Blocking of Electronic Credit Ledgers requires adherence to procedural fairness and independent justification, as reliance on borrowed satisfaction is impermissible under Rule 86A of the CGST Rules.

ORDER :

1. In this petition, petitioner seeks the following reliefs:-

“(A) Quash the impugned proceedings dated 09.06.2023 bearing order under Rules 86(A) No.43/2023-24 issued by the Respondent at Annexure-B by issuance of Writ of Certiorari or any other writ in the nature of a Writ of Certiorari and (B) Direct the Respondent to consider the representation dated: 05.07.2023 at Annexure-D and pass appropriate order in accordance with the law, after giving an opportunity of personal hearing by issuance of Writ of Mandamus or any other writ in the nature of a Writ of Mandamus and/or (C) To grant any other relief/(s) this Hon’ble Court deems fit and proper in the facts and circumstances of the case.”

2. Heard learned counsel for the petitioner and learned counsel 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 order at Annexure B dated 25.05.2023, 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, the impugned order deserves to be quashed.

4. Per contra, learned counsel for 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 referred to 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 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 of the Rules of 2017 for the purpose of disallowing the debit of the determined amount to the electronic credit ledger or to block the electronic credit ledger even to the extent of amount fraudulently or wrongly availed by the petitioners/assessee.

9.1 However, the learned Singl