Madras High Court Directs GST Department to Re-Credit Erroneously Refunded ITC to Assessee's Electronic Credit Ledger

In a significant judicial intervention regarding the procedural handling of Input Tax Credit (ITC), the Madras High Court has resolved a grievance concerning the restoration of funds to an assessee's Electronic Credit Ledger (ECRL). The dispute in the case of Vinayak Electricals Vs Commercial Tax Officer/State Tax Officer (WP No. 26202 of 2026) centered on an ITC claim that was mistakenly refunded in cash to the bank account of the assessee, subsequently recovered by the department, and then left pending for re-credit.

The High Court has now issued a definitive directive, instructing the tax authorities to restore the amount to the ECRL, provided the assessee follows the requisite application procedure within a stipulated timeframe.

Background of the ITC Dispute

The genesis of the issue traces back to the assessment year 2018-19. Following a prior remand order by the High Court, the respondent tax authorities re-evaluated the case and officially validated the ITC claim of the assessee on 25.07.2025.

Relying on this favorable assessment, the assessee submitted an application seeking a refund. The tax department processed this request and disbursed a sum of Rs.3,01,903/- directly into the assessee's bank account on 08.09.2025.