Karnataka HC Quashes ITC Blocking for Lack of Hearing & Cogent Reasons

Narasimhan Engineering Contractors Private Limited Vs. Principal Commissioner of Central Tax & Ors. (Karnataka High Court)

Bengaluru, Karnataka – In a significant ruling, the High Court has sided with a petitioner challenging the Goods and Services Tax (GST) department’s actions of blocking their Electronic Credit Ledger (ECL) and provisionally attaching their bank account. The court found these actions to be illegal and arbitrary, emphasizing the need for due process, proper application of mind, and adherence to statutory provisions.

The petitioner had approached the court seeking to quash the blocking of their ECL dated January 29, 2025, the provisional attachment order issued under Section 83 of the Central Goods and Services Tax (CGST) Act, 2017, and the subsequent freezing of their bank account. The core of the petitioner’s argument rested on the absence of a pre-decisional hearing and the lack of recorded “reasons to believe” before these drastic measures were initiated.

Electronic Credit Ledger Blocked Without Justification

The Electronic Credit Ledger (ECL) of the petitioner was blocked by invoking Rule 86A of the CGST Rules, 2017. The petitioner’s counsel contended that prior to this blocking, no pre-decisional hearing was afforded, and the impugned order itself lacked any “reason to believe” for such action. This argument drew strength from a previous Division Bench ruling of the same court in K-9-Enterprises Vs. State of Karnataka (W.A.No.100425/2023).