Facts of the case:

In this case, the petitioners challenged an order passed by the Assistant State Tax Commissioner, and their request to unblock the Electronic Credit Ledger (ECL) and to initiate and terminate adjudication proceedings was denied. The electronic credit ledger of the petitioner had been blocked under Rule 86A of the CGST Rules on the basis of allegations that the petitioner had availed Input Tax Credit (ITC) solely on the basis of paperwork without any actual movement of goods and had transferred such ITC to the beneficiary without any supply of goods.

The petitioner claimed that its business operations were disrupted due to the continued blockage of the electronic credit ledger, and further claimed that while the blockage continued, the full amount equivalent to the blocked credits had already been realized by the Department.

problem:

Whether, after invoking rule 86A, the appropriate police officer can refuse to commence adjudication proceedings on the grounds that the alleged offense is ‘not suitable for adjudication’. Whether the blocking of the electronic credit ledger under Rule 86A can continue indefinitely without arbitration.

I thought:

The court found that Rule 86A is a temporary precautionary provision intended to protect profits in cases where there is reason to believe that the ITC has been fraudulently utilized or that the ITC is ineligible. Such blocking is clearly an interim measure pending adjudication and is not a substitute for the adjudication mechanism provided under the CGST Act. The court categorically rejected the officer’s reasoning that the alleged offense was “not suitable for adjudication” and held that once Rule 86A was triggered, adjudication would necessarily have to be made. The appropriate officer cannot block the electronic credit ledger and at the same time waive his statutory duty to issue a notice of settlement and adjudicate the claim.

Further, it is observed that the electronic credit ledger of the petitioner has already remained blocked for more than seven months and continuation of such blocking without adjudication would be contrary to the scheme and spirit of the CGST Act, 2017. Blocking the ledger indefinitely without initiating legal proceedings would effectively paralyze taxpayers’ operations and violate principles of natural justice.

The High Court allowed the writ petition and held that insofar as it refused to pass judgment, the impugned order was legally unsustainable. Furthermore, the court held that if the judgment is not completed within the prescribed time limit, the block on the electronic credit ledger must be automatically lifted.

Incident name: Gopal Metal Stores and Anr. vs. State Tax, NS Roads, Fees of MR and Assistant Commissioner of Or. As of January 27, 2026

To read the full judgment 2026 Taxo.online 214