Andhra Pradesh High Court Ruling on GST Authorities Blocking Utilized ITC Under Rule 86A

Rule 86A Judgement : AP High Court

In a significant ruling that will impact GST-registered businesses across India, the Andhra Pradesh High Court has clarified the sweeping powers of tax authorities to block Input Tax Credit (ITC) under Rule 86A of the CGST Rules—even after the credit has already been utilized. The judgment in Sugna Sponge & Power Pvt. Ltd. v. Superintendent of Central Tax (2025) is a must-read for every business and tax professional.

Background: The Sugna Sponge Case:

Sugna Sponge & Power Pvt. Ltd., a regular GST taxpayer, found its electronic credit ledger blocked by the tax department under Rule 86A. The company argued that since it had already utilized the ITC in question (i.e., the credit was no longer available in the ledger), the department had no authority to block it. The company approached the Andhra Pradesh High

Court seeking relief.

The Legal Question: Can the GST department block ITC under Rule 86A even if the credit is no longer available in the electronic credit ledger?

The High Court’s Ruling: No Escape for Wrongful ITC Claims - The Andhra Pradesh High Court delivered a clear and decisive answer:

• Rule 86A Is Not Limited to Available Credit:

  The phrase “such credit” in Rule 86A refers to any credit that has been wrongly availed or utilized, not just the balance currently present in the ledger.

  
  

• Department’s Power Is Broader:

  Authorities can block the ledger for wrongfully availed or utilized credit, even if the taxpayer has already used up the credit.

  
  

• No Loophole for Taxpayers:

  Taxpayers cannot avoid the consequences of wrongful ITC claims simply because the

  credit has been utilized or the ledger shows a zero balance.

  
  

• Petition Dismissed:

  The Court dismissed Sugna Sponge’s writ petition, upholding the department’s power to block and recover such credits.

  
  

The Court also directed that the GST portal must allow officers sufficient space to record reasons for blocking ITC, ensuring transparency and proper documentation.

What This Means for Businesses:

• Diligence Is Critical: Businesses must be extra cautious when claiming ITC. Any wrongful claim—whether availed or already utilized—can lead to blocking and recovery.

  
  

• No “Utilized and Forgotten” Defense: Utilizing ITC does not shield taxpayers from departmental action.

  
  

• Documentation Matters: Ensure all ITC claims are fully supported by valid documentation and comply with GST law.

Conclusion:

The Andhra Pradesh High Court’s decision in Sugna Sponge & Power Pvt. Ltd. is a wake-up call for businesses: GST compliance is not just about claiming ITC, but about claiming it right. Wrongful claims—even if already used—can and will be blocked. Taxpayers must review their ITC practices, maintain robust documentation, and ensure full compliance to avoid costly surprises.

Issue	High Court's Ruling
Can utilized ITC be blocked?	Yes, even if credit is not available in the ledger
Scope of "Such Credit" in Rule 86A	Includes availed or utilized, not just available credit
Can taxpayers escape by using ITC early?	No, department can still block and recover
GST Portal direction	Ensure enough space for recording reasons

Rule 86A Judgement to the Andhra Pradesh High Court Ruling on GST Authorities Blocking Utilized ITC Under Rule 86A Judgement