Rule 86A Restriction on ECL Ends Automatically After One Year

Centax Editorial Board

May 27, 2026

• 2 min. read

Rule 86A electronic credit ledger restriction HC

Case Details: NZS Traders Pvt. Ltd. vs. Union of India (2026) 42 Centax 175 (Bom.)

Judiciary and Counsel Details

- G. S. Kulkarni & Aarti Sathe, JJ.
- S/Shri Bharat Raichandani & Bhagrati Sahu, Advs., for the Petitioner.
- S/Shri Karan Adik, Sangeeta Yadav, Ms Jyoti Chavan, Addl. G.P. & Amar Mishra, AGP, for the Respondent.

Facts of the Case

The petitioner challenged the blocking of its electronic credit ledger (ECL) by the department under Rule 86A of the CGST Rules on the ground that the restriction continued beyond the statutory period prescribed under the said provision. The record showed that the petitioner’s ECL was blocked by the department without the issuance of any prior notice or order. Thereafter, the petitioner addressed communications to the department asserting eligibility for Input Tax Credit (ITC), seeking removal of the restriction, and pointing out the inability to file returns due to the blockage of the ECL. The petitioner further asserted that no show cause notice (SCN), personal hearing, or adjudication order had been issued in relation to the impugned action. The matter was placed before the High Court.

High Court Held

The High Court held that Rule 86A(3) of the CGST Rules mandates that a restriction imposed on an electronic credit ledger cannot continue beyond one year from the date of imposition. The High Court observed that upon expiry of the statutory period, cessation of the restriction takes place automatically by operation of law and does not require any separate declaratory order from the department. Further, the High Court observed that the department itself admitted that the statutory period prescribed under Rule 86A had expired. The High Court therefore held that continuation of the blockage beyond the prescribed period was unsustainable in law and that the impugned restriction had ceased to operate upon expiry of one year. The High Court further clarified that issues arising out of the cancellation of registration, or proposed proceedings relating to the utilisation or admissibility of ITC, would be independently governed in accordance with the statutory provisions.