Summary
Supreme Court has dismissed an SLP against the Gujarat HC’s interim relief restricting ITC blocking under Rule 86A to 10%. This means no final ruling yet, and the GST department can still block 100% ITC as per current law.
SC dismisses SLP on 10% ITC block: What it means for taxpayers
The focus keyphrase 10% ITC block has once again taken centre stage after the Supreme Court dismissed a Special Leave Petition (SLP) challenging the Gujarat High Court’s interim relief that limited ITC blocking to 10% under Rule 86A of the CGST Rules, 2017.
While many hoped this would set a precedent against arbitrary input tax credit (ITC) freezing, the SC’s dismissal means the relief remains limited to that particular case and is not binding nationwide.
Let’s break down what this really means for GST taxpayers.
What was the 10% ITC block case about?
In 2023, the Gujarat High Court in M/s Bhawani Industries vs Union of India granted interim relief to the petitioner by directing the GST department not to block more than 10% of the Input Tax Credit under Rule 86A, citing arbitrary and excessive power.
This sparked hope among businesses facing full ITC blockage without show cause notices or time-bound proceedings.
What did the Supreme Court say?
The Special Leave Petition (SLP) filed by the GST department against the Gujarat HC’s interim relief was dismissed by the Supreme Court in July 2025, without a speaking order.
- No final judgment was given
- The dismissal doesn’t imply Rule 86A is invalid
- The Gujarat HC case continues to be sub judice
Key legal implication: The SC dismissal does NOT restrict the GST department from blocking 100% ITC in other cases. The 10% cap order applies only to the petitioner in that case.
What is Rule 86A?
Rule 86A of the CGST Rules empowers officers to block ITC in the electronic credit ledger if there is a reason to believe that the credit is fraudulent, ineligible, or non-existent.
Key features of Rule 86A:
- No prior hearing required
- Valid for 1 year from the date of blocking
- Officer must record reasons in writing
Practical impact of SC dismissal on 10% ITC block
| Particulars | Before SC Dismissal | After SC Dismissal |
|---|---|---|
| Applicability of 10% ITC cap | Limited to Gujarat HC order | Still limited to that one case |
| GST Department’s blocking power | Up to 100% under Rule 86A | Continues as per Rule 86A |
| National precedent set? | No | No |
| Legal clarity for taxpayers | Uncertain | Still unclear, pending final HC ruling |
Expert Insight: What should taxpayers do?
Tax Expert’s Tip:
Until a binding HC or SC verdict arrives, businesses should:
- Maintain clear documentation of all input transactions
- File timely replies to any ITC blocking orders
- Approach High Court if arbitrary 100% ITC block happens without evidence or hearing
- Explore writ remedies if Rule 86A is used indiscriminately
Legal references
- Rule 86A of CGST Rules, 2017
View official Rule on CBIC site - Gujarat High Court Interim Order – Bhawani Industries
(Searchable on Indian Kanoon or High Court site) - Supreme Court dismissal (SLP Civil Diary No. — July 2025)
scobserver.in
FAQs on 10% ITC block under Rule 86A
Q1. Is the 10% ITC block cap applicable to all taxpayers?
No. It was an interim relief given in one case. There’s no national limit on ITC block.
Q2. Can ITC be fully blocked under Rule 86A?
Yes, as per current rules, officers can block up to 100% if there’s reason to believe fraud or ineligibility.
Q3. What legal remedies are available if ITC is blocked arbitrarily?
Taxpayers can file a writ petition under Article 226 in High Court to challenge the block.
Q4. Does SC’s dismissal mean Rule 86A is invalid?
No. The dismissal was not on merits. Rule 86A is still in force.
Final Thoughts
The Supreme Court’s dismissal of the SLP related to the 10% ITC block limit leaves no binding precedent for other taxpayers. Rule 86A remains powerful—and in some cases, misused. Businesses must stay alert, ensure proper documentation, and assert legal remedies when credit is unjustly frozen.
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