Madras HC Orders Re-Credit of RCM Payment Made during GST Transition as ITC in Electronic Credit Ledger, Declines Cash Refund [Read Order]

In a recent ruling, the Madras High Court directed the GST department to allow the re-credit of taxes paid under the reverse charge mechanism ( RCM ) during the transition to the GST regime. The court allowed the petitioner to transfer this tax credit into their electronic credit ledger but declined their request for a cash refund.

SRC Projects, a private company, filed a writ petition challenging an order by the Assistant Commissioner of GST and Central Excise, Salem. The dispute revolved around a tax amount paid by the petitioner on 30.12.2017 under RCM which they wanted to carry forward as input tax credit ( ITC ) in the new Goods and Service Tax (GST) system.

Complete Draft Replies of GST ITC Related Notices, Click Here

This request was based on an earlier order of the same court, dated 22.02.2022, which allowed businesses to transition such accrued credits into the GST framework. Despite the court's clear directions in the earlier case, the GST department rejected the petitioner’s request.

The GST department’s counsel argued that Section 142(3) of the CGST Act, 2017, did not provide for such re-credit. The department’s counsel also cited a ruling by the Jharkhand High Court in a similar case, which they claimed supported their decision to deny the petitioner’s request.

The petitioner countered stating that the Madras High Court's previous orders granted them the right to recredit. The petitioner’s counsel argued that the GST department’s refusal contradicted the intent of the court's earlier ruling.

Complete Draft Replies of GST ITC Related Notices, Click Here

A single bench led by Justice C. Saravanan observed that its previous order had established the petitioner’s right to carry forward the tax credit and that the GST department could not ignore this directive. The court also dismissed the applicability of the Jharkhand High Court ruling stating that the circumstances in that case differed from the petitioner’s situation.

The court ordered the GST department to allow the petitioner to take re-credit of the amount paid under RCM on 30.12.2017. The court clarified that the petitioner was not entitled to a cash refund as the law does not provide for such refunds in this situation. The writ petition was allowed.

To Read the full text of the Order CLICK HERE

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