The scope of Rule 86A of the CGST Rules continues to receive strict judicial scrutiny, particularly in cases involving prolonged or repeated blockage of Input Tax Credit. In Dee Vee Projects Ltd. v. Government of Maharashtra, 2022 SCC Online Bom 486, the Bombay High Court held that Rule 86A operates only in respect of credit presently available in the Electronic Credit Ledger and does not permit creation of an artificial negative balance. The Court emphasized that the provision is preventive in nature and must therefore receive strict construction. More recently, the Punjab & Haryana High Court in Best Crop Science LLP v. State of Punjab, 2024 SCC Online P&H 3425, reiterated that the restriction contemplated under Rule 86A (3) automatically ceases upon expiry of one year. The Court further observed that re-blocking of credit on identical material, absent fresh circumstances, would defeat the statutory limitation built into the Rule itself.
The emerging judicial position suggests that Rule 86A cannot be converted into a continuing recovery mechanism through administrative extension or repetitive invocation on unchanged facts.
