NB International vs Commissioner – Punjab & Haryana High Court on Time Limit and Re-blocking of ITC under Rule 86A

Background and Core Dispute

The Punjab and Haryana High Court in NB International vs Commissioner dealt with a crucial issue under GST: whether Input Tax Credit (ITC) once blocked under Rule 86A of the CGST/HGST Rules, 2017 can be re-blocked or continued beyond one year on the same grounds, without any fresh material or further proceedings.

The assessee, a partnership firm operating in Haryana and engaged in manufacturing brass and copper sheets and utensils, was duly registered under the Central Goods and Services Tax Act, 2017 and the Haryana Goods and Services Tax Act, 2017. ITC was availed in terms of Section 16 of the GST Act and credited to its Electronic Credit Ledger (ECL).

The controversy arose when ITC of ₹82,50,038 in the assessee’s ECL was blocked on 21.11.2023 by invoking Rule 86A of the CGST/HGST Rules, 2017, without any prior investigation notice or opportunity being granted to the assessee.

Facts Leading to the Writ Petition

Initial ITC Blocking Based on Supplier Investigation

  • The Assistant Commissioner, CGST Division, issued a communication dated 17.11.2023 to the Deputy Excise and Taxation Commissioner, Excise & Taxation Department, Jagadhri.
  • In this communication, it was stated that a supplier, M/s M.S. Trading Company, was found to be non-existent at its registered principal place of business.
  • On examination of GSTR-1 filed by this supplier, it appeared that ITC had been passed on to multiple recipients, including the assessee.
  • On this basis, the department requested that ITC pertaining to transactions with M/s M.S. Trading Company be blocked under Rule 86A of the CGST/HGST Rules, 2017.
  • Acting on this, ITC amounting to ₹82,50,038 was blocked in the assessee’s ECL on 21.11.2023, as reflected in the portal intimation.

The assessee contended that it was never given a chance to demonstrate that its purchases were genuine, nor was any prior show cause or enquiry conducted before resorting to blocking of ITC.

Representation and Partial Unblocking

Subsequently, the assessee:

  • Filed a detailed representation on 01.01.2024 explaining that:
    • It was a bona fide purchaser.
    • All purchases from M/s M.S. Trading Company were supported by proper tax invoices and other purchase documents.
    • ITC was availed strictly in line with Section 16 of the GST Act.

Upon considering this representation:

  • The department unblocked ITC of ₹27,48,835 on 16.02.2024.
  • However, the balance ITC remained blocked.

Issue of Excess Blocking Over Available Ledger Balance

Another anomaly was highlighted by the assessee:

  • On the date of the original blocking (21.11.2023), the ECL reflected a balance of only ₹55,01,203.
  • Despite this, ITC to the tune of ₹82,50,038 was blocked, resulting in blocking beyond the available balance (i.e., leading to a negative balance).
  • This mistake was partially rectified later, and ITC equivalent to the negative balance was unblocked as per the intimation dated 16.02.2024.

One-Year Cap under Rule 86A(3)

The primary argument advanced by the assessee was grounded in Rule 86A(3) of the CGST Rules:

  • Rule 86A(3) clearly stipulates that any restriction imposed on the usage of ITC in the ECL automatically ceases to have effect after one year from the date the restriction is imposed.
  • Despite this statutory cap, respondent No.2 again blocked ITC of ₹82,50,038 on 05.12.2023, on the same basis relating to M/s M.S. Trading Company.
  • The assessee asserted that:
    • No new proceedings had been initiated against it.
    • No fresh material or distinct grounds had emerged.
    • Hence, re-blocking or continuation of the blocking beyond one year on the same basis was contrary to Rule 86A(3).

Reliance on Supreme Court Decision in Kesari Nandan Mobile

The assessee relied strongly on the judgment of the Hon’ble Supreme Court in:

Kesari Nandan Mobile versus Office of Assistant Commissioner of State Tax (2), Enforcement Division – 5 (Civil Appeal No. 9543 of 2025) decided on 14.08.2025

In that case, the Supreme Court considered the power of provisional attachment under Section 83 of the GST Act and dealt with the question: