Rule 86A Cannot Create Negative ITC Balance

Centax Editorial Board

April 13, 2026April 15, 2026

• 2 min. read

Case Details: Sonalika Enterprises vs. State of Haryana (2026) 41 Centax 16 (P&H.)

Judiciary and Counsel Details

Lisa Gill & Parmod Goyal, JJ.
S/Shri Sandeep Goyal, Sr. Adv. & Rishab Singla, Adv., for the Petitioner.
Ms Mamta Singla Talwar, DAG, for the Respondent.

Facts of the Case

Proceedings were initiated under Rule 86A of the CGST Rules, whereby the input tax credit (ITC) available in the electronic credit ledger of the assessee came to be blocked by the department. The blocking action resulted in the creation of a negative balance in the electronic credit ledger, which was challenged by the assessee by way of a writ petition. It was contended that the power of the competent officer under Rule 86A is restricted to blocking only the ITC that is actually available in the electronic credit ledger at the relevant time. It was argued that such power cannot be exercised to block an amount exceeding the available balance, creating a negative balance in the electronic credit ledger. The matter was accordingly placed before the High Court.

High Court Held

The High Court held that Rule 86A of the CGST Rules permits only a temporary restriction on the utilisation of ITC available in the electronic credit ledger, subject to the formation of the requisite satisfaction regarding fraudulent availment or ineligibility of such credit. It was observed that the provision enables the department to block only the ITC that is actually available in the electronic credit ledger and does not authorise creation of a negative balance therein. The Court further held that while prior issuance of a show cause notice was not mandatory for invoking such emergent power, the same could not be exercised beyond the statutory limits prescribed. It was clarified that in cases where no sufficient credit is available, the department may resort to appropriate recovery mechanisms in accordance with law, and the legality of availment or utilisation of ITC would be examined through adjudication proceedings. Accordingly, the impugned action was set aside to the extent it resulted in blocking beyond the available ITC in the electronic credit ledger.