ITC Blocked Under Rule 86A? Madras HC Offers Hope If You File Appeal
If your GST Input Tax Credit (ITC) has been blocked under Rule 86A of the CGST Rules, there’s good news. In a recent judgment, the Madras High Court ruled that if a taxpayer files an appeal under Section 107 by paying 10% of the disputed tax, the ITC block must be lifted.
This ruling directly impacts businesses facing arbitrary ITC blocks — and reasserts taxpayer rights under GST law.
What Is Rule 86A of CGST Rules?
Rule 86A empowers tax officers to block ITC in the electronic credit ledger if they suspect fraudulent claims. Key grounds include:
- ITC claimed based on fake invoices
- Supplier not genuine or non-existent
- Goods/services not received
- ITC used for tax liability without proper inward supply evidence
Madras HC’s Verdict: Key Takeaways
Case Title: M/s Saiher Supply Chain Consulting Pvt Ltd vs State Tax Officer (Intelligence)
Date: July 2025
Court: Madras High Court
Court’s Observations:
- Section 107(6) of CGST Act allows appeal with 10% tax deposit
- Continuation of ITC block amounts to indirect recovery
- Rule 86A is not superior to appeal rights
- ITC block post-appeal is arbitrary and illegal
Focus Keyphrase in Action: Blocked GST ITC
Why It Matters for Taxpayers
If your blocked GST ITC is due to an investigation or dispute, and you’ve:
- Received a demand notice
- Filed a GST appeal under Section 107
- Paid 10% of the disputed tax
Then your credit cannot remain blocked, per this ruling.
Practical Steps: How to Use This Ruling
Here’s what businesses should do if ITC is blocked:
- Check reason for block in the GST portal under Rule 86A
- Respond to SCN or demand order
- File appeal under Section 107 within 3 months of order
- Deposit 10% of disputed tax using DRC-03
Pro tip: Mention this judgment in your representation to the GST officer. It adds legal weight.
Legal Reference and Interpretation
- Section 107(6): Pre-deposit of 10% of tax for appeal
- Section 107(7): No recovery during appeal period
- Rule 86A(1): Allows ITC block for suspected fraud
- Court’s Interpretation: Blocking ITC after appeal = unlawful recovery
Expert View
“The judgment rightly curtails arbitrary use of Rule 86A. Officers must respect appeal mechanisms. This gives breathing room to genuine taxpayers under audit or scrutiny.”
— Rajiv Dutt, Indirect Tax Consultant, Chennai
Comparison Table: Before vs After Madras HC Ruling
| Scenario | Before Judgment | After Judgment |
|---|---|---|
| ITC blocked under Rule 86A | Remained blocked during appeal | Must be restored if 10% tax is paid |
| Recovery proceedings during appeal | Continued in some cases | Clearly prohibited under Section 107(7) |
| Taxpayer relief | Minimal | Strengthened due to legal precedent |
Internal Link
➡️ Also read: GST Appeal Process Explained: Step-by-Step Guide
External Source
🗎 CGST Act – Section 107
🗎 CGST Rules – Rule 86A
Summary
Madras High Court ruled that blocked GST ITC under Rule 86A must be restored once a taxpayer files an appeal under Section 107 by depositing 10% of the disputed tax. Continuing the block after appeal amounts to unlawful recovery.
FAQ Section
Can GST ITC be blocked without final order?
Yes, under Rule 86A, officers can block ITC based on suspicion.
What happens if I appeal against GST demand?
You must deposit 10% of the disputed tax.
Can I refer this judgment in other states?
While HC rulings aren’t binding pan-India, they hold persuasive value. You can use this as a legal precedent in your appeal or writ petition.
Conclusion
The Madras High Court has provided much-needed relief to taxpayers suffering under blocked GST ITC conditions.