The Madras High Court has cancelled a tax assessment and a follow-up recovery notice issued to the Indian Railway Finance Corporation Limited (IRFC). The court found that the officials involved did not properly consider the valid points made about the tax credits claimed under a specific tax rule. Instead, they used an incorrect method to calculate the extra tax credits.
A judge named Justice Senthilkumar Ramamoorthy has sent the case back to the tax officials. This means they need to take another look at it and give the taxpayer a chance to share their side of the story in person.
The bench acknowledged that the applicant’s claim of material was not considered in the assessment order and that the calculation of tax liability needs reconsideration. On July 27, 2026, the judgment.
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On June 9, 2023, the writ petitions contested an assessment order concerning FY 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 asked to quash both proceedings on the ground that the assessment had been made without considering its detailed reply to the SCN.
The counsel of the applicant mentioned that the company had provided a reply to every allegation included in the SCN. Before the court, a key issue is the eligibility to claim ITC on tax filed under the reverse charge mechanism.
The applicant mentioned that for the matters where reverse charge liability is engaged, the pertinent tax invoice for deciding 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. Therefore, it was claimed that the ITC had been claimed within the allowable period mentioned u/s 16(4), as amended by Section 16(5).
IRFC objected to the finding for the alleged excess claim of ITC. It mentioned that excess credit shown in GSTR-2A for CGST and SGST could not be considered as lapsed because the GST law does not include any provision for such lapsing of credit.
The applicant mentioned that its legal submissions for the alleged excess claim of IGST credit of Rs 15.44 crore had not been dealt with at all in the assessment order, which makes the decision legally unsustainable.
The State Government countered the writ petitions claiming that principles of natural justice had been followed during the assessment proceedings. The counsel of the Government claimed that the dispute was essentially pertinent to the merits of the assessment order and thus must not ordinarily be considered in writ jurisdiction.
The HC said that the proper officer had concluded that the taxpayer was not qualified to claim and use Input Tax Credit because the reverse charge tax had been released during FY 2021-22, where the supplies had been obtained in 2020-21.
The Court noted that the petitioner’s reliance on Section 31(3)(f) of the GST enactments, specifically the invoice issued by the recipient upon payment of reverse charge tax, had not been examined by the assessing authority. The Court pointed out that this important legal argument had been skipped when the impugned assessment order was issued.
The HC determined fault with the taxpayer’s adopted strategy for computing the alleged tax liability.
It said that the assessing authority seemed to have calculated the tax demand by adding the excess Input Tax Credit (ITC) indicated in the petitioner’s GSTR-2A for CGST and SGST. The Court determined that this method was erroneous and called for a reconsideration of the assessment.
The High Court quashed the assessment order and the recovery notice. The case was remanded to the proper officer for fresh adjudication.
The Court asked the authority to give the applicant a chance of hearing, which includes a personal hearing, and afterwards pass a fresh order within three months from the receipt date of the Court’s order. Therefore, the writ petitions were disposed of without any order as to costs.
| Case Title | IRFC V/S Assistant Commissioner (ST) (FAC) |
| Citation | 19693 & 19695 of 2023 |
| Counsel For Appellant | R.Charulatha |
| Counsel For Respondent | G. Dhana Madhri |
Source: jurishour.in
