ITC Blocking Beyond One Year Held Invalid

Case Title: Saanvi Enterprises v. Pr. ADG, DGGI, Gurugram & Anr.
Court: High Court of Delhi at New Delhi
Petition No.: W.P.(C) 5569/2025 & CM Appl. 25398/2025
Category of Dispute: Input Tax Credit – Blocking of ITC
Date of Judgement: 29 April 2025
Relevant Sections/Rules: Article 226 & 227 of the Constitution of India; Rule 86A(3) of CGST Rules, 2017; Sections 16, 73 & 74 of CGST Act, 2017

Facts of the Case

1. The petitioner’s ITC amounting to ₹32,68,778/- (CGST ₹16,34,389/- and SGST ₹16,34,389/-) was blocked by DGGI Gurugram during investigation vide order dated 28.03.2024 (Para 4).

2. Later, ITC of ₹3,91,23,722/- was blocked from the electronic credit ledger on 15.01.2024, leaving the ledger in negative balance of ₹3,67,17,895/- (Para 5(ii)).

3. A Show Cause Notice dated 03.08.2024 was issued proposing denial of ITC and imposition of penalty (Para 5(iii)).

4. The petitioner filed reply on 21.10.2024, denying allegations. However, Order-in-Original dated 12.02.2025 denied ITC of ₹29,13,246/- and imposed penalties. Demand of ₹55,38,110/- (CGST ₹14,56,623, SGST ₹14,56,623, IGST ₹26,24,864) was confirmed vide DRC-07 (Para 5(v)).

5. Counsel submitted that even as of April 2025, ITC remained blocked despite expiry of one year, which is contrary to Rule 86A(3) (Para 7).

Questions in Consideration

1. Whether ITC blocking can continue beyond the statutory period of one year under Rule 86A(3) of CGST Rules, 2017? (Para 7–9).

2. Whether subsequent adjudication proceedings (Order-in-Original dated 12.02.2025) impact the expiry of blocking period? (Para 10).

Observations of the Court

1. Rule 86A(3) clearly mandates that restriction on ITC shall cease after expiry of one year from the date of blocking (Para 9).

2. More than one year had elapsed since blocking (January 2024 – April 2025), hence continued blocking is impermissible (Para 10).

3. Independent adjudication proceedings can continue, but blocking of ITC ledger cannot extend beyond the statutory period (Para 10).

Judgement of the Court

• The Court held that blocking of ITC beyond one year is invalid. ITC shall stand unblocked with immediate effect (Para 10).

• The petition was disposed of with liberty for the adjudicating authority to pursue action under law independently of blocking (Para 11).

Between Fine Lines (Simplified Summary)

• ITC blocked by DGGI cannot remain frozen beyond one year.

• Rule 86A(3) imposes strict time limit for ITC blocking.

• Negative ledger balance due to excessive blocking held unlawful.

• Adjudication and penalty orders may proceed separately.

• The Court ordered immediate unblocking of ITC after expiry of one year.

Summary of Referred Cases

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