Background:
Rule 86A of the CGST Rules, 2017 empowers the Commissioner, or an officer authorised by him not below the rank of Assistant Commissioner, having “reasons to believe” that ITC in the electronic credit ledger has been fraudulently availed or is ineligible, to disallow debit of an equivalent amount from the ledger for a period up to one year. The rule did not prescribe any form of order, any requirement to communicate reasons, or any mechanism for the taxpayer to object or be heard. Blocking of credit was routinely done through the back-end of the portal, often on the basis of alerts regarding suppliers, without the taxpayer being informed of the grounds. This led to extensive writ litigation, with High Courts (including in Dee Vee Projects, Samay Alloys and K-9 Enterprises) holding that reasons must be recorded and communicated and that the taxpayer must be given a post-decisional hearing, and CBIC issuing guidelines in November 2021 on the exercise of power under Rule 86A.
The 57th GST Council (08.10.2026) recommended amendment of Rule 86A to provide a mechanism enabling a taxpayer to file an objection against blocking of any amount in the electronic credit ledger and to avail a personal hearing before the proper officer takes a decision on such objection.
What the Notification provides:
Now, the CBIC vide Notification No. 05/2026-Central Tax dated 26.10.2026 has amended Rule 86A with effect from 01.04.2027 as under:
- Rule 86A(1): The power is now vested in the “proper officer” (in place of the Commissioner or an officer authorised by him not below the rank of Assistant Commissioner), and the disallowance of debit is to be made by issuing an order in new FORM GST DRC-26, which shall be made available electronically to the registered person on the common portal. FORM GST DRC-26 requires the officer to state the amount and the reasons for which the credit is considered fraudulently availed or ineligible.
- Rule 86A(2): The order in FORM GST DRC-26 remains in force till the earlier of (a) expiry of one year from its issuance, or (b) the date on which the proper officer, on being satisfied that the conditions for disallowing debit no longer exist, allows debit by an order.
- Rule 86A(3): The registered person may file an objection in new FORM GST DRC-27 to the effect that the debit was or is not liable to be disallowed, along with supporting documents.
- Rule 86A(4): On receipt of the objection, the proper officer shall, after granting a reasonable opportunity of being heard, issue an order in new FORM GST DRC-28 on the common portal, either allowing the debit (Part A of DRC-28, restoring the credit ledger with effect from the specified date) or rejecting the objection with reasons (Part B of DRC-28).
New FORMS GST DRC-26, DRC-27 and DRC-28 have been inserted after FORM GST DRC-25 for this purpose.
Effective date:
The amended Rule 86A and the new forms come into force on 1st April, 2027. Thereafter, any blocking of ITC will have to be by a reasoned order in FORM GST DRC-26 served on the portal, and taxpayers will have a formal, time-bound remedy by way of objection and personal hearing, codifying the principles laid down by the High Courts. Until then, the existing rule and the CBIC guidelines of November 2021 continue to govern.
The Notification can be accessed at: https://a2ztaxcorp.net/wp-content/uploads/2026/10/CBIC-NN-05-2026–Central-Tax.pdf
