Madras HC Orders Unblocking of Rs. 43.58 Lakh ITC on Rs. 5 Lakh Deposit; GST Officer to Decide in 3 Months

The present writ petition [W.P.(MD) No.21209 of 2025] is being filed by a company named Tvl. Guruvammal Tex (petitioner) under Article 226 of the Indian Constitution against the Assistant Commissioner (ST) II and Others (respondents) in the Madras High Court before the bench comprising Honourable Mr Justice C. Saravanan. The petitioner is requesting the High Court to quash an order dated 25.03.2025 passed by the Commercial Tax Department. The order raised demand of Rs. 43,58,856 from the Electronic Credit Ledger (ECL) of the petitioner under Rule 86A of the GST Rules.

The company claimed that this blocking of Rs. 43.58 lakhs from their ECL was unfair and contrary to law and was done without giving any proper reasons, which is against the income tax rules, and this blocking has adversely affected their business activities, which were seriously disturbed. Later, the company was issued with a DRC-01 show cause notice on 23.04.2025. The company responded to the notice on 24.05.2025, 24.06.2025, 26.06.2025, and 01.07.2025.

The lawyer of the company claimed that even if the tax department later passes an order against them, as per the law, the department can ask the company to pay only 10% of the disputed tax amount for now. Additionally, they pointed out that they were unaware of the department’s claim that Rs. 43,58,856 was wrongly claimed as a tax credit until the DRC-01 notice dated 23.04.2025 was issued. This was related to purchases made from a company called M/s. International Enterprises. However, the company argued that the credit taken was fully legal and valid, as it was based on real tax invoices issued by the supplier and the transactions were visible in the system-generated Form GSTR-2A, which confirms that the supplier also filed the returns properly.

When the court observed the entire case, the judge decided to rule in favour of the company, only if it followed the following conditions:

• The company must deposit Rs. 500,000 in cash as soon as possible.
• After this deposit is made, the blocked credit (Rs. 43.58 lakhs) should be unblocked immediately.
• The tax department must now pass final orders based on the replies already given, within 3 months from the date the company gives them this court order.
• The company must be given a personal hearing before any final decision is made.