Case Facts
The applicant, NZS Traders Pvt. Ltd., submitted a writ petition before the Bombay High Court contesting the blocking of its Electronic Credit Ledger (ECL) by the Department under Rule 86A of the CGST Rules, 2017.
The applicant claimed that the blocking was accomplished without issuance of any SCN, order, or chance of hearing. Even after repeated representations claiming the ITC was validly taken, the department did not answer or raise the restriction.
Also, the applicant stated that as per Rule 86A(3), these restrictions automatically cease post 1 year in February 2025, but the credit stayed blocked even after that. In Seya Industries Ltd. vs. State of Maharashtra, reliance was placed.
The department, in its affidavit, considered that the restriction under Rule 86A could not carry on after 1 year; however claimed that the GST registration of the applicant had been cancelled, and then action may be initiated.
Issue:
Whether the blocking of ITC under Rule 86A can continue after 1 year from the date of imposition. Whether the cancellation of registration impacts the statutory right to unblocking of ITC after expiry of one year.
Held That:
The court held that it was clear from Rule 86A(3) that the restriction on the use of ITC cannot continue after 1 year from the imposition date. In this case, as the restriction was charged dated 16.02.2024, it automatically ceased on the lapse of 1 year in February 2025. The court stated that even the department had considered this legal position.
It was held that the entitlement of the applicant to unblock the ITC moves legally, and thus continuation of the restriction after 1 year, was not legal. The department’s claim for the cancellation of registration was not accepted for the objective of continuing the blocking, as such issues should be dealt with separately under the act.
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Subsequently, the impugned blocking/attachment of ITC has been set aside by the Court, keeping that it had earlier ceased to work. Both parties are provided with a chance to take action within the law on other issues, along with ITC eligibility.
| Case Title | NZS Traders Pvt. Ltd. Versus Union of India & Ors |
| Citation | Mr Karan Adik a/w Sangeeta Yadav, Ms Jyoti Chavan, Addl. G.P. a/w Mr Amar Mishra, AGP |
| Counsel For Appellant | Bharat Raichandani a/w Bhagrati Sahu i/b. UBR Legal Advocates |
| Counsel For Respondent | Mr Karan Adik a/w Sangeeta Yadav, Ms Jyoti Chavan, Addl.G.P. a/w Mr Amar Mishra, AGP |
| Bombay High Court | Read Order |
