Karnataka HC Allows Taxpayer to Respond Before Continuation of ITC Block

M.H. And Company Vs Deputy Commissioner of Commercial Taxes (Karnataka High Court)

SEO Title: Karnataka HC Grants Fresh Opportunity Before ITC Blocking Under Rule 86A

Summary: The Karnataka High Court considered a writ petition filed by M/s M.H. and Company challenging the respondent’s order dated 18.07.2026 by which the petitioner’s Input Tax Credit (ITC) was blocked. The impugned action followed a notice dated 06.07.2026 stating that, if the petitioner failed to produce documents within seven days, action would be initiated under the Central Goods and Services Tax Act, 2017 and the Karnataka Goods and Services Tax Act, 2017, including under Rule 86A of the Central Goods and Services Tax Rules, 2017 and the corresponding Karnataka Goods and Services Tax Rules. The petitioner raised three grievances concerning the notice: it was not published on the GST portal, it did not specifically state that action under Rule 86A would be taken to block ITC, and a specific date for a complete pre-decisional opportunity had not been intimated. The petitioner sought intervention of the High Court under Articles 226 and 227 of the Constitution of India.

The Additional Government Advocate submitted that the impugned order followed scrutiny of the material and was premised on an observation that the petitioner’s suppliers had registered themselves only to facilitate certain fraudulent activities. It was also submitted that the petitioner, despite being put on notice of possible action, had not filed a response to the show cause notice. The High Court, however, noted that it had held that blocking ITC requires a pre-decisional hearing. Although the petitioner had been put on notice and had not participated in the earlier process, the Court considered the nature of the finding and the petitioner’s willingness to file a response against the blocking order. The Court therefore held that another opportunity should be provided to the petitioner.