In a recent case, the Karnataka High Court has held that electronic credit ledger(ECL) cannot be blocked under Central Goods and Service Tax (CGST), 2017 without cogent reason. It was found that the blocking was  immediately upon the receipt of copy of enforcement authority’s reports. The Electronic credit ledger of Prince Steel, the petitioner/assessee was blocked by the orders by invoking Rule 86A of the Central Goods and Services Tax Rules, 2017 (CGST Rules). It was submitted that before passing the order, pre-decisional hearing was not provided to the petitioner nor does the order contain any reason to believe as to why it was necessary to block the Electronic credit ledger. Complete Draft Replies of GST ITC Related Notices, Click Here

In K-9-Enterprises Vs. State of Karnataka, the Karnataka High Court in the case of K-9-Enterprises Vs. State of Karnataka has held that in the absence of valid nor sufficient material which constituted ‘reasons to believe’ which was available with respondents, the mandatory requirements/pre- requisites/ingredients/parameters contained in Rule 86A had not been fulfilled/satisfied by the department who were clearly not entitled to place reliance upon borrowed satisfaction of another officer and pass the impugned orders illegally and arbitrarily blocking the ECL of the appellant by invoking Rule 86A which is not only contrary to law but also the material on record and consequently, the impugned orders deserve to be quashed.

The single bench of Justice S.R.Krishna Kumar has observed that “since no pre-decisional hearing was provided/granted by the respondents before passing the impugned order, coupled with the fact that the impugned order invoking Section 86A of the CGST Rules by blocking of the Electronic credit ledger of the petitioner does not contain independent or cogent reasons to believe except by placing reliance upon the reports of Enforcement authority which is impermissible in law.” Complete Draft Replies of GST ITC Related Notices, Click Here

While quashing the order, the court held that the concerned respondents are directed to unblock the Electronic credit ledger of the petitioner immediately upon the receipt of copy of order, so as to enable the petitioner to file returns. Bharath Kumar V. appeared for the petitioner and Hemakumar K.appeared for the respondent.