Bombay High Court Seeks Response from Maharashtra Revenue Department in ITC Rule Dispute Involving Enzene Biosciences

Bombay High Court Seeks Response from Maharashtra Revenue Department in ITC Rule Dispute Involving Enzene Biosciences

The Bombay High Court has placed an interim stay on a previous court order that required Enzene Biosciences Ltd to reverse the Input Tax Credit (ITC) on interest earned from fixed deposits (FDs) and directed the company to pay 10% of the total tax amount. The court has also sought a response from the Maharashtra State and Revenue Department in this case.

The court's order stated that pending the final resolution of the petition, the demand from the April 16, 2024, impugned order will be stayed, provided that the petitioner deposits 10% of the tax amount, which is Rs 75,43,330.8, within six weeks. Enzene Biosciences, along with other companies, has challenged the constitutional validity of Explanation to Rule 43(1)(b) of the Maharashtra Goods and Service Rules, 2017, through a writ petition before the Bombay High Court.

Enzene Biosciences argued that during the initial development of its pharmaceutical product, it incurred significant expenses while earning interest income from FDs, with minimal taxable turnover. The Revenue Department, however, denied the proportional ITC by citing Explanation 1(b) to Rule 43 of the Central Goods and Services Tax (CGST) Rules, 2017, which excludes interest earned from deposits when calculating the reversal of ITC on exempted supplies.

The Revenue Department contended that Explanation 1(b) to Rule 43 applies only to interest earned by "accepting deposits" and not by "extending deposits," arguing that this benefit is unavailable to the petitioner. The company countered by arguing that the rule contradicts the recommendations made in the 25th GST Council meeting, which aligned with pre-GST legal positions.