Court Rules Continuation of ITC Blockage Beyond One Year Impermissible Under TNGST Rules
In a significant ruling, the Madras High Court has directed the unblocking of Input Tax Credit (ITC) for M/s Metal Trade Incorporation, a trader in iron and steel products, underlining the impermissibility of extending ITC blockage beyond one year as per the Tamil Nadu Goods and Services Tax (TNGST) Rules, 2017. The ruling, delivered by Justice S. Raveekumar on August 21, 2026, emphasizes the statutory limitations on ITC restrictions, thereby reinforcing the rights of traders under the GST framework.
The case arose when the State Tax Officer blocked the ITC of Metal Trade Incorporation on January 27, 2023, under Rule 86A of the TNGST Rules, following an internal communication alleging the trader was a non-existent entity and directing reversal of ITC. This blockage was based on an assessment and intelligence gathered by state authorities without adjudication. Despite this, the blockage continued beyond the stipulated one-year period, leading the petitioner to challenge the continued restriction.
Justice Raveekumar noted that according to Rule 86A(3) of the TNGST Rules, restrictions on ITC must automatically cease after one year from the date of imposition. In this case, the blockage had continued for over two and a half years, thereby violating the statutory timeline. The court observed that the continuation of such restrictions without completing assessment proceedings and initiating regular recovery proceedings under Section 79 of the GST Act was not permissible.
The court's decision mandates the immediate unblocking of the ITC in Metal Trade Incorporation's Credit Ledger. The court also highlighted the need for timely completion of assessment proceedings by the authorities to prevent undue hardship on traders. The ruling serves as a reminder to tax authorities to adhere to statutory provisions and timelines to ensure fair and lawful administration of tax regulations.
This judgment underscores the importance of compliance with procedural requirements under tax laws and reaffirms the judiciary's role in safeguarding taxpayer rights against administrative overreach.
Bottom Line :
Under Rule 86A(3) of the Tamil Nadu Goods and Services Tax Rules, 2017, restrictions on the Input Tax Credit (ITC) in the Credit Ledger shall automatically cease after one year from the date of imposing such restriction. Continuation of the blockage beyond this period is impermissible.
Statutory provision(s):
Tamil Nadu Goods and Services Tax Rules, 2017 Rule 86A(3), Section 79 of the GST Act
M/s Metal Trade Incorporation v. State Tax Officer, (Madras) : Law Finder Doc id # 2967157
