The Madras High Court has passed a helpful ruling for businesses dealing with old or slow-moving stock. In the case GE T&D India Ltd. v. Deputy Commissioner of GST & Central Excise (W.P. No. 2040 of 2024, decided on 08.10.2025), the Court cancelled a penalty linked to the late reversal of input tax credit (ITC). The order brings more clarity for many GST-registered businesses, especially those that carried forward Cenvat credit during the shift to GST.
Background of the case
The company found some obsolete and slow-moving inputs. It then reversed the related Cenvat credit on 23.10.2019. Later, the department issued a Show Cause Notice on the ground that this credit had moved into the GST system through Section 140 of the CGST Act.
The authority confirmed the tax demand. It dropped the interest since the company always held enough credit in its account. Still, it added a penalty of ₹12,24,184 under Section 11AC(1)(c) of the old Excise Act read with Section 122(2)(b) of the CGST Act.
What the Court said
The Court reviewed two main questions.
1. Was the penalty valid?
The Court noted that the delay in reversal did not give the company any gain. The company had already shown the adjustment in its books. It also had enough balance in its credit ledger. Because of this, there was no loss to the revenue and no sign of any intention to evade tax. The Court referred to earlier cases:
- Greenstar Fertilizers Ltd. (2024)
- Fairmacs Shipstores Pvt. Ltd. (2025)
In these cases, the courts held that penalties cannot stand when there is no fraud, suppression, or wrongful use of ITC. Following the same logic, the Court said there was no need for a penalty in this case.
2. Could the Court hear the case despite an appeal option?
Even though GST law provides an appeal under Section 107, the Court stepped in because the penalty had no proper basis.
Why this matters for businesses
This ruling confirms an important point:
A delay in reversing ineligible credit does not lead to a penalty when the taxpayer has not misused the credit or gained from it.
If the credit balance is intact and the books show the reversal clearly, penalty provisions under Section 11AC or Section 122 should not apply.
Conclusion
The decision gives comfort to taxpayers dealing with transitional credit and with reversals linked to obsolete inventory. Simple steps like keeping clear records, correcting entries in time, and ensuring enough ITC balance can help avoid disputes. The ruling also shows that genuine errors should not result in harsh penalties under GST.