Case Details: State of Karnataka vs. K-9 Enterprises - [2025] 174 taxmann.com 701 (SC)
Judiciary and Counsel Details
- J.B. Pardiwala & R. Mahadevan, JJ.
- Prateek Krishna Chadha, A.A.G., Naveen Sharma, AOR, Mrs Swati Bhushan Sharma, S. K. Sharma, Sreekar Aechuri, Ms Surbhi Soni & Aniket Chauhaan, Advs. for the Petitioner.
Facts of the Case
The petitioner, an assessee under the CGST Act and Karnataka GST Act challenged an order passed under Rule 86A of the CGST Rules which blocked the petitioner’s Electronic Credit Ledger. The blocking order was issued based on a ‘reason to believe’ that the suppliers in the petitioner’s transactions were non-existent, a conclusion drawn from a field visit report. The petitioner contended that the blocking of the credit ledger was done without affording any pre-decisional hearing, which is mandatory under Rule 86A, given the serious civil consequences involved.
The petitioner approached the Karnataka High Court, which quashed the blocking order on the ground that the revenue authorities had failed to fulfill the mandatory procedural requirement of providing a pre-decisional hearing and had improperly relied on a borrowed satisfaction from another officer’s report without forming an independent opinion. The revenue authorities challenged the Karnataka High Court’s order before the Hon’ble Supreme Court by filing a Special Leave Petition.
Supreme Court Held
The Hon’ble Supreme Court held that the Special Leave Petition filed by the revenue authorities against the Karnataka High Court order was to be dismissed both on merits and due to unexplained delay in filing the petition. The Supreme Court reaffirmed the necessity of pre-decisional hearing as mandated by Rule 86A before blocking an Electronic Credit Ledger, emphasising that such blocking entails serious civil consequences and procedural safeguards cannot be bypassed.
The Court upheld the High Court’s reasoning that the revenue had not complied with the mandatory requirements under Rule 86A, specifically the failure to form an independent reasoned opinion and the absence of hearing to the petitioner. Thus, the Supreme Court dismissed the SLP, thereby sustaining the High Court’s order quashing the blocking of the credit ledger.
List of Cases Reviewed
- K-9-Enterprises v. State of Karnataka [2024] 167 taxmann.com 499 (Karnataka)[02-04-2024] (para 2) SLP dismissed.
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