No Provision Allows Coercive Action Before Pre-Intimation Notice: Uttarakhand HC Criticizes GST Dept For Negatively Blocking ITC

The Uttarakhand High Court criticized the GST department for the negative blocking of ITC and questioned the provision under which such deterrent or coercive action has been taken. “The working of the Department is startling and shocking. It is not known and incomprehensible as to which provision of law permits the Department to take deterrent and coercive action, even prior to issuance of pre-intimation notice,” stated the Division Bench of Chief Justice G. Narendar and Justice Alok Mahra. Rule 86A of the GST Rules, 2017 provides the Department with a legal right to block ITC by the Tax Officer if the said ITC has been availed fraudulently. In this case, the assessee/petitioner is engaged in manufacturing of copper ingots and product related to iron and steel. The department issued a DRC-01A alleging that the assessee has received the inward supply from the non-existent supplier and claimed ITC without actually supply of goods for the period of April 2024-June 2024 amounting to Rs. 9,27,80,115/-. On the very same date, the assessee noticed on its GSTN portal that a “negative” Credit block has been placed on its Electronic Credit Ledger to the Extent of Rs. 9,27,80,115/-. The only reason given for the impugned negative credit block was “Supplier Found-non-functioning and Credit claimed without receipt of goods/services. The assessee submitted that Rule 86A of the GST Rules does not permit blocking of the ITC, which is unavailable in a taxpayer's ECL. They claim that on a plain reading of Rule 86A of the Rules, the power of the competent officer to block the ITC of a taxpayer is confined to the ITC that is available at the material time in the taxpayer's ECL. The assessee submitted that there is no provision under the GST regime to credit negatively, i.e. whereby the amounts are debited when there has been no balance in the Account. The bench stated that the conduct of the Department is deplorable. The aim and objective of the GST Act, is not to destroy businesses or ensure their closures. The GST regime was brought-in with the objective of ensuring tax compliances, and not with the intent or objective of ensuring loss of livelihoods. “We hope that the Department would bear this in mind. The growth of businesses and sustenance of businesses is vital for employment generation and growth of the Nation. If the Department can bear this in mind and act in consonance with the stated objectives of the Act, it would be rendering yeomen service to the business community. Such actions reflect a mindset, which we do not wish to name here,” stated the bench. In view of the above, the bench listed the matter on 29.04.2025. Case Title: Kotdwar Steel Limited v. Office of the Deputy Commissioner Kotdwar Case Number: Civil Writ Petition No. 47 Of 2025 Counsel for Petitioner/ Assessee: Rakesh Prasad Singh and Kanti Ram Sharma Counsel for Respondent/ Department: Puja Banga Click Here To Read/Download The Order

No Provision Allows Coercive Action Before Pre-Intimation Notice: Uttarakhand HC Criticizes GST Dept For Negatively Blocking ITC

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