ITC Blocking Under Rule 86A: What’s Going Wrong?
The focus keyphrase ITC blocked beyond 10% has drawn major scrutiny in recent GST litigation. While Rule 86A of the CGST Rules allows officers to block Input Tax Credit (ITC) in suspected cases of fraud or ineligibility, blocking the entire credit without proportionality—especially beyond 10% of the alleged tax liability—has now come under legal fire.
What is Rule 86A of CGST Rules?
Rule 86A empowers a GST officer to block a taxpayer’s ITC if:
- Credit is found to be availed on fake invoices
However, this rule is discretionary and not intended to be punitive without due application of mind.
Why the “10% Threshold” is Critical
Although the law does not mention any percentage, the GST department often blocks 100% of available ITC, even if the disputed amount is far lower.
Key Court Judgments Against Excessive ITC Blocking
| Case Name | Court | Key Ruling |
|---|---|---|
| Calyx Chemicals & Pharmaceuticals Ltd. vs. UoI | Bombay HC | Blocking entire ITC without justification is disproportionate |
| Siddharth Enterprises vs. Nodal Officer | Gujarat HC | Rule 86A cannot override fundamental rights |
| Arya Metacast Pvt Ltd. vs. State of Gujarat | Gujarat HC | Blocking ITC beyond 10% of tax demand held arbitrary |
These rulings have one thing in common: lack of proportionality in ITC blocking invites judicial reversal.
CBIC Clarification & Expert View
While no official CBIC circular limits ITC blocking to 10%, many experts refer to internal instructions or past court interpretations suggesting a threshold of 10%–20% as a reasonable maximum, pending final determination.
✅ Expert Tip: Always request a reasoned speaking order if ITC is blocked. File a writ petition if your working capital is hit by excessive blocking.
What Can Taxpayers Do?
- File representation under Rule 86A(2) asking for removal of block
- Move a writ petition under Article 226 for violation of fundamental rights
- Maintain full invoice trail and supplier verification
Efiletax Can Help You Respond
Blocked ITC ruining your cash flow?
Let our GST experts at Efiletax help you file legal representations and reply to notices effectively.
FAQs on ITC Blocked Beyond 10%
Q1. Is Rule 86A unconstitutional?
Not per se, but its misuse or excessive application without due process has been struck down.
Q2. Can I continue business if my ITC is blocked?
Yes, but you’ll face working capital issues as ITC won’t offset output tax.
Q3. Is there a time limit to unblock ITC under Rule 86A?
Yes, maximum 1 year from date of blocking unless extended by fresh order.