The Madras High Court has stayed a ₹97,26,820 input tax credit (ITC) demand raised in an order disposing of its GST refund application and found a prima facie case that the demand was not in accordance with law, while leaving the underlying dispute for further hearing.
The bench of Justice Senthilkumar Ramamoorthy examined the challenged order and focused on clause (iv) of paragraph 12, which contained the ITC demand. The court observed that, prima facie, the demand in that clause was “not in consonance with law.”
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The company challenged an order that partly rejected its refund claim and, in the same order, demanded ₹97,26,820 towards allegedly ineligible ITC. Its senior counsel submitted that the demand had been raised without first issuing a show-cause notice or determining the alleged liability under the applicable GST provisions.
On that basis, the High Court granted an interim stay of the order only insofar as it raised the ₹97,26,820 demand. The stay also covers any related claim for interest and penalty. The order does not set aside the refund decision as a whole or finally decide whether the disputed ITC was eligible.
Counsel for the GST authorities accepted notice and sought time to obtain instructions. The court listed the matter for October 26, 2026.
The interim order brings into focus the procedure for recovering allegedly ineligible ITC when the allegation arises during scrutiny of a refund application. The company’s contention is that disposing of a refund claim cannot, by itself, replace the show-cause and determination process required before raising an ITC demand. The High Court will consider the issue further after the authorities respond.
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