Electronic Credit Ledgers cannot be negatively blocked for alleged wrongful availment of input tax credit.

The petitioners challenged, among other matters, a show-cause notice dated 17 January 2025 and an adjudication order dated 14 January 2026 confirming a demand of approximately ₹2.90 crore, including tax and penalty.

They contended that they had filed a reply in Form GST DRC-06, but the Adjudicating Authority proceeded as if no reply had been filed and wrongly recorded that personal-hearing opportunities had been afforded.

During the writ proceedings, the petitioners also received a suspension intimation and cancellation notice dated 29 May 2026, followed by cancellation of registration on 19 August 2026.

The authorities relied on non-filing of returns for six months and alleged availment and utilisation of inadmissible ITC of ₹3,96,96,478, said to have been admitted in a partner’s statement.

The Court corrected the date in its earlier order and then addressed the merits of the writ petition.

Whether the adjudication order confirming the demand was sustainable where the petitioners’ filed reply had not been considered and the matter was decided ex parte.

Whether the petitioners’ ECL could be negatively blocked in connection with alleged wrongful availment of ITC.

Whether the cancellation of registration and related restrictions warranted reconsideration in light of the petitioners’ non-filing of returns and the applicable legal principles.

The Court considered the Central Goods and Services Tax Act, 2017, and the principles concerning negative blocking of an ECL under Rule 86A, as discussed in Best Crop Science Pvt. Ltd. v. Principal Commissioner, CGST Commissionerate, Meerut (2024) 22 Centax 531 (Del.).

That decision held that Rule 86A does not authorise an order requiring a taxpayer to replenish the ledger for ITC already utilised, as that would effectively operate as an order for recovery of tax.

The Court also relied on Deputy Director, Directorate General of GST Intelligence, DZU v. Kings Security Guard Services Pvt. Ltd. (2025) 30 Centax 404 (S.C.), which it cited for the principle that an ECL cannot be negatively blocked for wrongful availment of ITC.

The authorities’ decisions remained subject to the statutory requirements and applicable law.

The Court found that the petitioners’ reply, uploaded in Form GST DRC-06, was on record, yet the Adjudicating Authority had treated the matter as unanswered and confirmed the demand ex parte.

It therefore set aside that order and directed fresh consideration of the reply.

On the ECL issue, the Court applied the cited decisions and held that the authorities’ action, including negative blocking, was contrary to settled legal principles; it directed that the issue be reconsidered alongside the petitioners’ failure to file returns for six months.

The Court did not foreclose further action if the petitioners were found to have committed an offence, and required any decision to be taken independently and in accordance with law.

It further directed the Authority to reconsider non-filing of returns and negative blocking of the ECL in light of the cited precedents.

If satisfied, the Authority was to take lawful steps regarding revocation of registration cancellation and restoration of ECL operations; the authorities remained free to act if the petitioners were found to have committed an offence.

The writ petition and connected application were disposed of.