Electronic Credit Ledger Cannot Be Blocked Beyond One Year Under CGST Rules: Karnataka High Court

The Karnataka High Court on 25 February, held that the restriction imposed by blocking a taxpayer's electronic credit ledger under Rule 86A of the Central Goods and Services Tax Rules, 2017, cannot continue beyond one year, and any continuation of such blocking after the statutory period is illegal.

Justice S. Sunil Dutt Yadav was hearing a writ petition filed by Jupiter Ventures challenging the action of the tax authorities in blocking its Electronic Credit Ledger on 21 November 2024.

The Court observed:

"Rule 86A(3) clearly provides that any restriction imposed under this provision shall cease to have effect after one year from the date of imposition."

The petitioner contended that the blocking had continued even after the lapse of more than one year and that such continuation was contrary to Rule 86A(3), which provides that the restriction shall cease to have effect after the expiry of one year from the date of imposing such restriction.

After examining the record, the Court noted that the restriction was imposed on 21 November 2024. Referring to Rule 86A(3), the Court observed that the provision clearly mandates that the restriction on the use of input tax credit ceases to have effect after the expiry of one year from the date on which such restriction is imposed.

Taking note of the petitioner's assertion that the blocking of the Electronic Credit Ledger was still continuing, the Court held that the restriction ought to have ceased automatically upon completion of one year from the date of blocking. It therefore declared that the continuation of the restriction beyond the statutory period was illegal.

The Bench stated that:

"Taking note of the assertion of the petitioner that the act of blocking the credit ledger is subsisting till date, in light of the mandate under Rule 86A(3), it is declared that the blocking of Electronic Credit Ledger ought to have stopped operation as on one year from 21.11.2024 and accordingly, it is declared that the action of continuance of blocking of Electronic Credit Ledger is illegal and blocking is deemed to have ceased to be in operation after a period of 12 months."

Accordingly, the Court held that the blocking of the Electronic Credit Ledger is deemed to have ceased after the expiry of twelve months and directed the respondent authorities to unblock it.

For Petitioner: Advocates, Kiran Naidu and Shreehari

For Respondent: Advocates, Akash B. Shetty and K. Hema Kumar