Blocking of the Electronic Credit Ledger under Rule 86A

What Rule 86A permits

Rule 86A of the Central Goods and Services Tax Rules, 2017 allows the Commissioner, or an officer authorised by the Commissioner not below the rank of Assistant Commissioner, to disallow the debit of an amount equivalent to specified input tax credit from the taxpayer’s electronic credit ledger. In practice this “blocks” the use of that credit for paying output tax or claiming refunds.

Grounds for blocking

The officer must have reasons to believe that credit available in the ledger has been fraudulently availed or is ineligible because, broadly:

• it was availed on invoices issued by a supplier found to be non-existent or not conducting business from the registered place;
• it was availed without actually receiving the goods or services;
• the tax charged on the invoice has not been paid to the government;
• the registered person availing the credit has been found to be non-existent or not conducting business from the registered place; or
• it was availed without the invoice or other document required by Rule 36.

The reasons must be recorded in writing. The exact wording of each ground should be checked in the current text of the rule.

How long the restriction lasts

The officer may allow the debit once satisfied that the conditions for blocking no longer exist. In any case, under Rule 86A(3) the restriction ceases to have effect after one year from the date of its imposition.

Practical steps when credit is blocked

• Check the ledger to identify the amount blocked and the date of the restriction.
• Request the recorded reasons and the material relied upon, in writing.
• Compile evidence of genuine purchases — invoices, e-way bills, transport and receipt records, bank payments, and the supplier’s return filing status.
• File a written representation asking the officer to lift the restriction, with the supporting evidence.
• Where the blocking is mechanical, exceeds the credit in question, or is imposed without recorded reasons, a writ petition before the High Court may be considered.

Blocking of credit is often followed by a show cause notice for recovery of the same credit, so the evidence gathered at this stage is also the foundation of the later reply. See the guide to GST show cause notices.

This article is general information about the law as understood on the review date shown above. It is not legal advice and does not create an advocate–client relationship. Statutory provisions are amended from time to time; verify the current text before acting.