Elitecon International Confronts Major Tax Disputes While Appointing New CFO to Navigate Challenges

Elitecon International Limited, a BSE-listed company in India, has disclosed a series of important decisions and challenges emerging from its Board of Directors meeting held on 4th July 2025.

In a transparent communication to BSE and The Calcutta Stock Exchange, the company outlined three major developments:

1. Deferral of fund-raising plans.

2. Appointment of a new Chief Financial Officer (CFO).

3. Disclosure of significant tax disputes amounting to approximately ₹408.65 crore.

These updates reflect the company’s strategy to balance urgent regulatory and legal issues while ensuring operational continuity and responsible governance.

Deferral of Fund-Raising Plans

In its filing, the Board of Directors announced that owing to recent developments warranting a change in strategy, it has decided to defer its plans to raise funds through various permissible modes.

Deferred fundraising options included:

• Preferential allotment

• Convertible warrants

• Foreign Currency Convertible Bonds (FCCBs)

• Qualified Institutional Placement (QIP)

• Any other instruments allowed under law

The company clarified that consideration of these fund-raising measures would be taken up in the next Board meeting.

Key Reason for Deferral:
The board's decision reflects a need for caution given the serious tax-related disputes and contingent liabilities disclosed. Raising capital in such an environment without clarity on liabilities could complicate valuation, investor confidence, and regulatory perceptions.

Appointment of New CFO: Sachin Ashok Sabale

In an important leadership change, the Board approved the appointment of Mr. Sachin Ashok Sabale as the Chief Financial Officer (CFO) of Elitecon International Limited, effective 4th July 2025.

Background and Credentials of Mr. Sabale:

• Education: Post Graduation in Business Administration (Financial Management) from Pune University, 2001.

• Certifications:

  • Internal Auditor in ISO 9001:2000

  • Govt. Diploma in Cooperation & Accountancy

  • Diploma in Income Tax Practitioner

  • Computer Diploma in Financial Accounting and Office Automation (CDAC)

• Professional Experience: Nearly two decades in commercial finance with expertise in:

  • Finalisation of account statements

  • Funds management (receivables and payables)

  • Exports

  • Internal and statutory audits

  • MIS reporting

  • Banking (funding and non-funding)

  • Credit and inventory management

  • Indirect taxation, including GST assessments

Significance of Appointment:
At a time when the company is facing serious GST-related disputes, appointing an experienced finance professional signals intent to improve compliance, strengthen internal controls, and navigate complex regulatory landscapes.

Disclosure of Tax-Related Disputes

Perhaps the most consequential part of the Board meeting was the detailed discussion and disclosure of ongoing tax disputes. The Board carefully reviewed these issues, recognising their potentially adverse impact on the company's financial and operational efficiency.

Key issues disclosed include:

1. DGGI Nagpur Show Cause Notice for ₹387.43 Crore

• Investigation Origin: DGGI Ahmedabad initiated investigations, leading to search operations at Elitecon’s Nashik facility on 10th February 2025.

• Outcome: Receipt of Show Cause Notice (SCN) dated 9th May 2025 from Directorate General of GST Intelligence (DGGI), Nagpur Zonal Unit.

• Allegation: Wrongful availing of ineligible Input Tax Credit (ITC) amounting to ₹387.42 crore for the period October 2020 to October 2024.

• Current Status: Matter pending adjudication before CGST Nashik Commissionerate.

• Company’s Response: Finalising a detailed legal reply to contest the allegations.

Potential Impact:
If upheld, this could result in a material financial outflow, strain on cash flows, and regulatory penalties.

2. Protective SCNs from CGST Agra – Refund Disputes of ₹21.23 Crore

In addition to the Nagpur SCN, Elitecon also faces four separate Show Cause Notices from CGST Agra Commissionerate.

• Date of Notices: 13th January 2025

• Nature: Dispute over ITC refund claims for four periods:

  • November 2021: ₹5.86 crore

  • December 2021: ₹2.84 crore

  • January 2022 (two separate claims): ₹5.68 crore and ₹7.84 crore

• Origin: These notices were issued after the Commissioner (Appeals), Lucknow, set aside previously sanctioned refunds following an appeal by CGST Firozabad.

• Company’s Plan: Intends to challenge the order before the GST Appellate Tribunal, which is currently non-functional, leaving the matter in a legal limbo.

Company’s Position:
While there is no confirmed liability yet, the disputes create significant uncertainty that needs careful legal handling.

3. Engagement of India Law Alliance for Legal Strategy

Recognising the gravity and complexity of these tax disputes, the Board confirmed that Elitecon International has formally engaged India Law Alliance, a reputed law and tax advisory firm, to:

• Conduct comprehensive reviews of all related documents and compliance procedures.

• Advise on drafting responses to the show cause notices.

• Handle legal risks associated with these disputes.

• Represent the company in adjudication and potential appellate proceedings.

Significance:
Engaging top-tier legal counsel demonstrates the company’s commitment to a robust defence while reassuring investors, lenders, and regulators of its seriousness in managing these challenges.

Total Disputed Tax Exposure

The cumulative tax exposure under dispute currently stands at approximately ₹408.65 crore, comprising:

• ₹387.43 crore under the DGGI Nagpur SCN.

• ₹21.23 crore under CGST Agra protective SCNs.

While these amounts represent contingent liabilities (i.e., not yet confirmed as payable), the company has been transparent about their potential financial and operational impact.

Potential Impact and Risk Factors

Key risks identified by the Board:

• Material financial outflow if any portion of the disputed tax liability is upheld.

• Adverse impact on cash flows and working capital cycles, possibly constraining operations.

• Regulatory penalties or restrictions if found non-compliant.

• Market uncertainty, potentially affecting share price and investor confidence.

The Board acknowledged these risks as serious and potentially adverse to its near-to-medium-term outlook.

Company’s Assurance to Stakeholders

Despite the gravity of these developments, the Board provided a clear assurance to shareholders, lenders, and stakeholders that:

• The company is fully cooperating with all tax authorities at every level.

• Legal and compliance teams, under the guidance of India Law Alliance, are working diligently to defend the company’s position.

• All material updates will be promptly shared with stakeholders as proceedings evolve.

Such commitments are essential to maintain market trust and demonstrate good corporate governance during periods of uncertainty.

Broader Context: GST Compliance Challenges in India

Elitecon’s situation is not unique in India’s rapidly evolving GST framework. Many companies face:

• Ambiguity over eligible vs ineligible ITC claims.

• Lengthy investigations and show cause proceedings.

• Operational disruptions due to raids or seizures.

• Delays in refunds affecting cash flow.

• A non-functional GST Appellate Tribunal, creating legal limbo for appeals.

Key takeaway for Indian corporates:
Robust GST compliance and audit readiness have become mission-critical to avoid such disputes.

Conclusion

Elitecon International Limited’s latest Board disclosures highlight the tough balancing act faced by many Indian corporates:

• Managing significant regulatory disputes while maintaining operational momentum.

• Strengthening leadership by appointing experienced professionals like Mr. Sachin Ashok Sabale as CFO.

• Deferring fundraising plans prudently until legal uncertainties are better managed.

While the ₹408 crore tax dispute poses serious challenges, the company's transparent disclosure, proactive legal strategy, and commitment to stakeholder communication set a positive example of governance for India’s corporate sector.

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