SUF Enterprises Vs Assistant Commissioner Central Tax (Karnataka High Court)
The Karnataka High Court heard a writ petition challenging the action of the tax authorities in blocking the petitioner’s electronic credit ledger and creating a negative balance.
The electronic credit ledger was blocked on the ground that credit had been claimed without receipt of goods or services and that the supplier was found to be non-functioning.
The petitioner contended that the power to block the electronic credit ledger is exercised under Rule 86A of the Central Goods and Services Tax Rules, 2017. It was argued that although the Rule does not expressly require a prior hearing, courts have interpreted the provision to require a pre-decisional hearing before blocking the electronic credit ledger. Reliance was placed on the Karnataka High Court judgment in K-9 Enterprises, Kwality Metals, K-9 Industries v. State of Karnataka.
Counsel appearing for the revenue was unable to dispute the petitioner’s assertion that no notice had been issued before blocking the ledger.
The Court referred to paragraph 8.13 of the judgment in K-9 Enterprises, wherein it was held that failure to provide a pre-decisional hearing before blocking the electronic credit ledger under Rule 86A constituted a serious illegality and that such orders deserved to be set aside.
