Court directs GST authorities to grant personal hearing to SPL Steel Processors Pvt Ltd before finalizing order on blocked Input Tax Credit worth over Rs. 4.43 crore
In a significant ruling on September 1, 2026, the Calcutta High Court delivered its judgment in the case of SPL Steel Processors Private Limited versus the Commissioner of Revenue, Directorate of Commercial Taxes, addressing contentious issues relating to the blocking of Electronic Credit Ledger (ECL) under the GST regime.
The petitioner, SPL Steel Processors Pvt Ltd, challenged the GST authorities’ action of blocking Rs. 4,43,53,116/- in its Electronic Credit Ledger for the financial years 2021-22, 2022-23, and 2023-24, covering the tax period from February 1, 2026, to June 17, 2026. The blocking order dated June 15, 2026, was issued under Rule 86A of the CGST/WBGST Rules, 2017, on the basis that certain suppliers were non-existent and the Input Tax Credit (ITC) was allegedly claimed fraudulently.
The petitioner contended that all purchases were genuine and supported by valid documents, arguing that blocking the ECL without providing a prior hearing was arbitrary, illegal, and violated natural justice principles. They further highlighted that the blocking order caused severe financial and operational difficulties by preventing timely filing of returns and discharging statutory obligations.
The GST authorities defended their action by stating that they had reasons to believe the suppliers were non-existent, justifying the blocking under Rule 86A to protect government revenue. They also contended that a notice under Section 70 of the West Bengal GST Act, 2017, was issued, affording the petitioner an opportunity to produce documents, but the petitioner failed to appear.
The Court examined prior precedents, notably the judgment in K-9 Enterprises v. State of Karnataka, affirmed by the Supreme Court in 2025, which underscored the necessity of observing principles of natural justice, including the right to a hearing before blocking ECL under Rule 86A, except in exceptional circumstances.
While the Court found no prima facie infirmity in the GST authorities’ action, given the reasons to believe regarding non-existent suppliers, it emphasized the importance of fairness and justice. Hence, it directed the GST authorities to afford the petitioner a personal hearing post the blocking order to allow the petitioner to substantiate its bona fide claim by submitting relevant documents.
The Court ordered the petitioner to file a comprehensive representation within two weeks and mandated the GST authorities to dispose of the representation with a reasoned and speaking order after a personal hearing within three weeks of receiving the response. The entire exercise was to be completed by October 15, 2026.
The Court also cautioned the petitioner against seeking unnecessary adjournments and instructed the authorities to make an independent decision uninfluenced by the Court’s observations. The writ petition was disposed of without delving into the substantive merits, focusing instead on procedural safeguards.
This ruling reiterates the balance between protecting public revenue and safeguarding taxpayers' rights under the GST framework, highlighting the critical role of natural justice in administrative actions involving significant financial consequences.
Bottom Line:
GST Law - Blocking of Electronic Credit Ledger under Rule 86A of CGST/WBGST Rules, 2017 - Principles of natural justice mandate that a pre-decisional or post-decisional hearing should be afforded to the taxpayer.
Statutory provision(s):
Rule 86A of CGST/WBGST Rules, 2017; Section 70 of WBGST Act, 2017; Section 56(18) of CGST Act, 2017
