Unblocking of Input Tax Credit as per Rule 86A of the CGST Rules, 2017.

Case Title: Advent India PE Advisors (P.) Ltd. v. Union of India

Court: High Court of Bombay

Petition Number: Writ Petition No. 2320 of 2021

Category of Dispute: Input Tax Credit

Date of Judgement: December 3, 2021

Relevant Section: Rule 86A(3) of CGST Rules, 2017

Facts of the Case

1. The petitioner, Advent India PE Advisors Pvt. Ltd., filed a writ petition seeking unblocking of ITC amounting to ₹1.17 crores which was blocked in their electronic credit ledger on 26.01.2020 under Rule 86A(1) of CGST Rules, 2017.
2. The petitioner claimed that under Rule 86A(3), the restriction ceases to have effect after one year from the date of imposition. Since more than 20 months had lapsed, the petitioner sought immediate unblocking.
3. The department alleged that the taxpayer failed to respond with complete documents for verification despite repeated communications, including letters seeking reconciliation of ITC between GSTR-2A and GSTR-3B for FY 2017–18 to 2020–21.
4. The last communication from the department to the petitioner was on 31.05.2021, after which the petitioner filed the writ without responding.

Questions in Consideration

1. Whether the restriction on ITC imposed under Rule 86A(1) automatically ceases after one year as per Rule 86A(3), regardless of departmental verification pendency?
2. Whether the petitioner’s failure to cooperate justifies continued blocking of ITC beyond the statutory time limit?
3. Whether the petitioner is entitled to interest for being deprived of ITC access due to continued blockage?

Observations of the Court

1. The Court noted that the departmental communication failed to even mention Rule 86A(3), which mandates that the restriction ceases after one year from the date of imposition.
2. The Court found the continuation of restriction illegal since the statutory period had lapsed, and held that if the department believed the petitioner was uncooperative, it should have proceeded as per law, not withheld ITC beyond one year.
3. Reliance was placed on the precedent laid down in M/s. Aegis Polymers v. Union of India (WP(L) No. 128 of 2021), reiterating that the department must comply with the one-year limitation under Rule 86A(3).

Judgement of the Court

1. The High Court allowed the writ in terms of prayer clause (a), directing immediate unblocking of ITC.
2. The Court rejected prayer clause (b), thereby denying the claim for interest on the blocked ITC.
3. The petition was disposed of with liberty to the department to initiate proceedings in accordance with law if necessary.

Between Fine Lines

• The High Court upheld the strict time limit under Rule 86A(3), confirming that ITC blockage must cease after one year.
• Administrative lapses or delays in departmental verification cannot override statutory mandates.
• Non-cooperation by the taxpayer must be dealt with legally, not by prolonging restrictions.
• Taxpayers can seek relief through courts if ITC remains blocked beyond prescribed duration.
• Interest on blocked ITC was not granted, affirming judicial restraint where statutory breach is evident but compensation is not automatic.

Summary of Referred Cases

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