The Madras High Court has granted interim relief to a real estate developer after observing that the GST authorities appeared to have committed an apparent error by confirming a tax demand twice on the same liability arising from the treatment of Input Tax Credit (ITC) in an ongoing construction project. 

The bench of Justice Senthilkumar Ramamoorthy stayed the operation of the assessment order until the next date of hearing after finding a prima facie case in favour of the petitioner. 

The petitioner/assessee filed the assessment order issued by the Additional Commissioner, CGST and Central Excise, Chennai North Commissionerate.

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The dispute arose from a villa development project that was executed in five phases. The construction had already commenced when the GST regime introduced a concessional tax rate for residential construction projects, subject to the condition that developers opting for the reduced rate would not avail Input Tax Credit.

Under the notification applicable to projects that were ongoing as on April 1, 2019, developers were given two alternatives: Continue paying GST at the higher rate while retaining eligibility to claim ITC; or Shift to the lower GST rate subject to foregoing ITC benefits.

The controversy emerged because the developer had obtained separate registrations under the Real Estate (Regulation and Development) Act (RERA) for Phase IV and Phase V of the project. On that basis, the tax authorities rejected the ITC claims relating to these phases. 

Before the High Court, counsel for the developer argued that the assessing officer had initially computed the petitioner’s net GST liability at ₹1.60 crore after taking into account both the ineligible ITC and the GST liability payable at the concessional rate of 5% in respect of Phases IV and V.

However, despite arriving at this computation, the final assessment order allegedly confirmed separate demands both for the ineligible ITC as well as for the already computed net liability of ₹1.60 crore, effectively resulting in duplication of the demand. 

After considering the submissions, Justice Senthilkumar Ramamoorthy observed that the assessment order appeared to suffer from an “error apparent” on its face.

The Court directed that the impugned assessment order and all consequential proceedings shall remain stayed until the next date of hearing. The Court also granted time to the tax department to file its counter affidavit before the matter is taken up again. 

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