Blocking of Electronic Credit Ledger Beyond One Year Is Illegal — Rule 86A(3) Is Self-Executing: Karnataka HC

The Karnataka High Court has declared the continued blocking of a taxpayer's electronic credit ledger beyond one year as illegal under Rule 86A(3) of the CGST Rules, 2017, and directed the authorities to unblock it forthwith. The order was passed by Justice S. Sunil Dutt Yadav on 24.03.2026 in Writ Petition No. 7319 of 2026.

The petitioner's electronic credit ledger was blocked on 21.11.2024 under Rule 86A(1) on the ground that Input Tax Credit was claimed without receipt of goods or services. Despite the statutory one-year expiry period under Rule 86A(3), the blocking continued to subsist at the time of the writ petition.

The court's reasoning is straightforward: Rule 86A(3) provides in mandatory terms that "such restriction shall cease to have effect after the expiry of a period of one year from the date of imposing such restriction." The provision is self-executing — no further order of the Commissioner or authorized officer is required for the restriction to lapse. Accordingly, the blocking imposed on 21.11.2024 ought to have ceased to operate automatically after 21.11.2025. The court declared the continuance of blocking beyond one year as illegal and directed the respondent authorities to unblock the electronic credit ledger forthwith.

The ruling is practically significant for taxpayers whose credit ledgers remain blocked beyond the statutory one-year period. Rule 86A(3) was specifically designed to prevent indefinite blocking — a concern repeatedly raised during GST Council deliberations — and this ruling confirms that the sub-rule operates as an automatic sunset, with or without the department's action. Practitioners should note that the department retains the option under Rule 86A(2) to impose a fresh restriction if conditions still exist, but the original restriction lapses by operation of law after one year.