Negative blocking of Electronic Cash Leger – Supreme Court dismissed SLP of the GST Department challenging the order of Delhi High Court
In a recent judgment, Supreme Court has dismissed SLP of the GST Department challenging the order of Delhi High Court directing lifting of negative blocking of GST Electronic Cash Leger.
ABCAUS Case Law Citation:
4582 (2025) (05) abcaus.in SC
In the instant case, the Director General of Goods and Service Tax Intelligence (DGGI) vide order passed under section 83 of the Central Goods and Services Tax Act, 2017 (the Act) had provisionally attached the bank account of the assessee dealer. The Electronic Credit Ledger (ECL) of the assessee having a negative balance was also blocked in purported exercise of powers conferred by Rule 86A of the Central Goods and Services Tax Rules, 2017.
The Electronic Cash Ledger contains a summary of all the deposits/payments made by a taxpayer. In the ledger, information is kept minor head-wise for each major head. For convenience of user, the ledger is displayed major head-wise i.e., IGST, CGST, SGST/UTGST, and CESS. Each major head is divided into five minor heads: Tax, Interest, Penalty, Fee, and Others.
Aggrieved, the assessee filed a writ petition challenging the negative blocking of the ECL. However, no challenge was made to the provisional attachment of bank accounts in the Petition.
The writ petitioner drew attention of the High Court to the order dated passed by the DGGI imposing a block on its ECL along with a screenshot of the ledger and which ex facie indicated the balance in the ECL being in the negative.
The Hon’ble High Court observed that from the screenshot of ECL it was apparent that for the purposes of securing GST amount the respondent Department sought to invoke the powers conferred by Rule 86A even though it would lead to a negative balance in the ECL.
The Hon’ble High Court further observed in the similar context, previously the Bench had set aside the order disallowing debit from the ECL, in excess of the ITC available in the ECL at the time of passing of the impugned orders which was referred to as Negative blocking.
In the said case, the Bench had held it is necessary to bear in mind that not allowing debit of an ITC is a temporary measure, which is imposed only if the conditions set out in Rule 86A of the Rules are satisfied. It is not necessary for any proceedings to be initiated against the taxpayer prior to passing an Order under Rule 86A(1) of the Rules. The said order can be passed at any stage if the Commissioner or an officer authorized by him has reasons to believe that the credit available in the ECL of a taxpayer has been fraudulently availed or is ineligible. This is clearly an emergent provision, which enables the Commissioner to withhold the available ITC in the ECL, which he has reason to believe has been fraudulently availed or is ineligible.
The Bench had also stated that an Order under Rule 86A(1) of the Rules does not require a prior show cause notice to be issued to a taxpayer as it is by its very nature an emergent provision to immediately block the usage of the ITC credited in the ECL, which the Commissioner or an officer authorized by him has reasons to believe has been fraudulently availed or is ineligible. The concerned authorities are required to proceed to determine whether a taxpayer has wrongly availed or utilized the ITC, under Sections 73 or 74 of the CGST Act and if it is found that the taxpayer has wrongly availed of the ITC the proper officer is required to pass an order to determine the amount of tax, interest or penalty payable. The demand as raised are required to be determined under Sections 73 and 74 of the CGST Act.
The Bench had clarified that Rule 86A of the Rules is not a machinery provision for recovery of tax or dues under the CGST Act. It is not a part of the scheme of the machinery provisions for assessment and determination of the tax and dues as payable under the CGST Act. It is an emergent measure for protection of revenue by temporarily not allowing debit of available ITC in the ECL, which the Commissioner or an officer authorized by him has reasons to believe has been wrongfully availed.
It was also held that Rule 86A(1) does not contemplate an order, the effect of which is to require a taxpayer to replenish his ECL with valid availment of ITC, to the extent of ITC used in the past, which the Commissioner or an officer authorized by him has reasons to believe, was fraudulently availed or was ineligible. Such an interpretation would in effect amount to construe an Order under Rule 86A(1) of the Rules as an order for recovery of tax. This is obvious because the taxpayer would now have to incur a larger cash outflow for payment of taxes as he would be denied utilization of validly availed ITC, which he would require to accumulate to compensate for the ITC availed and utilized which the Commissioner or an officer authorized by him, has reasons to believe was fraudulently availed or was ineligible.
In view of the order of the Co-ordinate Bench of the High Court and in view of the negative blocking of the ECL the Hon’ble High Court opined that the impugned order was not sustainable.
Accordingly, the Hon’ble High Court partly allowed the present writ petition and quashed the impugned order insofar as it imposed a blocking of the ECL. The Department was directed to lift the negative blocking of the ECL forthwith.
Not satisfied with the judgment of the High Court directing lifting of the negative blocking of the ECL, the DGGI approached Hon’ble Supreme Court by way of filing a Special Leave Petition (SLP).
However, the Apex Court dismissed the SLP with the following remarks:
“No case for interference is made out in exercise of our jurisdiction under Article 136 of the Constitution of India. The Special Leave Petition is accordingly dismissed.”
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