Vee Kay Concast Private Limited vs Union of India: Scope of Rule 86A and Negative ITC Balance

The Punjab and Haryana High Court in Vee Kay Concast Private Limited Vs Union of India has once again clarified the legal boundaries of Rule 86A of the Central Goods and Services Tax Rules, 2017, particularly on whether the authorities can create an artificial negative balance in the Electronic Credit Ledger (ECL) by blocking Input Tax Credit (ITC) exceeding the amount actually available.

This ruling follows and reiterates the Court’s earlier decision in M/s Shyam Sunder Strips vs Union of India and others, delivered on 04.11.2025, and aligns with the consistent judicial view expressed by the Gujarat, Delhi, Telangana and Bombay High Courts.

Background of the Dispute

Facts in Brief

  • The assessee, Vee Kay Concast Private Limited, is registered under the Central Goods and Services Tax Act, 2017 (CGST Act) and the Punjab Goods and Services Tax Act, 2017 (PGST Act) with GSTIN 03AACCS1850M1ZF.
  • On 30.09.2025, the Department blocked ITC in the assessee’s ECL under Rule 86A and, in doing so, created a negative balance.
  • The blocking was made effective for the period 01.08.2025 to 30.09.2025, as evidenced in the ECL statement (Annexure P‑5).
  • According to the assessee, this blocking:
    • Was done without any prior notice or intimation,
    • Violated principles of natural justice, and
    • Was beyond the power granted under Rule 86A of the GST Rules.

The writ petition was confined only to challenging this blocking of ECL and the entry dated 30.09.2025 which resulted in ITC being blocked in negative, and not to any other issue of assessment, demand or recovery.

The parties agreed that the entire case revolved around a single legal issue:

“Whether Rule 86-A of Goods and Services Tax Rules, 2017 permits the Commissioner or an authorized officer to block a assessee’s Electronic Credit Ledger by an amount greater than the credit actually available at the time of passing such order?”

Given that this was a pure question of law, both sides consented that the matter be decided without insisting on a detailed written reply from the Department.

Arguments Advanced

Submissions on Behalf of the Assessee

Counsel for the assessee highlighted the following points:

  1. Registration and Status

    • The assessee is an active registrant under the CGST Act, 2017 and PGST Act, 2017.

  2. Nature of the Impugned Action

    • On 30.09.2025, the proper officer:
      • Blocked ITC under Rule 86A, and
      • Created a negative ITC balance in the ECL, extending the effect back to 01.08.2025.
    • This effectively meant that the ledger did not merely show zero ITC, but an artificial liability in the form of negative credit, thereby disabling use of subsequently accrued legitimate ITC until the negative figure was first neutralised.

  3. Exceeding Statutory Authority

    • It was argued that Rule 86A only permits restriction on debit of credit that actually exists in the ECL.
    • The Rule does not allow:
      • Blocking of ITC beyond available balance, or
      • Creation of negative entries by the officer.

  4. Practical Consequence of Negative Blocking

    • Once a negative ITC balance is forcibly recorded:
      • Any future legitimate ITC is first absorbed in wiping out this artificial negative figure.
      • The assessee is effectively deprived of using even lawfully availed ITC.
    • Thus, negative blocking operates as a de facto recovery mechanism without following the statutory process under Section 73 or Section 74 of the CGST Act.

  5. Judicial Precedents Relied Upon
    The assessee relied heavily on a series of High Court judgments holding that negative blocking is impermissible:

    • Gujarat High Court
      • Samay Alloys India Pvt. Ltd. Vs. State of Gujrat, 2022(2) TMI 843