The Madras High Court has set aside a GST assessment order and the consequential recovery notice issued against Indian Railway Finance Corporation Limited (IRFC) after finding that the adjudicating authority failed to examine crucial legal submissions relating to input tax credit (ITC) claimed under the reverse charge mechanism (RCM) and had also adopted an erroneous approach while computing excess ITC.
The bench of Justice Senthilkumar Ramamoorthy remanded the matter to the assessing authority for fresh consideration after granting the taxpayer an opportunity of personal hearing.
The bench held that the assessment order suffered from non-consideration of material contentions raised by the petitioner and that the computation of tax liability required reconsideration. The judgment was delivered on July 27, 2026.
The writ petitions challenged an assessment order dated June 9, 2023 relating to the financial year 2020-21 and a consequential GST recovery notice dated June 12, 2023 issued by the Assistant Commissioner (State Tax), Park Town Assessment Circle, Chennai. IRFC sought quashing of both proceedings on the ground that the assessment had been made without properly considering its detailed reply to the show cause notice.
Appearing for the petitioner, counsel argued that the company had furnished a comprehensive reply to every allegation contained in the show cause notice. A key issue before the Court concerned the eligibility to avail ITC on tax paid under the reverse charge mechanism.
The petitioner contended that, in cases involving reverse charge liability, the relevant tax invoice for determining the limitation period under Section 16 of the CGST Act is the invoice issued by the recipient upon payment of tax under reverse charge and not the supplier’s invoice. Consequently, it was argued that the ITC had been availed within the permissible period prescribed under Section 16(4), as amended by Section 16(5).
IRFC also disputed the finding regarding alleged excess availment of ITC. It submitted that excess credit reflected in GSTR-2A relating to CGST and SGST could not be treated as lapsed because the GST law contains no provision providing for such lapsing of credit.
The petitioner further argued that its legal submissions concerning the alleged excess availment of IGST credit amounting to ₹15.44 crore had not been dealt with at all in the assessment order, making the decision legally unsustainable.
The State Government opposed the writ petitions, contending that principles of natural justice had been complied with during the assessment proceedings. The Government Counsel further argued that the dispute essentially related to the merits of the assessment order and therefore should not ordinarily be entertained in writ jurisdiction.
The High Court observed that the proper officer had concluded that the taxpayer was not entitled to claim and utilize ITC because the reverse charge tax had been discharged during the financial year 2021-22, whereas the supplies had been received in 2020-21.
The Court noted that the petitioner’s reliance on Section 31(3)(f) of the GST enactments—under which the invoice issued by the recipient upon payment of reverse charge tax was claimed to be the relevant document—had not been examined by the assessing authority. According to the Court, this important legal contention had been completely overlooked while passing the impugned assessment order.
The High Court also found fault with the methodology adopted by the tax officer for determining the alleged tax liability.
It observed that the assessing authority appeared to have arrived at the tax demand by adding the excess ITC reflected in the petitioner’s GSTR-2A relating to CGST and SGST. The Court held that this approach was clearly erroneous and independently warranted reconsideration of the assessment.
The High Court set aside both the assessment order and the recovery notice. The matter was remanded to the proper officer for fresh adjudication.
The Court directed the authority to provide the petitioner with a reasonable opportunity of hearing, including a personal hearing, and thereafter pass a fresh order within three months from the date of receipt of the Court’s order. The writ petitions were accordingly disposed of without any order as to costs.
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