Ncc Limited Through Its Authorized Signatory vs. Union Territory Of J And K And Another (State Taxes Department)

Held

The Court held that the impugned communication dated July 22, 2026, suffers from arbitrariness because the Authority failed to provide any reasons for blocking the petitioner's Input Tax Credit (ITC) and passed the order without adhering to the principles of audi alteram partem. While Rule 86-A of the Rules does not explicitly mandate a hearing before blocking ITC, the Court held that the principle of audi alteram partem must be read into the provision due to the adverse impact of such an action on the taxpayer. This view is supported by judgments from the High Courts of Karnataka and Telangana, with the Karnataka High Court's decision having been upheld by the Supreme Court. Consequently, the Court found merit in the petition and set aside the impugned communication. However, the Competent Authority is at liberty to pass an appropriate order under Rule 86-A after providing the petitioner an adequate opportunity of being heard. Other aspects raised by the petitioner were left open to be raised before the concerned Authority.

Facts

The petitioner, NCC Limited, a construction company, filed a writ petition challenging an intimation dated July 22, 2026, issued by the Additional Commissioner, Stat, Kashmir. This intimation informed the petitioner that Input Tax Credit (ITC) amounting to Rs. 10,45,38,432/- had been blocked. The petitioner argued that the communication lacked reasons for the blocking and was issued without providing an opportunity to be heard. Furthermore, the petitioner contended that the Additional Commissioner lacked the jurisdiction to pass such an order under Rule 86-A of the Central Goods and Services Tax Rules, 2017, and that the entire ITC could not be blocked, only an amount equivalent to the credit available for liability discharge or refund claims.

Key Issues

1. Whether the intimation dated July 22, 2026, blocking the petitioner's Input Tax Credit (ITC) of Rs. 10,45,38,432/- is arbitrary and violative of natural justice principles, specifically the principle of audi alteram partem, under Rule 86-A of the Central Goods and Services Tax Rules, 2017? Petitioner's Arguments: The petitioner contended that the impugned communication was arbitrary as it provided no reasons for blocking the ITC and was passed without affording an opportunity of being heard. They also argued that the Additional Commissioner lacked jurisdiction under Rule 86-A and that the entire ITC could not be blocked, but only an amount equivalent to the credit available for discharge of liabilities or refund claims under Section 49 of the CGST Act, 2017. Revenue's Arguments: The judgment does not record any specific arguments made by the revenue or state.