Victory Aluminium vs. Deputy Commissioner Of Commercial Taxes (Enforcement)-01
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The petitioner's input tax credit (ITC) was blocked under Rule 86A of the CGST/KGST Rules, 2017. The petitioner appeared on the date of the summons but requested an adjournment, which was not granted, and the blocking order was passed on the same day.
Held
The Court held that the petitioner was not afforded a proper opportunity to present their case before the ITC was blocked. The blocking order was passed without considering the petitioner's request for adjournment and without providing adequate reasons.
Key Issues
Whether the blocking of Input Tax Credit under Rule 86A was done without affording a proper pre-decisional hearing to the petitioner. Whether the adjournment request was wrongly rejected.
Sections Cited
Rule 86A, Section 161
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Cause title — parties, addresses and appearances
ORAL ORDER
The petitioner’s grievance is with the first respondent’s order dated 18.06.2026 under Rule 86-A (1) and (2) of the Central Goods and Services Tax Rules, 2017/Karnataka Goods and Services Tax Rules, 2017 [for short, ‘the Rules]. The first respondent has blocked the debit of Rs.66,59,247/- from the petitioner's Electronic Credit Ledger with the further stipulation that even the subsequent credits arising on the strength of the impugned invoices/transactions and for the relevant period shall remain blocked subject to certain overall capital.
The first respondent on the opportunity extended and the petitioner's response has recorded thus:
“2.7 Pre-decisional Notice/Intimation for blocking of ITC: In continuation of the inspection findings, this office issued a Notice/Intimation under rule 86A(1) of the CGST/KGST Rules, 2017 Dated 11-06-2026, HC-KAR
CNR: KAHC010471782026 NC: 2026:KHC:36310 to the RTP, intimating the proposed blocking of the Input Tax Credit lying in its Electronic Credit Ledger, and directing it to appear for the notice proceedings on 18-06-2026, with a clear instruction that its physical presence was necessary to substantiate the genuineness of the reported transactions and to establish the bona fids of the ITC availed.”
Sri Shreehari K., the learned counsel for the petitioner, and Sri K. Hema Kumar, the learned Additional Government Advocate who accepts notice for the respondents, are heard on whether the afore would satisfy the requirement of an opportunity as emphasized by this Court that there must be a pre- decisional hearing to block the ITC. The petitioner in terms of the summons dated 11.06.2026 has appeared on 18.06.2026 with a request for adjournment by thirty days but the order to block ITC is passed on the same day without informing the petitioner about the decision on adjournment. HC-KAR
CNR: KAHC010471782026 NC: 2026:KHC:36310
Sri. Shreehari K. submits that the petitioner was served with summons without the details of the reasons which has prompted the proposal to block ITC and the petitioner has made a request for an adjournment. The learned counsel emphasizes that from the afore it follows that the petitioner, who did not know about the reasons for the decision to block ITC, did not have an opportunity to demonstrate the cause against the same, and therefore, this Court must intervene permitting the petitioner to use the credit in its Electronic Credit Ledger.
Sri K. Hema Kumar submits that if this Court is of the view that the petitioner must have another opportunity to show cause against the blocking of the Electronic Credit Ledger, there may be just orders in view of the fact that the claim for the ineligible ITC claimed is in excess of Rs.27,48,55,598/- and that this ITC is claimed on the HC-KAR
CNR: KAHC010471782026 NC: 2026:KHC:36310 basis of the transaction with suppliers who are not in existence.
These circumstances are considered to answer whether there must be another opportunity and if there must be another opportunity, the terms upon which such opportunity must be extended. It stands out that the petitioner was called upon to appear on 18.06.2026 and on the same day, the impugned order is passed. This Court opines that the first respondent, even if inclined to pass orders without an adjournment, should have reasoned why the adjournment could not have been granted. This affords reason for this Court's interference.
This Court in exercise of the juri iction under Article 226 to the Constitution of India, to balance interests when there is an allegation of lack of opportunity and an allegation of ITC claim based on transactions with non-existing entities, must direct HC-KAR
CNR: KAHC010471782026 NC: 2026:KHC:36310 the first respondent to examine all the circumstances with opportunity to the petitioner and decide on continuing the blocking as against blocking the petitioner’s Electronic Credit Ledger. This Court
therefore concludes on the following: The first respondent, who could on his own motion examine the records to ascertain whether there is any error on the face of the records under Section 161 of the Act, must begin proceedings with an opportunity to the petitioner to show a possible error in the proposition to block ITC. The petitioner, who has the advantage of the reasons in the impugned order, will have to file a reply thereof with all supportive documents at the earliest.
In the light of the afore, the following: HC-KAR
CNR: KAHC010471782026 NC: 2026:KHC:36310 ORDER [A] The petition stands disposed of directing the petitioner to appear with the first respondent along with a certified copy of this order on 23.09.2026 and file a detailed response, the first respondent shall examine the cause shown for a decision on the merits as is now made in terms of the impugned order but without restricting to the juri iction under Section 161 of the Act. (B M SHYAM PRASAD) JUDGE SA Ct:sr
Reproduced from the public record of the Karnataka High Court. Verify against the court's own copy before relying on it. Income tax judgments are on bharattax.net.