In a significant ruling reinforcing taxpayer rights under GST law, the Delhi High Court has directed the unblocking of the Electronic Credit Ledger (ECL) of an enterprise after the statutory period of one year had elapsed. The judgment is based on Rule 86A of the Central Goods and Services Tax (CGST) Rules, 2017, which limits the duration for blocking Input Tax Credit (ITC) in the electronic ledger.
The case, titled Shri Sai Ram Enterprises v. Principal Additional Director General, DGGI, Gurugram & Anr. [W.P.(C) 5438/2025], was heard by a division bench comprising Justices Prathiba M. Singh and Rajneesh Kumar Gupta.
Background of the Case
The Directorate General of GST Intelligence (DGGI) had issued a show cause notice to the Petitioner, Shri Sai Ram Enterprises, on the suspicion that it was a non-existent or bogus firm. Following the notice, the authorities blocked the Petitioner’s ITC amounting to Rs. 29,13,246 from January 1, 2024, to November 31, 2024. However, the credit continued to remain blocked well beyond the one-year limit, even as of April 2025.
What Rule 86A States
As per Rule 86A(1) of the CGST Rules, the Commissioner or an authorised officer may block the debit of ITC from the electronic credit ledger if there is a reason to believe that the credit has been fraudulently availed or is otherwise ineligible. However, Rule 86A(3) clearly mandates that such restrictions must cease to be in effect after one year from the date of imposition.
Delhi High Court’s Observations
The Court observed that the department’s action of continuing the block beyond the one-year period is contrary to the provisions of Rule 86A. The Bench ordered the immediate unblocking of the ITC, stating:
“The blocking of the ITC shall be lifted in view of the fact that it has been more than one year.”
The Court also clarified that the tax authorities still have the liberty to initiate independent proceedings against the Petitioner, if the allegations of it being a bogus entity are proven through due process.
Legal Representation
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For the Petitioner: Mr. Jitin Singhal, Mr. Pravesh Bahuguna, and Ms. Megha (Advocates)
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For the Respondents: Mr. Harpreet Singh, Standing Counsel, with Ms. Suhani Mathur and Mr. Jai Ahuja (Advocates)
Key Takeaway:
This decision reiterates that the blocking of Input Tax Credit under Rule 86A is time-bound and cannot be extended beyond one year. Taxpayers whose ITC has been unlawfully blocked for longer durations may now seek relief based on this precedent.