The Division Bench allowed the appeal and set aside the Adjudication Order dated 10 December 2020 and the Appellate Order dated 02 January 2025.The Court held that:The Adjudicating Authority confirmed a tax liability exceeding the amount specified in the Show Cause Notice, in violation of Section 75(7) of the West Bengal Goods and Services Tax Act, 2017. The provision imposes a jurisdictional ceiling and prohibits confirmation of an amount higher than that stated in the notice. The excess demand rendered the order ultra vires and unsustainable.The failure to grant a personal hearing despite a specific request violated Section 75(4) of the Act. The provision mandates that a personal hearing shall be granted where requested. The ex parte order passed without granting such hearing constituted a breach of principles of natural justice and was held to be a fatal infirmity.The cumulative effect of breach of Section 75(7), violation of Section 75(4), and initiation of parallel proceedings under Sections 73 and 74 rendered the assessment fundamentally flawed.The Court remanded the matter to the Adjudicating Authority for de novo adjudication from the stage of reply to the Show Cause Notice, directing grant of fresh personal hearing and strict compliance with Section 75(7).Cases Referred by Court:Kaveri Telecom Products Ltd. vs. Commissioner of Customs (2018) 

Facts :The petitioner, a registered GST dealer, challenged the action of the respondents in blocking its Electronic Credit Ledger (ECL) on 29.04.2024 by creating a negative balance.It was contended that such blocking exceeded the available Input Tax Credit and was done without prior notice, violating Rule 86A and principles of natural justice.The petitioner argued that Rule 86A only allows restriction of credit actually available in the ECL and does not permit creation of artificial negative balance.Court Decision:The Court held that Rule 86A can be invoked only when Input Tax Credit is available in the Electronic Credit Ledger.Blocking of ITC beyond the available amount, resulting in a negative balance, is without jurisdiction and impermissible.Rule 86A only allows temporary restriction on utilisation of existing credit and does not empower authorities to create debit entries or negative balances.The impugned action was set aside to the extent it blocked credit in excess of the available ITC, and the writ petition was allowed.The Court clarified that authorities are free to take recourse to statutory recovery mechanisms under Sections 73 and 74 of the CGST/HGST Acts.Cases Referred:Samay Alloys India Pvt. Ltd. vs State of GujaratBest Crop Science Pvt. Ltd. vs Principal CommissionerKings Security Guard Services Pvt. Ltd. vs Deputy Director, DGGIKaruna Rajendra Ringshia vs Commissioner of CGSTM/s Shyam Sunder Strips vs Union of IndiaM/s Laxmi Fine Chem vs Assistant CommissionerRawman Metal and Alloys vs Deputy Commissioner of State TaxBasanta Kumar Shaw vs Assistant Commissioner of RevenueM/s RM Dairy Products LLP vs State of U.P.Sugna Sponge and Power Pvt. Ltd. vs Superintendent of Central Tax

Background & Relevant FactsThe petitioner, King Enterprises, challenged an order dated 8 January 2025 passed under Rule 86A of the CGST Rules, 2017, whereby ITC in its electronic credit ledger was blocked to the extent of Rs. 2.66 Crores. Crucially, on the date of the said blocking order, the actual ITC available in the petitioner's electronic ledger was only Rs. 7,06,770/-. The respondents sought to justify the blocking of ITC in excess of the available ledger balance — a phenomenon referred to by the Court as "negative blocking" — by arguing that Rule 86A permits blocking of amounts fraudulently availed and utilised, even if such amounts exceed the current ledger balance, and that such blocking operates as a lien on future credit entries. The petitioner did not object to blocking of ITC to the extent of the actual available balance of Rs. 7,06,770/-. Court Observations (Verbatim)"Thus, this is a case of 'negative blocking' to the extent, it concerns ITC over Rs. 07,06,770/-.""The arguments urged on behalf of the Respondents in the affidavit filed on behalf of the Respondents opposing the grant of any relief in this Petition run directly contrary to the following decisions: (i) Samay Alloys India Pvt Ltd Vs State of Gujarat, (ii) Laxmi Fine Chem Vs Assistant Commissioner, (iii) Best Crop Science Pvt Ltd through Authorised Representative Vs Principal Commissioner, CGST Commissionerate, Meerut & Ors, (iv) Karuna Rajendra Ringshia Proprietor R R Enterprises Vs Commissioner of Central Goods and Service Tax & Ors.""Besides, the arguments in the affidavit on behalf of the Respondents also run counter to this Court's decision in Rawman Metal & Alloyes (supra). Accordingly, we cannot accept such arguments and, on that basis, permit the blocking of ITC from the Petitioner's electronic ledger to the extent it exceeds Rs. 07,06,770/-.""As noted above, the High Courts of Gujarat, Telangana, and Delhi have held that such negative blocking was ultra vires Rule 86A." Final VerdictThe impugned order dated 8 January 2025 was quashed and set aside to the extent it blocked ITC beyond Rs. 7,06,770/-. A Writ of Mandamus was issued directing the respondents to unblock ITC in excess of Rs. 7,06,770/- within 15 days of uploading of the order. The Rule was made partly absolute with no order as to costs.    

BackgroundThe petitioner, M/S Pilcon Infrastructure Pvt. Ltd., had its ITC amounting to Rs. 13,96,220/- blocked in its Electronic Credit Ledger (ECL) by Respondent No. 2 (State Tax Authority) vide e-mail communication dated 24.07.2025.The sole reason recorded in the ECL for blocking was "Supplier found non-functioning", with a reference to attachment bearing ECL No. 20250709584828, which turned out to be an Alert Notice dated 13.06.2025 received by the Commissioner of State GST from the Directorate General of GST Intelligence (DGGI), Raipur Zonal Unit.The DGGI communication stated that M/s Maa Kamakhaya Trading, Surguja (GSTIN: 22FRAPR2468R1Z5) was found non-operational and had allegedly passed on fraudulent ITC without supply of goods through bogus invoices to various taxpayers, including those in Uttar Pradesh. The petitioner was one such recipient listed in Annexure-A of that communication.The petitioner contended that no 'reasons to believe' were recorded in writing by Respondent No. 2 as mandatorily required under Rule 86A(1) of the U.P. GST Rules, 2017, rendering the blocking action illegal and without jurisdiction. Court Observations (Verbatim)"Once the Rule requires 'reasons to believe' to be 'recorded in writing', the jurisdiction and authority to be exercised under Rule 86A of the Rules must subscribe to that mandatory condition. Though such reasons may be recorded ex-parte against the assessee, at the same time, the requirement of the statute to record the reasons is a non-negotiable condition. It is wholly mandatory.""Reliance placed by learned Standing Counsel on the 'Reason' as mentioned in the Electronic Credit Ledger, namely, 'Supplier found non-functioning', does not fulfill the requirement of Rule 86A(1) of the Rules, to the extent it does not reflect any application of mind to reach that conclusion.""That the goods claimed to have been supplied to the petitioner by the said supplier M/s Maa Kamakhaya Trading, Sarguja was a bogus transaction, may not be readily inferred, merely on the generic allegation made by DGGI, Raipur Zonal Unit that that dealer had made some non-generic transactions.""When the Rules require recording of 'reasons to believe', 'in writing', there must not only exist material that may give rise to the belief necessary to be recorded by respondent no.2 but the reasons must spring from material on record/leading to the necessary belief. It necessarily involves application of mind by the competent authority, here respondent no.2, to the facts brought before it.""Even though exercise of power under Rule 86A(1) of the Rules remained ex-parte to the assessee, yet, more especially for that reason, the requirement of the statute to first record 'reasons to believe', 'in writing' must be strictly enforced on the revenue authorities.""It may not be forgotten, granting ITC and maintaining its chain is the soul of a successful GST regime. Therefore, any doubt or suspicion alone may not lead an action by the authorities to block the ITC of the assessee and disrupt the entire value addition chain and consequentially tax payments without fulfilling the mandatory requirement of law — to record 'reasons to believe', 'in writing'." Final VerdictThe blocking of ITC vide e-mail dated 24.07.2025 was set aside. The Court directed that the blocked ITC be unblocked forthwith. Liberty granted to Respondent No. 2 to take fresh action strictly in accordance with law under Rule 86A(1), if warranted. Petition allowed. No order as to costs.   

Facts:An inspection was conducted at the premises of the assessee on 08.03.2012 in relation to transactions in Indian Made Foreign Liquor and Foreign Made Foreign Liquor. Based on the inspection, a show cause notice dated 20.12.2018 proposing penalty under Section 45A of the Kerala General Sales Tax Act, 1963 was issued. The assessee challenged the notice contending that it was issued after an unreasonable delay and therefore barred by limitation.Court Decision:The Division Bench held that even though Section 45A of the Act does not prescribe any specific limitation period for initiating penalty proceedings, such proceedings must be initiated within a reasonable period of time. Referring to other provisions of the Act, the Court observed that the statute prescribes a five-year period for completion of assessments and escaped assessments, which can be treated as a reasonable benchmark.Since the inspection related to the assessment year 2011-12 and the show cause notice was issued only on 20.12.2018, the notice was issued beyond the reasonable period of five years. The Court further held that repeated notices issued by the department seeking production of records could not extend the limitation period. Accordingly, the writ appeal was allowed, the judgment of the Single Judge was set aside, and the show cause notice was quashed.Cases Referred by Court:State of Punjab & Others vs. Bhatinda District Co-operative Milk Producers Union Ltd.W.A. No. 344 of 2017 (Kerala High Court)W.P.(C) No. 2253 of 2017 (Kerala High Court)