Uttarakhand High Court Criticises GST Dept for Blocking ITC Without Notice

The Uttarakhand High Court has criticized the GST department for taking arbitrary action against businesses by blocking Input Tax Credit (ITC) even before issuing a show cause notice (SCN).

Kotdwar Steel Limited, the petitioner, approached the court seeking an interim order against the GST department’s actions. The division bench, comprising Chief Justice G. Narendar and Justice Alok Mahra, remarked that the conduct of the department was “startling and shocking.” The court questioned how the department could take coercive and deterrent action even before issuing a pre-intimation notice, stating that it’s unclear which provision of law allows such action.

The bench compared the action of the department to punishing someone before holding a trial, calling the behaviour unfair. It noted that the purpose of the GST Act is to ensure tax compliance, not to shut down businesses or destroy livelihoods. The court stated that the law was never intended to be used in a way that forces companies out of business.

The court expressed hope that the GST Department would keep in mind the importance of supporting businesses, as they are essential for employment and national growth. It stated that acting in line with the true objectives of the GST Act would be a great service to the business community. The bench also noted that such unplanned actions reflect a concerning mindset, though it refrained from labelling it directly.

When the matter was heard on April 29, 2025, the court granted the interim order as requested and directed that any further actions by the department must strictly follow the provisions of the GST Act.