Blocked More Than You Had: Negative Blocking Under Rule 86A

Most blocking disputes are about whether the officer was entitled to act. This one is about arithmetic, and it is the easiest objection on the file to check.

Look at the credit ledger on the date of the order. Then look at the amount blocked. If the second is larger than the first, the department has done something the rule may not permit at all — and you can establish it from two numbers, without arguing about the supplier, the reasons, or the hearing.

What negative blocking is

Rule 86A lets the officer "not allow debit of an amount equivalent to such credit" in the electronic credit ledger. Where credit of a given amount is sitting there, the effect is straightforward: that much is frozen.

The difficulty arises when the officer blocks more than is there, or blocks when nothing is there. The portal accommodates it by carrying a negative balance, so credit the taxpayer earns in later months is absorbed as it arrives until the shortfall is made up. The taxpayer is not merely prevented from using a benefit he holds. He is required to generate one and hand it over.

Delhi: outside the power

The question was decided across a batch of eight petitions in Best Crop Science (P) Ltd v. Principal Commissioner, CGST, W.P.(C) 10980 of 2024 and connected matters, by Vibhu Bakhru and Sachin Datta JJ on 24 September 2024.

The scale is worth seeing, because it shows this is not a rounding problem. In the lead petition, orders of 26 and 30 July 2024 blocked Rs 20,46,09,134 and Rs 6,82,83,894, of which Rs 25,85,14,327 was negative — that is, credit which did not exist. In another, the whole of Rs 1,62,88,226 blocked was negative, the ledger having been empty. In the petition of Kay Kay Overseas Corporation, Rs 3,24,00,183 was blocked of which Rs 2,01,71,196 had no corresponding credit.

The Court held the condition precedent to be the existence of the credit:

Thus, the condition precedent is that the input tax credit should be available in the electronic credit ledger before the power under Rule 86-A is invoked by the authority. In the case on hand, it is not in dispute that the amount of input tax credit available in the electronic credit ledger as on the date of blocking of ledger was Nil. If no input tax credit was available in the ledger, the blocking of electronic credit ledger under Rule 86-A of the Rules and insertion of negative balance in the ledger would be wholly without jurisdiction and illegal.

The reasoning behind it is what makes the proposition portable. An order which obliges the taxpayer to replenish his ledger before he can use anything is, in substance, an order for recovery:

Rule 86A(1) of the Rules does not contemplate an order, the effect of which is to require a taxpayer to replenish his ECL with valid availment of ITC, to the extent of ITC used in the past ... Such an interpretation would in effect amount to construe an order under Rule 86A(1) of the Rules as an order for recovery of tax.

And recovery under the Act has its own machinery, with its own notice, its own adjudication and its own appeal. Rule 86A is, in the Court's words, "an emergent measure for protection of revenue", not "a machinery provision for recovery of tax or dues".

The petitions were allowed to the extent the orders disallowed debit in excess of the credit available at the time they were passed. Not quashed outright — read down to the balance that existed.

Bombay: the same answer, on facts that show the problem plainly

King Enterprises v. Union of India, WP 5094 of 2025, decided 18 November 2025, has the cleanest facts in this line.

On the date of the order the ledger held Rs 7,06,770. The order blocked Rs 2.66 crore. The Court recorded that this was negative blocking to the extent it exceeded the first figure, and declined to permit it, following its own earlier decision in Rawman Metal and Alloyes.

It also did the useful work of mapping the field: the High Courts of Gujarat, Telangana and Delhi have held negative blocking to be beyond the rule, special leave petitions against some of those decisions have been dismissed, and Bombay has taken the same view.

Allahabad: the other way, on a premise both sides share

The line is not uniform, and the contrary reasoning deserves to be stated properly rather than waved at.

In R.M. Dairy Products LLP v. State of U.P., on an order of 25 June 2021 under Rule 86A(1)(a)(i), the petitioner argued exactly the point above — that the respondents had no jurisdiction to block credit over and above what was actually available on the date of the order. The Allahabad High Court declined it:

It is the ambit and purpose of the Rule 86A that appears to be inherently different and independent of the recovery provisions. For that reason we are not inclined to accept the contentions advanced by the learned counsel for the petitioner.

Notice what has happened. Both courts begin from the same premise — that Rule 86A is not a recovery provision — and arrive at opposite conclusions.

Delhi reasons that because blocking beyond the available balance would operate as recovery, and Rule 86A is not a recovery provision, such an order falls outside it. Allahabad reasons that because Rule 86A is independent of the recovery machinery, the limits which govern recovery do not constrain it.

That is not a conflict that will be resolved by citing more cases on either side. It is a difference about what follows from a shared starting point, and a reply which simply asserts that negative blocking is settled law will meet it unprepared. The Calcutta High Court has taken a view similar to Allahabad's.

What this means for a reply

Get the two figures first, and put them in the first paragraph. The balance in the ledger on the date of the order, and the amount the order blocks. If the second exceeds the first, you have a jurisdictional point which does not depend on the merits of anything.

Ask for the relief Delhi actually gave. The orders in Best Crop Science were not quashed. They were set aside to the extent they disallowed debit beyond the credit available. That is the realistic ask, and it is more likely to be granted than an application to vacate the block altogether.

Check which line binds you before leading on it. In Delhi, Bombay, Gujarat and Telangana this is strong ground. In Allahabad and Calcutta it is contested, and the argument has to be put as a matter of construction rather than as settled law.

Do not confuse this with the reasons objection. They are independent. An order can be perfectly reasoned and still block more than exists; an order within the balance can still be unreasoned. Plead them separately, because they fail separately.

Watch the amount, not just the fact. A block that was within the balance when made can become negative later if credit is utilised in the interval. The figure that matters is the one on the date of the order.

In short

1. Pull the ledger balance as at the date of the blocking order. Compare it with the amount blocked. That comparison is the whole of the ground.
2. Where the block exceeds the balance, say so before anything else. It is jurisdictional and it needs no evidence about the supply.
3. Ask for the order to be set aside to the extent of the excess, which is what Delhi granted, rather than for the block to be vacated entirely.
4. Know your Court. Delhi, Bombay, Gujarat and Telangana are with you; Allahabad and Calcutta are not.
5. Meet the Allahabad reasoning on its own terms. Both lines accept that Rule 86A is not a recovery provision; they differ on what follows. Treating the point as settled will not answer it.
6. Keep it separate from the reasons and hearing grounds. They stand or fall independently.

This is the fourth note in a series on Rule 86A. Earlier notes covered what the rule requires, the reasons to believe requirement, and the pre-decisional hearing split. The next takes up the one-year limit in Rule 86A(3), which ends a block whether or not anyone has acted on it.

This note is general information drawn from reported decisions and is not advice upon any particular matter. The lines of authority described above subsist alongside one another, and the outcome in any case depends upon its own record.