- NCC Limited Vs Union Territory of J&K and Anr (Jammu and Kashmir High Court)
- Challenge to Blocking of Input Tax Credit
- Petitioner's Contentions
- Court's Findings on Natural Justice
- Opportunity of Hearing Under Rule 86-A
- Reliance on Karnataka and Telangana High Court Judgments
- Other Grounds Left Open
- Final Decision
- Cases Discussed
- Alternative SEO Titles
NCC Limited Vs Union Territory of J&K and Anr (Jammu and Kashmir High Court)
Summary: The petitioner, a construction company, invoked Article 226 of the Constitution of India challenging an intimation/communication dated 22.07.2026 issued by the Additional Commissioner, Stat, Kashmir, whereby Input Tax Credit (ITC) amounting to Rs. 10,45,38,432/- was blocked. The petitioner challenged the communication primarily on the grounds that it disclosed no reasons for blocking the ITC and was issued without providing an opportunity of hearing. The petitioner also questioned the jurisdiction of the Additional Commissioner, Stat, Kashmir, to pass the order under Rule 86-A of the Central Goods and Services Tax Rules, 2017.
The petitioner further contended that the entire ITC amounting to Rs. 10,45,38,432/- could not have been blocked and relied upon Rule 86-A in support of its contention concerning the extent of restriction.
The Jammu and Kashmir High Court held that the impugned communication suffered from arbitrariness because the concerned authority had not given reasons for blocking the ITC amounting to more than ten crores and had passed the adverse order without adhering to the principles of audi alteram partem. The Court observed that although Rule 86-A does not expressly provide for an opportunity of hearing before blocking ITC, the nature of the action contemplated by the provision adversely affects the taxpayer and therefore adherence to the rule of audi alteram partem needs to be read into the provision.
In reaching this conclusion, the Court relied upon the judgments of the Division Benches of the Karnataka and Telangana High Courts in K-9-Enterprises Vs State of Karnataka and Bhavani Oxides and Others Vs. State of Telangana and Ors. The Court noted that the Karnataka High Court judgment had already been upheld by the Supreme Court by dismissal of the Special Leave Petition.
The Court did not consider the other aspects raised in the matter and left them open to be raised before the concerned Authority. It consequently set aside the impugned communication dated 22.07.2026 for violation of the principles of natural justice, while clarifying that the Competent Authority could pass an appropriate order under Rule 86-A after providing the petitioner an adequate opportunity of being heard.
Challenge to Blocking of Input Tax Credit
The petitioner, a construction company, challenged the intimation/communication dated 22.07.2026 issued by Shri Parveez Ahmad Raina, Additional Commissioner, Stat, Kashmir. Through the impugned communication, the petitioner was intimated that ITC amounting to Rs. 10,45,38,432/- had been blocked.
The challenge was principally directed against the manner in which the ITC was blocked. According to the petitioner, the communication did not spell out any reason for the blocking and had not been issued after affording an opportunity of being heard.
Petitioner’s Contentions
Learned senior counsel appearing for the petitioner contended that the impugned communication was liable to be assailed because it did not provide reasons for blocking the ITC and was passed without an opportunity of hearing.
The petitioner also contended that the Additional Commissioner, Stat, Kashmir did not have jurisdiction to pass the order in terms of Rule 86-A of the Central Goods and Services Tax Rules, 2017.
It was further contended that the respondents could not have blocked the entire ITC amounting to Rs. 10,45,38,432/- and that, in terms of Rule 86-A, the restriction could extend only to an amount equivalent to such credit as is available in the electronic credit ledger for discharge of any liability under Section 49 of the Central Goods and Services Tax Act, 2017 or for claiming any refund of any unutilized amount.
Court’s Findings on Natural Justice
Having heard learned counsel for the parties and perused the material on record, the Court found that the impugned communication suffered from the vice of arbitrariness.
The Court specifically found that the Authority concerned had not given reasons for blocking the petitioner’s ITC amounting to more than ten crores. It further found that the order, which adversely affected the rights and interests of the petitioner, had been passed without adhering to the principles of audi alteram partem.
Opportunity of Hearing Under Rule 86-A
The Court observed that Rule 86-A of the Rules does not, in express terms, provide for an opportunity of hearing to the taxpayer before an order blocking ITC is passed.
However, having regard to the nature of action envisaged under Rule 86-A, which definitely affects the taxpayer adversely, the Court held that adherence to the rule of audi alteram partem needs to be read into the provision.
The Court therefore treated the opportunity of hearing as a requirement arising from the adverse nature of action contemplated under Rule 86-A, notwithstanding the absence of an express hearing requirement in the provision.
Reliance on Karnataka and Telangana High Court Judgments
The Court noted that its view found support from judgments of the Division Benches of the Karnataka and Telangana High Courts.
The first judgment relied upon was K-9-Enterprises Vs State of Karnataka, reported as (2025) 137 GSTR 450; 2024 SCC Online Kar 2716.
The Court also relied upon “ Bhavani Oxides and Others. Vs. State of Telangana and Ors.” reported as (2024) 132b GSTR 304; 2024 SCC Online TS 3306.
The Court recorded that the judgment passed by the Karnataka High Court in the aforesaid case had already been upheld by the Hon’ble Supreme Court by dismissing the Special Leave Petition.
Other Grounds Left Open
In view of its conclusion concerning the violation of natural justice, the Court stated that it was not necessary to go into the other aspects of the matter.
The Court left it open to the petitioner to raise those other aspects before the concerned Authority.
Final Decision
The Court found merit in the petition and set aside the impugned communication dated 22.07.2026.
The setting aside was based on the finding that the communication had been passed in violation of the principles of natural justice.
At the same time, the Court clarified that setting aside the impugned communication would not prevent the Competent Authority of the respondents from passing an appropriate order under Rule 86-A of the Rules of 2017 after providing the petitioner an adequate opportunity of being heard.
Cases Discussed
- K-9 Enterprises Vs. State of Karnatka and Anr., reported as (2025) 137 GSTR 450; 2024 SCC Online Kar 2716
- Bhavani Oxides and Others. Vs. State of Telangana and Ors., reported as (2024) 132b GSTR 304; 2024 SCC Online TS 3306
Alternative SEO Titles
1. J&K HC Sets Aside ITC Blocking Order for Lack of Reasons and Hearing
2. J&K HC Quashes Rule 86-A ITC Blocking for Violation of Natural Justice
3. J&K HC Holds Hearing Necessary Before Adverse ITC Blocking Under Rule 86-A
4. J&K HC Cancels ITC Blocking Without Reasons or Opportunity of Hearing
5. J&K HC Remands Rule 86-A ITC Action After Finding Natural Justice Violation
FULL TEXT OF THE JUDGMENT/ORDER OF JAMMU & KASHMIR HIGH COURT
1. The petitioner, a construction company, invokes the extraordinary jurisdiction vested in this Court under Article 226 of the Constitution of India to throw challenge to an intimation/communication dated 22.07.2026 issued by one Shri Parveez Ahmad Raina, Additional Commissioner, Stat, Kashmir, whereby the petitioner has been intimated that Input Tax Credit (ITC) amounting to Rs. 10,45,38,432/- has been blocked.
2. The impugned communication has been called in question primarily, on the ground that the same does not spell out any reason for said blocking, nor has the same been passed after affording an opportunity of being heard to the petitioner. The petitioner also seeks to assail the impugned communication on the ground that the Additional Commissioner, Stat, Kashmir did not have the jurisdiction to pass the order in terms of Rule 86-A of the Central Goods and Services Tax Rules, 2017 [“the Rules”].
3. It is further contended by the learned senior counsel appearing for the petitioner that the respondents could not have blocked the entire ITC amounting to Rs. 10,45,38,432/- and that, in terms of Rule 86-A, the restriction could extend only to an amount equivalent to such credit as is available in the electronic credit ledger for discharge of any liability under Section 49 of the Central Goods and Services Tax Act, 2017 or for claiming any refund of any unutilized amount.
4. Having heard learned counsel for the parties and perused the material on record, we are of the considered opinion that that the impugned communication suffers from the vice of arbitrariness, in that the Authority concerned has not given any reasons for blocking the Input Tax Credit (ITC) of the petitioner amounting to more than ten cores and also that the order of blocking the Input Tax Credit (ITC) which adversely affects the rights and interests of the petitioner has been passed without adhering to the principles of audi alteram partem.
5. It is true that Rule 86-A of the Rules does not, in express terms, provide for an opportunity of hearing to the taxpayer before passing an order blocking his Input Tax Credit (ITC). However, having regard to the nature of action envisaged under Rule 86-A of the Rules, which definitely affects the taxpayer adversely, the adherence to Rule of audi alteram partem needs to be read into the said provision.
6. The aforesaid view finds support from the judgments of the Division Benches of the High Courts of Karnataka and Telangana in case titled “K-9 Enterprises Vs. State of Karnatka and Anr.,” reported as (2025) 137 GSTR 450; 2024 SCC Online Kar 2716 and “ Bhavani Oxides and Others. Vs. State of Telangana and Ors.” reported as (2024) 132b GSTR 304; 2024 SCC Online TS 3306. The judgment passed by the Karnatka High Court (Supra) has already been upheld by the Hon’ble Supreme Court by dismissing the Special Leave Petition (SLP).
7. In view of the aforesaid, we need not to go into other aspects of the matter and leave it open to the petitioner to raise the same before the concerned Authority.
8. For the foregoing reasons, we find merit in this petition. The impugned communication dated 22.07.2026, which is found to have been passed in violation of the principles of natural justice, is set aside. The setting aside of impugned communication, however, shall not come in the way of the Competent Authority of respondents to pass an appropriate order under Rule 86-A of the Rules of 2017, after providing the petitioner an adequate opportunity of being heard.
