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.
The High Court accordingly disposed of the petition by reserving liberty to the petitioner to file its response to the show cause notice by 06.10.2026, without waiting for a certified copy of the order. The authorities were directed to examine whether the order blocking ITC should prevail and were specifically required to consider whether the petitioner showed just cause for discontinuing the ITC block. The respondent was further called upon to conclude the proceedings within four weeks from the date on which the petitioner files its response. The order therefore preserves the petitioner’s opportunity to substantiate its position while leaving the authorities to reconsider the continuation of the ITC block in accordance with the material and response placed before them.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
The petitioner’s grievance is with the respondent’s order dated 18.07.2026, and this order [which is produced as Annexure-A] is to block Input Tax Credit [ITC]. It is not in dispute that the respondent’s decision is after issuance of the notice dated 06.07.2026, and this notice reads that if the petitioner does not produce documents within seven days from the date of receipt of the notice, action will be initiated under the Central Goods and Services Tax Act, 2017/Karnataka Goods and Services Tax Act, 2017 [for short, ‘the Act’] without further intimation. This notice also reads that the action could be initiated under Rule 86A of the Central Goods and Services Tax Rules/Karnataka Goods and Services Tax Rules, 2017 [for short, ‘the Rules’].
2. The petitioner does not dispute that this notice is sent on e-mail, but its grievance is three-fold. [i] The notice is not published on the portal. [ii] The notice does not specifically state that there would be action under Rule 86A of the Rules to block ITC. [iii] For a complete pre-decisional opportunity, a specific date had to be intimidated before there could be a decision. Sri Sameer Gupta, the learned counsel for the petitioner, argues for this Court’s intervention in the light of the afore.
3. Sri K. Hema Kumar, the learned Additional Government Advocate, submits that this Court may consider that the impugned order is after scrutiny of the material and is premised in the observation that the petitioner’s suppliers have registered themselves only to enable participation in certain fraudulent activities and that the petitioner, despite being put on notice of a possible action, has not filed response to the show cause notice.
4. However, what is salient is that this Court has held that for the ITC to be blocked there must be a pre-decisional hearing, and in this case though the petitioner is put on notice, the petitioner has not participated. This Court could take exception with the reasons to refuse interference, but given the nature of the finding and with the petitioner willing to file a response against block of ITC in terms of the impugned order, this Court is of the considered view that there must be another opportunity to the petitioner. As such, the following.
ORDER
[A] The petition stands disposed of reserving liberty to the petitioner to file its response to the show cause notice by 06.10.2026 even without waiting for a certified copy of this order and calling upon the authorities to examine whether the order of blocking ITC must prevail and observing that if the petitioner shows just cause, the respondent may discontinue the block of ITC.
[B] The respondent is also called upon to conclude the proceedings within four [4] weeks from the date the petitioner files its response.
