The Delhi High Court has clarified an important issue concerning blocked Input Tax Credit (ITC), Rule 86A of the CGST Rules and the mandatory pre-deposit required for filing a GST appeal.
In its judgment dated 3 September 2026, the Court held that ITC blocked by GST authorities under Rule 86A of the Central Goods and Services Tax (CGST) Rules, 2017 cannot automatically be considered as payment towards the statutory pre-deposit required under Section 107(6) of the CGST Act.
The ruling came in the case of Spherion Solutions Private Limited v. Additional Commissioner Adjudication CGST Delhi North & Ors., W.P.(C) 3418/2026.
Delhi High Court on Blocked ITC and GST Appeal Pre-Deposit
A Division Bench comprising Justice Anil Khetarpal and Justice Shail Jain dismissed the petition filed by Spherion Solutions Private Limited. The taxpayer had sought permission to utilise ₹3,33,257 lying in its blocked Electronic Credit Ledger (ECL) towards the mandatory pre-deposit for filing an appeal.
The taxpayer contended that since the amount was already blocked and unavailable for its normal business use, requiring it to make an additional payment in cash would effectively create a double financial burden.
The High Court, however, rejected this argument.
The Court emphasised that blocking of ITC is not equivalent to payment or appropriation of that credit towards a tax demand. Merely because the taxpayer cannot utilise the blocked credit does not mean that the amount has been paid to the Government.
Background of the Case
Spherion Solutions had received a show cause notice alleging wrongful availment of ITC amounting to ₹33,32,568 without actual receipt of the corresponding goods or services.
Following adjudication, the authorities confirmed an IGST demand of ₹33,32,568, along with an equivalent penalty.
A summary order in Form GST DRC-07 initially contained an error in the manner in which the tax and penalty figures were reflected. The aggregate liability of ₹66,65,136 was reflected under the head of penalty.
When the taxpayer attempted to file an appeal, the GST portal consequently calculated the mandatory pre-deposit at ₹6,66,514, instead of ₹3,33,257, which represented 10% of the disputed tax demand.
The authorities subsequently corrected the portal-related error.
The principal issue that remained before the High Court was whether the taxpayer could use ₹3,33,257 of the ITC blocked under Rule 86A to satisfy the statutory appeal pre-deposit.
Why the Taxpayer Sought Adjustment of Blocked ITC
The taxpayer argued that it should be permitted to utilise the blocked ITC towards the appeal pre-deposit.
According to Spherion Solutions, compelling it to separately deposit the amount in cash would impose an unnecessary additional financial burden because an equivalent amount was already unavailable in its Electronic Credit Ledger.
The Revenue opposed the request.
It submitted that the credit was not ordinary, freely usable ITC. Instead, its utilisation had specifically been restricted under Rule 86A because the authorities had reasons to believe that the credit had been fraudulently availed or was otherwise ineligible.
Therefore, according to the Revenue, blocked ITC could not be treated as a payment towards the demand.
Court’s Interpretation of Rule 86A
The High Court examined the statutory framework governing utilisation of electronic credit.
While Section 49(4) of the CGST Act permits utilisation of eligible credit available in the Electronic Credit Ledger, such utilisation remains subject to statutory conditions and restrictions.
Rule 86A provides the competent authority with the power to restrict the use of ITC where specified circumstances exist, including situations where there are recorded reasons to believe that the credit has been fraudulently availed or is otherwise ineligible.
Once such a restriction is imposed, the taxpayer cannot debit the restricted amount from the Electronic Credit Ledger unless the restriction is removed or modified by the competent authority.
The Court therefore made an important distinction between credit that is available for utilisation and credit whose utilisation has been specifically blocked.
Blocking ITC Is Not Payment of Tax Demand
The central principle emerging from the judgment is that a blocked Electronic Credit Ledger balance does not amount to payment of the disputed tax liability.
The Court observed that merely restricting the taxpayer from using the ITC does not result in its payment or appropriation towards an adjudicated demand.
In other words, the amount remains credit in the ledger, but its utilisation is restricted.
Therefore, the fact that the taxpayer is unable to access the credit does not mean that the statutory requirement of making an appeal pre-deposit has been fulfilled.
Previous Decisions Distinguished
Spherion Solutions had relied upon earlier judicial decisions to contend that ITC available in the Electronic Credit Ledger could be used for satisfying the statutory pre-deposit requirement.
The Delhi High Court distinguished those decisions.
According to the Bench, the earlier cases dealt with ITC that was ordinarily available for utilisation. They did not involve a situation where the credit had been specifically blocked under Rule 86A.
Consequently, those judgments could not assist the petitioner in the present case.
Key Takeaway for GST Taxpayers
The judgment provides an important clarification for taxpayers facing GST proceedings involving blocked ITC.
Where ITC has been restricted under Rule 86A, taxpayers cannot assume that the blocked amount will automatically be treated as a payment towards the GST appeal pre-deposit under Section 107(6).
Unless the restriction is removed or the amount is actually debited or otherwise appropriated towards the liability, the taxpayer must comply separately with the statutory pre-deposit requirement.
The ruling therefore reinforces the distinction between blocking of ITC as a preventive measure and actual payment or appropriation of tax liability.
Case Details
Case: Spherion Solutions Private Limited v. Additional Commissioner Adjudication CGST Delhi North & Ors.
Court: Delhi High Court
Case No.: W.P.(C) 3418/2026
Judgment Date: 3 September 2026
Issue: Whether ITC blocked under Rule 86A can be utilised towards GST appeal pre-deposit under Section 107(6) of the CGST Act.
Decision: No. Blocked ITC cannot be treated as payment or appropriation towards the mandatory appeal pre-deposit.