The court held that blocking a taxpayer's Electronic Credit Ledger requires a valid independent assessment and adherence to natural justice, specifically pre-decisional hearings and recording of reasons as per Rule 86A.

ORDER :

S.R. KRISHNA KUMAR, J.

In this petition, petitioner seeks for the following reliefs:-

“ a) Issue a Writ of Certiorari, or any other appropriate Writ declaring that the action of Respondent No.1 in blocking the Petitioner’s Electronic Credit Ledger (ECL) under Rule 86A of the Central Goods and Services Tax Rules, 2017, pursuant to the communication dated:19.11.2025 reference No.GEXCOM/AE/INV/ ST/6173/2024-AE/O as reflected in the communication enclosed as Annexure-B is illegal, arbitrary, violative of principle of natural justice and contrary to Rule 86A and consequently quash the said blocking order/communication dated: 19.11.2025.

b) Direct Respondent No.1 to furnish to the petitioner all material, reports, and documents relief upon while taking action to block the petitioner’s Input Tax Credit, and thereafter afford a reasonable opportunity of hearing to the Petitioner before passing any adverse order.

c) Direct Respondent No.1 to immediately restore the blocked Input Tax credit of Rs.12,26,36,340/- in the petitioner’s Electronic Credit Ledger forthwith as enclosed in the Annexure-C.

d) Pass any such further order(s) as this Hon’ble court may deem fit in the interest of justice and equity.”

2. Heard learned counsel for the petitioner and learned HCGP for the respondents and perused the material on record.

3. A perusal of the material on record will indicate that the Electronic credit ledger of the petitioner was blocked by the impugned orders dated 19.11.2025 at Annexures-B and C by invoking Rule 86A of the Central Goods and Services Tax Rules, 2017 (for short ‘the CGST Rules’). In this context, learned counsel for the petitioner invited my attention to the material on record in order to point out that before passing the impugned order, pre- decisional hearing was not provided to the petitioner nor does the impugned order contain any reason to believe as to why it was necessary to block the Electronic credit ledger and in view of the judgment of the Division Bench of this Court in the case of K-9- Enterprises Vs. State of Karnataka - W.A.No.100425/2023 & connected matters Dated 02.04.2024, the impugned order deserves to be quashed.

4. Per contra, learned HCGP for the respondents supports the impugned order and submit that there is no merit in the petition and the same is liable to be dismissed.

5. In K-9-Enterprises’s case supra, the following points were answered in favour of the petitioner- assessee by holding as under:

"8.13 In view of the aforesaid discussion, we are of the considered opinion that the learned Single Judge clearly fell in error in coming to the conclusion that a pre-decisional hearing was not required to have been provided/granted to the appellants by the respondents-revenue prior to passing the impugned orders blocking the ECL of the appellants and consequently, the said findings recorded by the learned Single Judge deserve to be set aside.

9. The next point that arises for consideration is as to whether the respondents-revenue were justified in passing the impugned orders blocking the Electronic Credit Ledgers of the appellants by invoking Rule 86A of the CGST Rules which mandates that the respondents-revenue should have ‘reasons to believe’ that the ITC available in the ECL was fraudulently availed or was ineligible as contemplated in the said provision; in this regard, the learned Single Judge noticed that 2 pre- requisites/conditions had to be satisfied/fulfilled before invocation of Rule 86A and blocking the ECL of the appellants and held as under:

18. The first requisite of the Rule which is required to be considered by the competent authority is with regard to the basis of material available before he taking any action for blocking of electronic credit ledger. The second pre-requisite is of recording the reasons in writing for invoking the powers under Rule 86A of the Rules of 2017. Unless the aforesaid two pre-requisites are fulfilled, the competent authority cannot invoke the powers under Rule 86A