The Supreme Court has dismissed the Special Leave Petition (SLP) filed by the Directorate General of GST Intelligence (DGGI), thereby upholding the Delhi High Court’s ruling that negative blocking of the Electronic Credit Ledger (ECrL) is legally impermissible under the GST regime.
Background of the Case
The issue arose when the DGGI attempted to block input tax credit (ITC) in a taxpayer’s Electronic Credit Ledger that already had a negative balance, invoking Rule 86A of the CGST Rules, 2017. The taxpayer challenged this action before the Delhi High Court.
Delhi High Court’s Ruling
The Delhi High Court decisively held that:
Blocking an Electronic Credit Ledger that reflects a negative balance is legally untenable.
The input tax credit can only be blocked to the extent available in the ledger and not beyond.
Rule 86A is a temporary, precautionary measure, designed to safeguard revenue by restricting the use of available ITC—not for tax assessment or recovery.
The court relied heavily on its earlier ruling in Best Corp Science where it had categorically held that debiting excess ITC beyond what is available is not permitted.
Rule 86A – Clarified
The judgment clarified the true scope and purpose of Rule 86A:
It is not a tool for tax recovery or to create liabilities.
It does not authorize negative entries in the ECrL.
Proper recovery must follow due process under the CGST Act, including assessment and adjudication, not unilateral blocking through Rule 86A.
Supreme Court’s Observations
With the Supreme Court dismissing the DGGI’s SLP, the Delhi High Court's view now holds firm legal ground. The apex court found no reason to interfere with the well-reasoned judgment, giving a strong signal that arbitrary blocking of ITC without due process will not be tolerated.
GST Case Law DDGI Vs Kings Security Guard Services Private Limited
Citation-2025 TAXONATION 1564 (SUPREME COURT)
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