Rule 86A of the CGST Rules, 2017--- Blocking of Electronic Credit Ledger —- The petitioner challenged SCN dated 28.02.2022 and an order dated 30.03.2022 passed under Section 74 of the Act and challenged the instructions dated 08.03.2022 issued by the Government of NCT of New Delhi. The ITC available in the petitioner’s Electronic Credit Ledger was blocked on 26.11.2020 under Rule 86A. The respondents did not unblock the same immediately on the expiry of the period of one year. The respondents did so on 30.03.2022, but appropriated the blocked ITC against a tax demand created on the same date. The court observed that the respondent, who had blocked the petitioner’s ITC, had no information as to the fake transactions and had proceeded solely on the basis of a directive issued by other Authority. Thus, the respondent no.4 had no tangible material to form any belief that the ITC lying in the petitioner’s ECL was on account of any fake invoice. The impugned SCN was issued in a mechanical manner and solely for the reason that the petitioner’s ITC was required to be unblocked as the period of one year had elapsed after it was blocked. Therefore, the impugned SCN is not in conformity with the provisions of Section 74 of the Act and is, thus, without authority of law. The respondent no.4 had proceeded to pass the impugned order solely to deprive the petitioner from utilising the ITC, which could no longer be kept blocked by virtue of Rule 86A(3) of the Rules. The impugned instructions, to the aforesaid extent, has been issued only to overcome the provisions of Rule 86A(3) of the Rules and the impugned instructions, to this extent, cannot be sustained.

Held that:- The Hon’ble Court set aside the SCN, the order and the impugned instructions, to the extent that it suggests that the ITC of the taxpayers can continue to be blocked beyond a period of one year. The respondents are directed to restore the ITC appropriated pursuant to the demand created by the impugned order, to the ECL of the petitioner.