K-9-Enterprises Vs State of Karnataka (Karnataka High Court)
In a significant ruling for Goods and Services Tax (GST) taxpayers, the Karnataka High Court, in a recent intra-court appeal concerning K-9-Enterprises vs. State of Karnataka, has overturned a single judge’s order, emphasizing the necessity of a pre-decisional hearing before blocking a taxpayer’s Electronic Credit Ledger (ECL) under Rule 86A of the Central Goods and Services Tax Rules, 2017. The judgment highlights the drastic nature of blocking ITC and the paramount importance of natural justice principles.
Also Read SC Judgment: SC mandates pre-decisional hearings before blocking Electronic Credit Ledgers
The appeals arose from writ petitions filed by K-9-Enterprises and connected entities, registered under GST and engaged in lead, lead scrap, and related businesses. Their Electronic Credit Ledgers were blocked by revenue authorities on June 27, 2023, by invoking Rule 86A. The appellants, who had availed input tax credit (ITC) on purchases from GST-registered dealers, challenged this action, arguing it violated statutory provisions and principles of natural justice. The learned Single Judge had previously rejected their contentions, leading to the present appeals.
Arguments Presented by Appellants and Amicus Curiae:
Sri V. Raghuraman, learned Senior Counsel and Amicus Curiae, along with the appellants’ counsel, presented a detailed argument against the blocking of the ECLs. They contended that Rule 86A, a draconian power, necessitates the existence of “reasons to believe” and strict compliance with its conditions. Key points raised included:
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