The Madras High Court has granted relief to a garment manufacturer in a service tax Input Tax Credit dispute involving ERP software, permitting it to file a statutory appeal without pre-deposit and directing the Appellate Authority to decide on merits within three months — overturning a Single Judge order that had dismissed the writ petition after the petitioner paid the disputed tax. The Division Bench ruling in M/s Geena Garments v. State Tax Officer, Tiruppur draws attention to a genuine evidentiary gap in how GST authorities assess ITC claims for intangible services.
The dispute concerns ITC of approximately ₹2.37 lakh (service tax) availed by the petitioner for FY 2017-18 on ERP software services obtained from M/s Infotech Audit Solution. The department's case was that this entity was non-existent — a conclusion drawn from inquiries at its registered address that found no trace of any business. An SCN was issued under Section 74(9) of the TNGST Act and the petitioner, before the assessment order was even passed, paid the disputed amount on 18.10.2024 in Form GST DRC-03. The assessment order was then passed on 05.02.2025 confirming the demand along with interest and penalty.
The Single Judge had dismissed the writ petition, reasoning that the petitioner's voluntary payment before the order was passed amounted to acceptance of the demand, making it difficult to challenge the consequential interest and penalty. The petitioner's counsel countered before the Division Bench that the department's entire conclusion rested on the absence of physical goods movement — a criterion plainly inapplicable to software, which is intangible. The garment factory employs around 1,000 workers and runs a payroll system; the core question — whether the ERP software was actually deployed for this purpose — had never been tested or examined by either the adjudicating authority or the Single Judge.
Justices G. Jayachandran and N. Mala agreed that the factual question was fundamental and had been bypassed. While upholding the department's position that writ jurisdiction should not ordinarily be invoked where an appeal remedy exists, the Division Bench exercised its discretion in the peculiar circumstances: the intangible nature of the service made the department's "no goods movement" reasoning inadequate, and the possibility that genuinely availed software services were being denied ITC simply because the supplier was untraceable warranted a proper appellate examination. The petitioner was given 30 days to file the Section 107 appeal, with the Appellate Authority directed to entertain it without insisting on pre-deposit and to decide on merits within three months. The ruling is a useful precedent for all ITC disputes involving intangible service suppliers where the department relies solely on non-existence of the supplier without examining whether the underlying service was actually received and utilised.
-2026-juristway.com-2111-HC(Madras)-GST | High Court of Madras | 28.07.2026