GST — one-year limit on Rule 86A ITC blocking · F2J-C-2932
M/s Metal Trade Incorporation v. State Tax Officer & Ors.
VALIDATED · ACTUAL COURT DOCUMENTSource transparency: The local PDF is an actual court document retained from the complete public source. The official court portal is recorded separately. Verify the official record and subsequent history before reliance.
Holding (ratio)
A Rule 86A restriction automatically loses force after one year; authorities must complete assessment and use the separate statutory recovery mechanism rather than indefinitely block credit.
Operative order (extract)
Immediate unblocking of the electronic credit ledger was directed, without prejudice to lawful assessment and recovery.
Scope limits
The holding is confined to the issues actually decided in the retained judgment; no view is attributed to the court on questions expressly left open or remanded.
Sources and completeness
- PDF status
- Complete searchable public court copy, retained unchanged
- PDF origin
- Downloaded unchanged from the complete public court-copy source
- PDF pages
- 8
- Extracted words
- 1,476
- PDF SHA-256
61458c2ab413a536e16f48f97b24535856a2c7b60a53b5253153cf07f3a12bf4
Complete searchable judgment text
WP No. 35866 of 2023
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Reserved on : 14-08-2026
Pronounced on: 21-08-2026
CORAM
THE HON'BLE MR.JUSTICE S.RAVEEKUMAR
WP No. 35866 of 2023
and
WMP.Nos.35855 and 35856 of 2023
M/s Metal Trade Incorporation
Rep. by its Prop. Sri Sunil Kothari,
No.15, Raghavan Colony,
Vadapalani, Chennai-600 026.
..Petitioner(s)
Vs
1.State Tax Officer
Group-VII (Inspection-1),
Office of the Deputy Commissioner (ST)
Chennai Intelligence-I,
No.1, PAPJM Buildings, Greams Road,
Thousand Lights, Chennai-600 006.
2.Assistant Commissioner (ST) (FAC)
Vadapalani Assessment Circle,
Chennai Central Division.
3.Joint Commissioner (ST)
Intelligence-I, No.1, PAPJM Buildings,
Greams Road, Chennai-600 006.
4.The Assistant Commissioner (ST)
Review and Appeal North-2,
Chennai-600 003.
..Respondent(s)
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WP No. 35866 of 2023
Writ Petition filed under Article 226 of the Constitution of India,
seeking Writ of Certiorari, calling for the records relating to the impugned
proceedings in Rc.No.5134/2023/A6 dated 13.09.2023 issued by the 3rd
respondent addressed to the 5th respondent to implement his instructions to
block the input tax credit of the beneficiaries of the petitioner and quash the
same as arbitrary, without authority of law, contrary to Rule 86A of GST Rules,
2017 and contrary to the directions of this Honourable High Court
For Petitioner(s): Mr.M.A.Mudimannan
For Respondent(s): Mr.I.Dinesh, AGP (Tax)
ORDER
The present Writ Petition has been filed challenging the impugned
proceedings dated 11.05.2023 and the consequential proceedings dated
13.09.2023, whereby the Input Tax Credit of the petitioner in the Credit Ledger
has been blocked under Rule 86A of the Tamil Nadu Goods and Services Tax
(TNGST) Rules, 2017.
2. The petitioner is a trader in Iron and Steel Products and possesses valid
registration under the GST law. From 01.07.2017, the petitioner promptly filed
the specified returns and on the supplies made by the petitioner, the amount of
GST collected under both the CGST and SGST Acts, were duly paid to the
Government. On 18.10.2022, the first respondent issued summons under
Section 70(1) of the Acts. Based on the preliminary findings and the petitioner's
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WP No. 35866 of 2023
non-compliance with the summons, a proposal was approved and sent for
implementation. Challenging the summons, the petitioner filed WP.No.3033 of
2023. This High Court disposed of the above Writ Petition, directing the
petitioner to appear before the first respondent herein on 16.02.2023 to present
their objections regarding simultaneous prosecution by Central and State
authorities. The petitioner appeared for a hearing and statements were recorded.
On 03.02.2023, an intimation was issued proposing a demand for penalty for the
assessment years from 2017-18 to 2022-23. Based on the intelligence and initial
findings, the third respondent issued a communication dated 11.05.2023 to the
Joint Commissioners (ST) Chennai (Central, South, North, East), indicating that
the petitioner was found to be a non-existent dealer and directing the reversal of
Input Tax Credit claimed by the beneficiaries under Rule 86A of the GST
Rules, 2017. Subsequently, the Joint Commissioner (ST), Chennai North
Division, issued proceedings to the fourth respondent to block the Input Tax
Credit of the beneficiaries of the bill trader.
3. Though the petitioner has raised various grounds in the Writ Petition,
the learned counsel for the petitioner has now restricted the claim against
continuation of the blockage of Input Tax Credit beyond the period of one year
by placing reliance upon Rule 86A of the TNGST Rules, 2017. The learned
counsel submits that the Input Tax Credit was blocked as early on 27.01.2023.
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4. It is not in dispute that, pursuant to the communication dated
11.05.2023 by the third respondent, the Joint commissioner (ST) Intelligence,
had issued a communication to the fourth respondent to block the Input Tax
Credit of the beneficiaries of the bill traders. The petitioner has been treated as a
beneficiary and a bill trader in the communication without any adjudication.
The Input Tax Credit has been blocked on 27.01.2023, even before the said
impugned communication, and the restriction imposed by such blockage still
continues to exist.
5. Rule 86A(3) of the TNGST Rules states that the restriction imposed
under Rule 86A(1) shall cease to have effect after the expiry of a period of one
year from the date of imposing such restriction. The denial of debit from the
Credit Ledger is endorsed as “blocked” in the Credit Ledger.
6. In the present case, the restriction was imposed on 27.01.2023 and
more than 2 ½ years have passed. In view of the same, the restrictions on the
blockage ceased to have effect upon expiry of one year and therefore, cannot be
continued. Just because the third respondent had passed the impugned
communication on 13.09.2023, the blocking of ITC under Section 86A cannot
continue beyond one year.
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7. The language employed under Rule 86A(3) clearly explicates that the
restriction is valid only for a period of one year and that it shall cease to have
any effect upon the expiry of such period. The purpose of having such a
restriction is to ensure that the assessment proceedings are completed in such
cases at the earliest, as the blockage/denial of Input Tax Credit available in the
Credit Ledger of a dealer cannot be continued indefinitely, as it will have drastic
civil consequences.
8. Going by the language employed in the provision, such restriction must
automatically cease to have any effect and the blockage must be automatically
removed, thereby providing access to the ITC available in the Credit Ledger of
the dealer. However, this does not happen in reality. The appropriate authority
also does not raise the attachment or cancel the blockage even after one year
and as a result, numerous writ petitions have been filed challenging the
continuation of such restriction even after the expiry of one year. At this
juncture, it would be relevant to record that regular recovery proceedings based
on assessment are contemplated under Section 79 of the Act and therefore the
proper course for the State Tax Authorities would be to initiate regular recovery
proceedings u/s. 79 after completing the assessment. The State Tax Authorities
will therefore have to act promptly. In the present case, the proceedings
challenged herein is only an internal communication. Such a communication
alone cannot be the basis to invoke Section 86A and the appropriate authority
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must ensure that the requirements under Section 86A are satisfied, before
denying the debit from the Credit Ledger.
9. Under the above circumstances, this Court is inclined to dispose of the
Writ Petition on the following terms:
i) The fourth respondent shall forthwith unblock the Input Tax
Credit lying in the Credit Ledger of the petitioner.
ii) It is open to the respondents to complete the assessment
proceedings, pending if any, and initiate recovery proceedings,
in accordance with law, if necessary.
No costs. Consequently, connected miscellaneous petitions are closed.
21-08-2026
Index: Yes
Speaking/Non-speaking order
Neutral Citation: Yes/No
PVS
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WP No. 35866 of 2023
To
1.State Tax Officer,
Group-VII (Inspection-1),
O/o. the Deputy Commissioner (ST) Chennai
Intelligence-I,
No.1, PAPJM Buildings, Greams Road,
Thousand Lights, Chennai-600 006.
2.The Assistant Commissioner (ST) (FAC)
Vadapalani Assessment Circle,
Chennai Central Division,
3.The Joint Commissioner (ST)
Intelligence-I,
No.1, PAPJM Buildings, Greams Road,
Chennai-600 006.
4.The Assistant Commissioner (ST)
Review And Appeal North-2,
Chennai-600 003.
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WP No. 35866 of 2023
S.RAVEEKUMAR, J.
PVS
Pre-Delivery Order
in WP No. 35866 of 2023
21-08-2026
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Disclaimer: Educational and research material only; not legal, tax, investment or professional advice. Verify the controlling court record, statutory version, jurisdiction and subsequent history.