Madras High Court Stays GST Demand worth Rs.3,000 crore against Car Leasing Companies

The Madras High Court in a recent order temporarily stayed the government’s enforcement of a Rs. 3,000 crore tax demand against car leasing companies. The Directorate General of GST Intelligence (DGGI) issued noticess claiming that the company had incorrectly classified their services under the rule of the Goods and Services Tax.

According to the Directorate General of GST Intelligence (DGGI), the companies represented their services as “leasing services” under GST, which are taxed at 28%, rather than “credit-granting services,” which are not taxed. Because of this, the government refused the company’s Input Tax Credit (ITC) for motor vehicles.

The companies argued in court that leasing motor vehicles is a legal service under GST and does not fall under blocked credit restrictions, which limit ITC claims in specific situations. They further stated that the notices issued by the Directorate General of GST Intelligence (DGGI) were beyond their jurisdiction. Justice

Justice bench, Mohammed Shaffiq ordered a temporary stay on the tax notices until the case was properly heard. This delay implies that the companies will not face immediate financial penalties and can continue to operate. The court has also directed tax officials to respond to the corporations’ accusations.

This case raises significant questions concerning how GST regulations should be handled in terms of service classification and ITC claim restrictions. Companies feel their services are taxable, yet withholding of ITC is unreasonable when GST is fully paid.

If the final decision favours the companies, it might set an example for comparable cases and help clarify GST rules for leasing and financial services.

For businesses, the case demonstrates how complex GST rules may be, as well as the challenges of being compliant. The court’s ultimate decision is expected to give much-needed clarification for the companies and tax officials, possibly influencing how GST rules are administered in the future.