Punjab-Haryana High Court
Ms Garg Furnace Limited vs Union Of India And Others on 19 November, 2025
Author: Lisa Gill
Bench: Lisa Gill
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CWP-31754-2025
288 b
IN THE HIGH COURT OF PUNJAB AND HARYANA
AT CHANDIGARH
CWP-31754-2025
Date of Decision: November 19, 2025
M/S GARG FURNACE LIMITED .....Petitioner
Versus
UNION OF INDIA AND OTHERS ..... Respondents
CORAM:- HON'BLE MRS. JUSTICE LISA GILL
HON'BLE MR. JUSTICE PARMOD GOYAL
Present: Mr. Anurag Sharma, Advocate for the petitioner.
Mr. Sourabh Goel, Senior Standing counsel for the respondents.
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LISA GILL, J.
1. It is submitted that prayer in this writ petition is restricted to action
of respondents blocking Electronic Credit Ledger (ECL) of petitioner and for
deleting entry dated 01.10.2025 through which Input Tax Credit has been
blocked in negative by the respondents, statedly in violation of provisions of
Rule 86A of Central Goods and Services Tax Act, 2017 and Punjab Goods and
Services Tax Act, 2017 and in violation of principles of natural justice.
2. Learned counsel for parties are ad idem that question which arises
for consideration in the writ petition is:
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"Whether Rule 86-A of Goods and Services Tax Rules, 2017 (for
short Rules, 2017) permit the Commissioner or an officer
authorized by him to block a tax payer's ECL by an amount
exceeding the credit available at the time of issuance of said
order?"
3. Learned counsel for parties agree that in view of said sole question
of law being the subject matter of adjudication, it is not necessary to postpone
the hearing for filing of formal reply on behalf of respondents.
4. Learned counsel for petitioner submits that petitioner is an active
business concern registered under the provisions of Central Goods and Services
Tax Act, 2017 (for short - 'CGST Act'). Grievance raised is that on 01.10.2025,
respondent No. 2 without any prior intimation, notice and in alleged violation of
principles of natural justice besides guidelines issued by Central Board of
Indirect Taxes and Customs (CBIC), negatively blocked Input Tax Credit (ITC)
in Electronic Credit Ledger (ECL) of petitioner under Rule 86A of Act/Rules,
2017 thus showing negative balance as reflected from copy of ECL entries
attached as Annexure P-1. It is argued that the provision does not mandate or
authorize blocking of ITC in excess of the ITC already available to the credit of
registered dealer in its ECL. It is further submitted that an artificial negative
balance is created in the petitioner's ECL which disables it from utilising the
ITC availed by it for payment of its dues leading to a situation where it is only
the remaining ITC after adjusting negative balance which would become
available to petitioner for discharging its dues. Learned counsel for petitioner
further submits that power of competent Officer in terms of Rule 86A of 2017
Rules is confined to the ITC which is available at the relevant time in the tax
payers ECL.
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5. Learned counsel for petitioner refers to decision of Gujarat High
Court in Samay Alloys India Pvt. Ltd. Vs. State of Gujrat, 2022(2) TMI 843
and of Delhi High Court in Best Crop Science Pvt. Ltd. Vs. Principal
Commissioner and another, 2024 (9) TMI 1543, Kings Security Guard
Services Pvt. Ltd. Vs. Deputy Director, Directorate General of GST
Intelligence, 2024(12) TMI 1513 and Karuna Rajendra Ringshia Vs.
Commissioner of Central Goods and Service Tax and others, 2024(11) TMI
190. It is submitted that decisions of Delhi High Court in Kings Security and
Karuna Rajender Ringshias' cases (supra), which are based on its earlier
judgment in Best Crop Science P. Ltd.'s case (supra) have been upheld with
SLP(c) Nos.014493/2025 and 017723/2025 challenging said decisions being
dismissed by Hon'ble Supreme Court on 17.05.2025 and 09.07.2025,
respectively. Learned counsel further submits that this High Court vide decision
dated 04.11.2025 in CWP-23675-2025 and other writ petitions has endorsed the
view taken by the Delhi High Court in the cases of Best Crop Science Pvt. Ltd.
(supra), Kings Security Guard Services Pvt. Ltd. (supra) and Karuna
Rajendra Ringshia (supra). Present writ petition, it is submitted, is squarely
covered in favour of petitioner in view of abovesaid decision dated 04.11.2025
passed in CWP-23675-2025 (M/s Shyam Sunder Strips versus Union of India
and others). It is, thus, prayed that present writ petition be allowed.
6. Learned counsel for respondents opposes the petition, however, he
is unable to deny that controversy and issue as raised is squarely covered in
favour of petitioner and against the Department/Revenue in terms of decision
dated 04.11.2025 passed in CWP-23675-2025 (M/s Shyam Sunder Strips
versus Union of India and others) and other connected matters.
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7. We have heard learned counsel for parties and have perused the file
with their able assistance.
8. It is a matter of record that petitioner is registered with respondent
authorities under CGST Act, 2017 having GST Identification No. (GSTIN
03AAACG8307R1ZD). Learned counsel for respondent, on advance notice, was
unable to deny that ECL of petitioner was blocked on 01.10.2025. Negative
balance is thus reflected from the copy of ECL entries attached as Annexure P-1.
9. At this stage, it is relevant to refer to decision dated 04.11.2025 in
the case of M/s Shyam Sunder Strips (supra) wherein judgments of Gujarat
High Court in the case of Samay Alloys, of Delhi High Court, in Best Crop
Science Pvt. Ltd. (supra); Kings Security Guard Services Pvt. Ltd. (supra) and
Karuna Rajendra Ringshia (supra), in M/s Laxmi Fine Chem Vs. Assistant
Commissioner (2024) SCC OnLine TS 2328 of Telangana High Court and of
Bombay High Court in Rawman Metal and Alloys Vs. The Deputy
Commissioner of State Tax, Thane, 2025(10) TMI 489 as well as decisions of
Calcutta High Court in Basanta Kumar Shaw Vs The Assistant Commissioner
of Revenue, and State Tax, Tamluk Charge and others, 2022 SCC Online Cal
4544 and of Allahabad High Court in M/s. RM Dairy Products LLP Vs. State of
U.P. and others, 2021 SCC Online All 1144 besides decision of High Court of
Andhra Pradesh in Sugna Sponge and Power Pvt. Ltd. Vs. Superintendent of
Central Tax and others, 2024 SCC Online AP 5756, were noted and discussed
in detail. View expressed by High Courts of Gujarat, Delhi, Bombay and
Telangana has been endorsed. Relevant portion of order dated 04.11.2025 reads
as under:-
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"13. It is to be reiterated that right to avail and utilize ITC is
clearly a statutory right subject to conditions as set out in the
applicable statutory provisions. Gujrat High Court in its judgment
in Samay Alloys India Pvt. Ltd.'s case (supra), after discussing
manner of ITC utilization and concept of ECL in GST, concluded
that availability of credit in the ECL is a condition precedent for
exercise of power under Rule 86-A of Rules, 2017. Relevant
portion of decision of Gujrat High Court in Samay Alloys India
Pvt. Ltd.'s case (supra) reads as under:-
"28. Rule 86A of the CGST Rules empowers the Commissioner
or his subordinates to freeze the debit in the electronic credit ledger
provided he has reasons to believe that the credit of input tax
available in the electronic credit ledger has been fraudulently availed
or is ineligible. Thus, the condition precedent is that the input tax
credit should be available in the electronic credit ledger before the
power under Rule 86-A is invoked by the authority. In the case on
hand, it is not in dispute that the amount of input tax credit available
in the electronic credit ledger as on the date of blocking of ledger
was Nil. If no input tax credit was available in the ledger, the
blocking of electronic credit ledger under Rule 86-A of the Rules
and insertion of negative balance in the ledger would be wholly
without jurisdiction and illegal.
29. On a plain reading of the opening part of Rule 86A(1) of CGST
Rules, 2017, it transpires that the power conferred under Rule 86A
can be exercised by the Commissioner or an officer authorised by
him (not below the rank of an Assistant Commissioner). Further the
powers can be exercised if the following cumulative conditions are
satisfied. i) Credit of input tax should be available in the electronic
credit ledger, ii) The Commissioner of an officer authorised by him
should have reason to believe that such credit has been fraudulently
availed or is ineligible, iii) The reason to believe are be recorded in
writing.
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30. In case the above referred conditions are satisfied, a proper
officer can invoke Rule 86A. Upon invocation of Rule 86A, a proper
officer can - a) Disallow debit from the electronic credit ledger for
discharge of any liability under section 49 or for claim of any refund
of any unutilised amount. b) Such restriction should be for an
amount equivalent to the amount claimed to have been fraudulently
availed or is ineligible
31. Rule 86A (1) of CGST Rules, 2017 is broadly divided into two
parts. The opening part of the rule deals with the conditions required
to be fulfilled in order to invoke the powers under the rule. The
second part of the rule provides for the consequences in case Rule
86A is invoked.
32. In other words, in case the conditions prescribed for the
invocation of Rule 86A are not fulfilled, the officer cannot invoke
the rule, and in such scenario, the consequences provided in the rule
becomes ex-facie inapplicable.
33. One of the primary conditions in order to invoke Rule 86A is
that the Credit of input tax should be available in the electronic
credit ledger. Further, such credit should be claimed to have been
(supported by reason to believe recorded in writing) fraudulently
availed.
34. Accordingly, in case where (i) Credit of input tax is not available
in the electronic credit ledger or (ii) such credit has already been
utilised, the powers conferred under Rule 86A cannot be invoked.
35. Further, Rule 86A is not the rule which entitled the proper
officer to make debit entries in the electronic credit ledger of the
registered person. The rule merely allows the proper officer to
disallow the registered person debit from the electronic credit ledger
for the limited period of time and on a provisional basis. In case
debit entries are made by the proper officer, the same will
tantamount to permanent recovery of the input tax credit and
certainly permanent recovery is governed by the statutory provisions
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(Section 73 of 74 of CGST Act) and it certainly travels beyond the
plain language and underlined intent Rule 86A.
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41. In the aforesaid regard, first the language of an amount
equivalent appears in the later portion of the rule which provides for
the consequences in case the conditions for invocation of the rule are
satisfied. As already discussed, the rule itself can be invoked only in
case where the credit of input tax is available in the electronic credit
ledger and accordingly, the consequence of the invocation cannot
determine the applicability of the rule. Secondly, once the input tax
credit is claimed in electronic credit ledger, the credit becomes part
of one fungible pool and the credit cannot be separately identified.
Having regard to the same, the rule provides for restriction on an
equivalent amount and not the credit itself. However, the rule
presupposes existence of such credit in the electronic credit ledger.
42. A doubt may also arise that a registered person may persistently
and continuously avail and utilise the fraudulent credit and in such
scenario the strict interpretation of Rule 86A will defeat the
underlying purpose of enacting such a preventive provision. In this
regard. Rule 86A is not the only measure available with the
Government. The Government can certainly initiate proceedings
under the provisions of section 73 or section 74, as the case may be,
for recovery of credit wrongly claimed. Further, the Government in
an appropriate case may initiate proceeding for Cancellation of
registration (either of the supplier of the recipient or both) under
Section 29 of CGST Act. Furthermore, the Government can also
provisionally attach any property, including bank account, belonging
to the taxable person under Section 83 of CGST Act.
43. Accordingly, the fact or possibility of registered person availing
and utilising the fraudulent credit persistently and continuously
cannot be the basis to invoke Rule 86A.
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44. The power to restrict debit from the electronic credit ledger is
extremely harsh in nature. The rule outreaches the detailed
procedure provided in the legislature for determination of input tax
credit wrongly availed or utilised provided in Section 73 and 74 of
CGST Act and empowers the officer to unilaterally impose certain
restrictions in compelling circumstances. In other words, Rule 86A
is invoked at a stage which is anterior to the finalization of an
assessment or the raising of a demand. Accordingly, it should be
governed strictly by specific statutory language which conditions the
exercise of the power.
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"49. Thus, the principle of law discernible from the aforesaid two
decisions of the Supreme Court is that there can be no action based
on any supposed intendment of the provision. Since the plain
language of Rule 86A does not permit its exercise without there
being availability of credit, the same could not have been invoked in
the present case."
10. View expressed by High Courts of Gujarat, Delhi, Telangana and
Bombay was endorsed by this Court to the effect that there is no ambiguity in
the plain language of Rule 86A of 2017 Rules and neither does literal
construction of this Rule lead to any absurdity; not allowing debit of ITC is a
temporary measure which is to be imposed only if the conditions set out in Rule
86A of 2017 Rules are satisfied, thus, enabling the Commissioner to withhold
available ITC in ECL when there is a reason to believe that it has been
fraudulently availed or is ineligible. As the provision is for meeting an emergent
situation, the view that prior notice (Show Cause Notice) is not required was
endorsed. However, at the same time, without availability of credit in the ECL,
there cannot be 'negative blocking'. It is always open to the authorities to resort
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to statutory measures available for recovery of amount. Whether input tax credit
was wrongly availed or utilised would be determined by competent authority in
terms of Section 73 and 74 of CGST.
11. After a detailed discussion of applicable provisions and various
judgments of the High Courts, as detailed in the foregoing paras, it was held in
the case of M/s Shyam Sunder Strips (supra) as under:-
"18. In the given facts and circumstances, we are in respectful
agreement with the view of Gujrat High Court and High Courts of
Delhi and Telangana as expressed in the decisions referred to in
foregoing paras. We are respectfully unable to agree with the view
and interpretation expressed by the High Courts of Calcutta,
Allahabad and Andhra Pradesh in matters of Basanta Kumar
Shaw, M/s. RM Dairy Products LLP and Sugna Sponge and
Power Pvt. Ltd.'s cases (supra), respectively. Moreover, it is to be
noted that the view of Delhi High Court in King Security and
Karuna Rajender Ringshia's cases (supra) has been duly upheld
by Hon'ble the Supreme Court.
19. We do not find any merit in the argument raised by learned
counsel for respondent that as decisions dated 17.05.2025 and
09.07.2025 of Hon'ble the Supreme Court, challenging judgment
passed in King Security and Karuna Rajender Ringshia's cases
(supra), have been passed in limine, therefore, present writ
petitions should be dismissed in consonance with the view taken by
High Courts of Calcutta, Allahabad and Andhra Pradesh. This
argument has been noticed only to be rejected in the given factual
matrix.
20. We do not find any merit in the argument raised by
learned counsel for respondent that as decisions dated 17.05.2025
and 09.07.2025 of Hon'ble the Supreme Court, challenging
judgment passed in King Security and Karuna Rajender
Ringshia's cases (supra), have been passed in limine, therefore,
present writ petitions should be dismissed in consonance with the
view taken by High Courts of Calcutta, Allahabad and Andhra
Pradesh. This argument has been noticed only to be rejected in the
given factual matrix.
21. In the given facts and circumstances, we find
impugned orders/entries to be unsustainable which are, thus, set
aside to the extent that they disallow debit from respective ECLs of
petitioner(s) in excess of ITC available therein at the time of
passing of/taking of said decision(s)."
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12. Keeping in view the facts and circumstances as above, present writ
petition is allowed in the same terms as CWP-23675-2025 (M/s Shyam Sunder
Strips versus Union of India and others) decided on 04.11.2025.
13. Respondents are at liberty to undertake and resort to remedy(ies)
available for recovery in accordance with law.
14. Pending miscellaneous application(s), if any, stand(s) disposed of
accordingly.
(LISA GILL)
JUDGE
(PARMOD GOYAL)
November 19, 2025 JUDGE
Rts
Whether speaking/reasoned: Yes/No
Whether reportable: Yes/No
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