Input tax credit blocked under Rule 86A cannot satisfy Section 107(6) pre-deposit requirements unless restriction is removed.

The Petitioner, a company registered under the CGST Act in Haryana, was investigated by the Directorate General of GST Intelligence in connection with alleged fake invoicing by M/s Crimson International Pvt. Ltd.

A Show Cause Notice alleged wrongful availment of input tax credit (“ITC”) of ₹33,32,568 for FY 2020–21 and 2021–22. The adjudicating authority confirmed the entire tax demand, along with interest and an equivalent penalty, by Order-in-Original dated 25 November 2025.

The summary order in FORM GST DRC-07 incorrectly reflected the aggregate tax and penalty amount of ₹66,65,136 under the head “penalty” and mentioned an incorrect financial year.

During the writ proceedings, the adjudicating authority rectified the DRC-07 on 16 March 2026 by separately reflecting the tax and penalty.

The Petitioner also sought permission to utilise ₹3,33,257 from ITC blocked under Rule 86A of the CGST Rules towards the appellate pre-deposit.

The Petitioner further stated that it had been unable to file the appeal electronically because of portal difficulties and sought exclusion of the period spent pursuing rectification and the writ petition.

1. Whether ITC whose utilisation is blocked under Rule 86A of the CGST Rules can be appropriated or treated as payment towards the mandatory pre-deposit required under Section 107(6) of the CGST Act?

2. Whether the Petitioner should be permitted to file its statutory appeal beyond the ordinary limitation period because the erroneous DRC-07 and subsequent portal difficulties impeded filing?

3. Whether the Court could direct appropriation or modification of the blocked ITC when the officers who imposed the subsisting restrictions had not been impleaded and the relevant Rule 86A orders were not on record?

Section 107(6) of the CGST Act requires payment of the admitted tax liability and 10% of the remaining disputed tax as a condition for filing an appeal.

Section 49(4) permits use of the amount available in the Electronic Credit Ledger (“ECL”) towards output-tax payments, subject to statutory and prescribed restrictions.

Rule 86A authorises a competent officer, upon recording reasons to believe that ITC has been fraudulently availed or is ineligible, to prevent debit of the specified amount from the ECL; the restriction ceases after one year under Rule 86A(3), unless lifted earlier.

The Court distinguished Oasis Realty v. Union of India, 2022 SCC OnLine Bom 11891, and Yasho Industries Ltd. v. Union of India, 2024 SCC OnLine Guj 4390, because those decisions concerned ordinarily available credit and not credit blocked under Rule 86A.

The Court also distinguished Jyoti Construction v. Deputy Commissioner of CT & GST, 2021 SCC OnLine Ori 1511, and KOG-KTV Food Products (India) Pvt. Ltd. v. Joint Commissioner (Appeals), W.P.(MD) No. 21581 of 2022, decided on 17 April 2024, in the context of the Respondents’ submissions concerning blocked credit.

The Court held that Rule 86A operates as a restriction on debit and does not itself transfer, pay, or appropriate the blocked ITC towards an adjudicated demand.

Therefore, although ordinarily available ECL credit may be capable of being used for the Section 107(6) pre-deposit, credit presently blocked under Rule 86A cannot be treated as satisfying that requirement unless the restriction is removed or suitably modified.

The OIO itself had not appropriated the Petitioner’s ECL balance; it merely confirmed the demand.

Further, the subsisting restrictions had been imposed by Haryana authorities who were not parties to the proceedings, and neither the relevant orders nor the reasons recorded under Rule 86A had been produced.

The Court could not effectively modify those restrictions in their absence, nor could explanations later supplied by Respondent No. 1 substitute for the satisfaction of the officers who imposed them.

The ledger also did not establish the Petitioner’s actual available ECL balance.

As to the appeal, the Court found that the Petitioner had attempted filing promptly, while the erroneous DRC-07 was attributable to the adjudicating authority and was rectified only on 16 March 2026.

The Petitioner therefore ought not to lose its statutory appellate remedy due to the time consumed in rectification and related proceedings. However, filing remained subject to compliance with the mandatory pre-deposit under Section 107(6).

Respondent No. 1 was directed to furnish the corrected DRC-07 within one week, if not already supplied.

The Court refused to permit appropriation of ₹3,33,257 from the ITC blocked under Rule 86A, while leaving the Petitioner free to seek removal or modification of the restrictions before the competent Haryana authority or in properly constituted proceedings.

The Petitioner was permitted to file its Section 107 appeal within four weeks from the judgment, and the appeal was not to be rejected on limitation grounds if filed within that period, subject to payment of the Section 107(6) pre-deposit.

The Court clarified that the pre-deposit need not be made exclusively through the Electronic Cash Ledger and could be made from any amount lawfully available and capable of debit from the ECL; however, the Rule 86A-blocked credit could not be treated as payment unless the restriction was lifted or modified.

Respondent Nos. 1 and 3 were directed to assist with electronic filing, with manual filing permitted if the portal continued to prevent filing despite proper compliance.

No coercive recovery steps were to be taken for four weeks; if the appeal was filed within that period after complying with Section 107(6), the consequences under Section 107(7) would follow.