Rule 86A blocking bars use of electronic credit ledger for Section 107 pre-deposit.

The petitioner challenged a notice dated 16.06.2026 issued under Rule 86A of the TNGST Rules, 2017, whereby debit of input tax credit (“ITC”) in its electronic credit ledger was blocked in relation to alleged supplies received from Vetrivel Traders.

The respondent relied on findings from the subsequent assessment proceedings that Vetrivel Traders had no physical stock at its premises and was functioning as a bill trader.

Proceedings under Section 74A culminated in an order dated 25.08.2026, giving the petitioner a statutory right to appeal under Section 107.

The petitioner contended that it should be permitted to use the blocked ITC for making the statutory pre-deposit required for an appeal.

During the writ proceedings, it also submitted an application dated 27.08.2026 seeking unblocking of the electronic credit ledger.

Whether blocking of the petitioner’s electronic credit ledger under Rule 86A impermissibly deprived it of an absolute statutory right under Section 49(4) to utilise ITC for payment of the Section 107 appellate pre-deposit?

Whether the petitioner was entitled to a direction requiring the respondent to consider its application for unblocking under Rule 86A(2)?

The Court applied Section 16(1) of the applicable GST enactments, which authorises the prescription of conditions and restrictions concerning the availment and utilisation of ITC, and Rule 86A, which permits an authorised officer, upon recording reasons in writing and having reasons to believe that ITC has been fraudulently availed or is ineligible in specified circumstances, to restrict debit of the corresponding amount from the electronic credit ledger.

Rule 86A(2) permits restoration of debit where the conditions for blocking no longer exist, while Rule 86A(3) provides that the restriction ceases after one year.

Section 49(4) permits use of the electronic credit ledger for payment towards output tax, but expressly subjects such use to prescribed conditions and restrictions.

Section 107 provides the statutory appellate remedy, including the applicable pre-deposit requirement and the consequences concerning recovery during the appeal period.

The governing principle was that the right to utilise ITC under Section 49(4) is not absolute and must be read harmoniously with the restrictions validly imposed under Rule 86A.

The Court held that Rule 86A is a statutory mechanism governing the provisional use of amounts in the electronic credit ledger.

Since the impugned notice recorded reasons for blocking credit concerning supplies from Vetrivel Traders, and the respondent relied on material indicating that the supplier was a bill trader with no physical stock, the Court found that the statutory framework could not be bypassed merely because the petitioner wished to use the blocked credit for satisfying the Section 107 pre-deposit requirement.

Reading Sections 49(4) and 107 together with Rule 86A, the Court concluded that although an appellant would ordinarily be entitled to use available ITC for discharge of eligible liabilities, such utilisation is impermissible while a valid blocking order under Rule 86A remains operative.

However, Rule 86A(2) separately empowered the respondent to consider whether the conditions justifying the restriction continued to exist.

It disposed of the writ petition by directing the respondent to consider the petitioner’s application for unblocking.

If the application was accepted, no separate written order was required; if rejection was proposed, the respondent was directed to issue a speaking order after providing a reasonable opportunity of hearing, within one month from receipt of a copy of the order.

No order as to costs was made.