The Madras High Court has held that tax and interest cannot be levied merely because Input Tax Credit (ITC) is reflected in GSTR-2A or GSTR-2B, provided the credit has never been utilised to discharge the taxpayer’s outward GST liability.
A petition had been filed by G.R. Organic Company contesting the order in Form GST DRC-07 and the bank attachment proceedings initiated for FY 2021-22.
The same impugned proceedings relied on the ITC shown in the applicant’s GSTR-2A/2B despite the applicant being engaged only in making 100% exempt supplies.
The applicant said that, even though ITC was automatically shown in its GSTR-2A/2B for the purchases made from suppliers, it was aware that it was dealing merely in exempt supplies and was not qualified to use this credit. On March 7, 2026, the ITC was reversed.
The state justified the departmental actions, stating that the applicant must reverse the ineligible ITC at the appropriate time. It admitted that the applicant did not use the ITC.
Justice Senthilkumar Ramamoorthy heard the submissions and said that-
“Based on supplies received by the petitioner, ITC gets reflected in the GSTR 2A/2B. Given the fact that the petitioner has not made use of such ITC to offset outward tax liability, the imposition of tax and interest is unsustainable.”
The Court said that the mere reflection of Input Tax Credit (ITC) in the auto-populated statements does not result in any tax benefits until such credit is actually utilised for output tax payment.
The bench quashed the impugned order granting the department to begin proper proceedings if the ITC had not in fact been reversed.
| Case Title | G.R. Organic Company vs. The Commercial Tax Officer, Ranipet |
| Case No. | WP No. 22795 of 2026 and WMP Nos.24727 and 24730 of 2026 |
| For Petitioner | Mr.K.A.Krishnamurthy |
| For Respondent | Mr.R.Sethu Prabakaran |
| Madras High Court | Read Order |
