rule 86A can be exercised only in respect of the credit of input tax AVAILABLE in the Electronic Credit Ledger on the date the order is made
Summary
The petitioner challenged an order dated July 15, 2025, issued under Rule 86A of the Central Goods and Services Tax Rules, 2017 (CGST Rules), which blocked the petitioner's Electronic Credit Ledger (ECL) to the extent of ₹95,74,850/-.
The petitioner's central argument was that the blocking order was entirely ultra vires because, on the date the order was made, the Input Tax Credit (ITC) balance available in the ECL was only ₹600/-. Blocking an amount significantly exceeding the available balance constitutes illegal "negative blocking." The petitioner relied on consistent rulings from the Bombay, Gujarat, Telangana, and Delhi High Courts.
The Revenue conceded that hearings were ongoing and argued that the object of Rule 86A was to ensure early recovery of fraudulently obtained credit, which should not be frustrated by a narrow interpretation.
The High Court allowed the petition, following its binding precedent in Rawman Metal & Alloys v. The Deputy Commissioner of State Tax, Thane, and set aside the impugned order.
Ultra Vires Blocking: The Court reiterated that powers under Rule 86A can be exercised only in respect of the credit of input tax AVAILABLE in the Electronic Credit Ledger on the date the order is made. Since the available credit was only ₹600/-, the order blocking ₹95,74,850/- was quashed and set aside.
Restoration of Credit: The Respondents are directed to restore the blocked input tax credit equivalent to the amount that was improperly recovered from the Petitioner's ECL for the months of June, July, and August 2025 in pursuance of the quashed order. This exercise must be completed within four weeks.
Restriction on Utilization: At the request of the learned AGP, the Court directed the petitioner not to utilize the restored amount until the conclusion of the adjudication proceedings. The Court stated that while the underlying order was ultra vires, it could not "restore the same position which prevailed on account of the issuance of such ultra vires order."
Remedies Reserved: The order does not preclude the Respondents from using any other legal means (e.g., proceedings under Section 74 or provisional attachment under Section 83) for recovering the amount found due and payable after adjudication.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
1. Heard Mr. Vivek Laddha, learned counsel who appears with Mr. Aniket Kamtam for the Petitioner and Mr. Takke, learned AGP for the 1st and 2nd Respondent, Ms. Vyas, at our request appears for the 3rd Respondent which, in this case, is only a formal Respondent.
2. The Rule is made returnable immediately at the request of and with the consent of the learned counsel for the parties.
3. The Petitioner challenges the impugned order dated 15 July 2025 (Exhibit – A) made by the first Respondent in purported exercise of powers conferred by Rule 86A of the CGST Rules 2017 blocking the Petitioner’s Electronic Credit Ledger to the extent of Rs.95,74,850/-.
4. As on the date of the making of the impugned order, the ITC available in the Petitioner’s Electronic Credit Ledger was to the extent of only Rs.600/-. Therefore, Mr. Laddha, learned counsel for the Petitioner urged that the Respondents were not entitled to invoke the provisions of Rules 86A and such invocation was completely ultra vires. He relied upon the decision of this Court in the case of Rawman Metal & Alloys vs. The Deputy Commissioner of State Tax, Thane1 and some of the decisions of the Gujarat, Telangana and Delhi High Courts supporting his contention.
5. Mr Takke, learned AGP submits that necessary intimation has already been given to the Petitioner and the Petitioner has also responded to the same. He submitted that the hearings are on and therefore, at this stage, this Court should not interfere with the impugned order. He further submitted that the object of Rule 86A was to ensure that any credit that has been fraudulently obtained by a party is recovered at the earliest. He submitted that such an intention cannot be frustrated by any narrow construction by restricting the blocking order only to the input tax available in the Electronic Credit Ledger at the time when the impugned order was made or served. In the alternate, Mr Takke submits that directions may be issued to the Petitioner not to utilize the credit that might be restored until the conclusion of the adjudication proceedings for which the hearing have already been commenced.
6. The rival contentions now fall for our determination.
7. The issue now raised before us squarely the issue involved in the case of Rawman Metal & Alloys (supra) therein by following the decisions of the Gujarat High Court in the case of Samay Alloys Pvt. Ltd. vs. State of Gujarat2, the decision of the Telangana High Court in the case of Laxmi Fine Chem vs. Assistant Commissioner3 and the decisions of the Delhi High Court in the cases of Best Crop Science Pvt. Ltd. through Authorised Representative vs. Principal Commissioner, CGST Commissionerate, Meerut & Ors.4 and Karuna Rajendra Ringshia Proprietor R R Enterprises Vs. Commissioner of Central Goods and Service Tax & Ors.5, we have held that the powers under Section 86A of the CGST Rules can be exercised only in respect of the credit of input tax available in the Electronic Credit Ledger on the date of making and serving of the impugned blocking order. The contention now raised by Mr Takke was also raised on behalf of the Respondents in the said matter and the same has been considered and dealt with.
6. Therefore, by following the reasoning in Rawman Metal & Alloys (supra), we quash and set aside the order and direct the Respondents to restore the blocked input tax credit equivalent to that recovered by the Respondents for the months of June, July and August 2025 in pursuance of the impugned order which we have not quashed and set aside. This exercise must be completed within four weeks from today.
9. Nothing in this order will prevent the Respondents from resorting to any other legal means for recovering any amount which is found to be due and payable. However, at Mr Takke’s request, we direct the Petitioner not to utilise the restored amount, as that would amount to frustrating the relief which we have not granted to the Petitioner. Since, the blocking was based upon the impugned order, which, in our opinion, was ultra vires, we cannot restore the same position which prevailed on account of the issuance of such ultra vires order.
10. The Rule is made absolute in above terms without any costs order. All concerned to act upon an authenticated copy of this order.
Notes:
1 Writ Petition (L) No.10928 of 2025 decided on 7 October 2025
2 Special Civil Application No.18059 of 2021 decided on 03/02/2022
3 Writ Petition No.5256 of 2024 decided on 18/03/2024
4 Writ Petition (c) No.10980/2024 decided on 24/09/2024
5 Writ Petition (c) No.7250 of 2024 decided on 21/10/2024