Facts of the Case

Sulthana Taj, proprietor of M/s A.S. Steel, a GST-registered dealer, received an SMS intimation dated 09.05.2025 blocking the Input Tax Credit in her Electronic Credit Ledger, followed by a further intimation/notice dated 13.05.2025 for reversal of input tax credit issued by the Superintendent of Central Tax, BNWD-2 Range. She approached the Karnataka High Court seeking to quash both communications and to direct the department to unblock the ITC.

Issues Involved

  1. Whether the blocking of Input Tax Credit through an SMS intimation and a subsequent reversal notice, without following due process, was sustainable.
  2. Whether the issue was covered by the Division Bench ruling in K-9 Enterprises vs The State of Karnataka.

Petitioner's Arguments

  • The blocking of ITC through the SMS intimation dated 09.05.2025 and the subsequent notice dated 13.05.2025 was unjustified and covered squarely by this Court's decision in K-9 Enterprises vs The State of Karnataka and Another (arising from W.A.No.100425/2023 and connected matters), warranting quashing and unblocking of the credit ledger.

Respondent's Arguments

  • The learned Additional Government Advocate for the respondents-State agreed that the issue was covered by the K-9 Enterprises decision, without independently contesting the relief sought.

Court Order / Findings

  • Both counsel jointly acknowledged that the controversy stood covered by the Division Bench ruling in K-9 Enterprises vs The State of Karnataka.
  • The Court accordingly quashed the intimation dated 09.05.2025 and the notice dated 13.05.2025, and issued a mandamus directing the respondents to unblock the petitioner's Electronic Credit Ledger within two weeks to enable her to file returns.
  • Liberty was reserved to the respondents to proceed against the petitioner in accordance with law and in terms of the Division Bench order in W.P.No.100425/2023 and connected matters.

Important Clarification

  • Blocking of Input Tax Credit under Rule 86A must follow the procedural safeguards laid down in the K-9 Enterprises line of Karnataka High Court rulings; an SMS intimation alone, without recorded reasons communicated to the taxpayer, is vulnerable to being quashed.
  • Quashing such a blocking action restores access to the credit ledger for return-filing purposes but does not foreclose the department's right to proceed independently against the taxpayer in accordance with law and the governing Division Bench framework.

Sections Involved

  • Rule 86A, CGST Rules, 2017 – empowers the Commissioner to block ITC in the electronic credit ledger on specified grounds, the mechanism under challenge.
  • Section 16, CGST Act, 2017 – governs eligibility and conditions for taking input tax credit, the substantive right protected by unblocking the ledger.

Decision – In Favour of

The writ petition was allowed entirely in favour of the assessee, with the blocking intimation and notice quashed and a mandamus issued to unblock the ITC.

Case Details

Court: High Court of Karnataka at Bengaluru. Case No.: Writ Petition No.15909 of 2025 (T-RES). Neutral Citation: 2025:KHC:28009. Coram: Hon'ble Mr. Justice Suraj Govindaraj. Date of Order: 23rd July, 2025.

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