The petitioners challenged orders passed under Rule 86A whereby the tax authorities blocked input tax credit in excess of the balance available in the electronic credit ledger, resulting in a negative balance. The factual background showed that such blocking prevented utilization of future ITC until the negative balance was neutralised. The core issue before the Court was whether Rule 86A permits blocking of ITC beyond the credit actually available at the time of passing the order.

The Court held that Rule 86A only authorises restriction on debit of credit that is available in the electronic credit ledger and does not permit creation of an artificial negative balance. Blocking credit beyond the existing balance was held to be without authority of law. The impugned orders were quashed to the extent they blocked ITC beyond the available balance.