Blocking of Input Tax Credit under Rule 86A of CGST Rules beyond the statutory period of one year on the same grounds is unsustainable and violates the principle that an act which cannot be done directly cannot be done indirectly.

LISA GILL, J. (Oral)

1. Prayer in this writ petition is for directing respondent No.2 to unblock ITC amounting to Rs.82,50,038/- lying in the Electronic Credit Ledger (ECL) of petitioner.

2. Learned counsel for petitioner submits that petitioner is a partnership firm situated in State of Haryana and is engaged in business of manufacturing brass/copper sheets and utensils. Petitioner is registered under the provisions of Central Goods and Services Tax Act, 2017/Haryana Goods and Services Tax Act, 2017 (for short – ‘2017 Act’) with GSTIN No.06AALFN7519C1ZA. It is further submitted that petitioner availed ITC in accordance with provisions of Section 16 of the Act, however, without any prior investigation or communication ITC of petitioner to the tune of Rs.82,50,038/- in its ECL was blocked on 21.11.2023. Reference is made to intimation uploaded on online portal (Annexure P-3). Assistant Commissioner, CGST Division sent communication dated 17.11.2023 to Deputy Excise and Taxation Commissioner, Excise & Taxation Department, Jagadhri in respect to blocking of Input Tax Credit (ITC) of recipients of M/s M.S. Trading Company. It was informed that supplier M/s M.S. Trading Company was found non-existent at its principal place of business and it appeared from perusal of GSTR-1 return filed by supplier that it had passed on ITC to various firms. ITC in question was requested to be blocked in accordance with provisions of Rule 86A of CGST/HGST Rules, 2017 (for short – ‘2017 Rules’). It is stated that no opportunity was afforded to petitioner to prove genuineness of purchases before blocking the ITC. Petitioner, subsequent to blocking of its ITC, submitted detailed representation dated 01.01.2024 while explaining that it is a bona fide purchaser and has availed ITC on the basis of purchased documents, duly available with it. Upon considering the representation ITC to the tune of Rs.27,48,835/- was unblocked on 16.02.2024 but the remaining amount stood blocked.

3. It is further stated that on 21.11.2023, it was only Rs.55,01,203/- which was available in the credit ledger. Therefore, there was blocking in the negative. The amount of ITC to the extent of negative balance was unblocked as per intimation dated 16.02.2024.

4. Learned counsel for petitioner submits that in terms of Rule 86A (3) CGST Rules, ITC can be blocked only for a period of one year, however, respondent No.2 yet again on 05.12.2023 blocked the ITC to the tune of Rs.82,50,038/- in petitioner’s ECL and for the same reason i.e. regarding investigation with respect to M/s M.S. Trading Co. No further proceedings have been initiated against the petitioner. Reliance is placed upon judgment of Hon’ble the Supreme Court in Kesari Nandan Mobile versus Office of Assistant Commissioner of State Tax (2), Enforcement Division – 5 (Civil Appeal No. 9543 of 2025) decided on 14.08.2025 to submit that action of respondents is clearly arbitrary. It is, thus, prayed that this writ petition be allowed as prayed for.

5. Learned counsel for respondents has opposed the writ petition while submitting that petitioner has availed ineligible ITC fraudulently on the basis of invoices issued by one M/s M.S. Trading Co. which was found non-operational at the registered address. It is in view thereof that ITC of petitioner was blocked in accordance with Rule 86A of 2017 Rules. Learned counsel for respondents submits that investigation in the matter was still going on, therefore, ITC was blocked again and there is no bar in re-blocking the ITC in Rule 86A of CGST Rules. It is further submitted that judgment of Hon’ble the Supreme Court in Kesari Nandan’s case (supra) is in respect to Section 83 of 2017 Act and not Section 86 of 2017 Act and