Indigo Paints Limited has informed the stock exchanges that it has received a demand order from the Office of the Assistant Commissioner of State Tax Pune regarding the availment of input tax credit on IPO related expenses. The demand raised amounts to 19 point 26 crore including tax interest and penalty. This regulatory development has drawn attention within the financial markets because it highlights a recurring area of dispute between businesses and tax authorities under the Goods and Services Tax framework.

The company communicated this development to both BSE Limited and the National Stock Exchange of India through a formal disclosure filed under Regulation 30 of the SEBI Listing Obligations and Disclosure Requirements Regulations 2015. As stated in its filing the demand pertains to input tax credit claimed by the company on services and expenses associated with its Initial Public Offering. This matter has become increasingly common among listed companies where tax authorities argue that capital raising activities do not qualify for input tax credit under GST law.

Indigo Paints has responded by stating that it is in the process of filing an appeal before the Goods and Service Tax Appellate Tribunal. The company maintains that the claim of credit on such expenses was legitimate and aligned with its interpretation of the GST provisions. It has further clarified that there is no immediate impact on its financial or operational performance since the matter is still under litigation and has not reached finality.

Background of the GST Dispute

The Goods and Services Tax was introduced with the objective of creating a unified indirect tax structure across India. One of the core features of GST is the input tax credit mechanism which allows businesses to claim credit for taxes paid on inputs and services used in the course of business. However certain categories of expenditure have remained a subject of debate with IPO related expenses being one of the most contested issues.

IPO related expenses typically include payments made to investment bankers merchant bankers legal advisors auditors advertising agencies printers consultants and registrars. Since these services attract GST companies often claim the tax paid as input tax credit. Many companies consider IPO activities as an essential part of their business operations because raising capital is crucial for expansion working capital and corporate growth.

The department’s view however differs. Tax authorities often maintain that IPO related services do not directly contribute to outward taxable supplies and hence are not eligible for input tax credit. According to this interpretation IPO expenses are connected to capital raising rather than business operations that generate taxable turnover. As a result several companies have received notices demand orders and adjudication proceedings on similar grounds.

This interpretation has led to disputes across sectors including manufacturing pharmaceuticals information technology and services. Many companies have taken these cases to appellate forums because the GST law contains broad definitions of business which companies believe supports their position.

Details of the Order Issued to Indigo Paints

According to the regulatory disclosure the order against Indigo Paints was issued by the Assistant Commissioner of State Tax Pune. The company received the order on 21 November 2025 and the notification was subsequently shared with the stock exchanges the following day on 22 November 2025.

The order alleges that the company wrongly availed input tax credit on GST paid for IPO expenses. The conclusion drawn by the tax authorities is that such credit is not permissible under GST rules. The demand raised includes the principal tax amount along with interest and penalty culminating in a total of 19 point 26 crore.

In the annexure provided by the company the following key points were noted:

The authority involved is the Assistant Commissioner of State Tax Pune
The order relates to disallowance of GST credit claimed for IPO expenses
The company received the order on 21 November 2025
The violation alleged is wrongful availment of input tax credit on IPO related services
There is no immediate business impact as the company will be filing an appeal

Indigo Paints has stated that it remains confident in its legal position and will present its case before the appellate authority.

Legal and Industry Context

The question of whether input tax credit can be claimed on IPO expenses has been debated for several years. One of the main reasons behind this dispute is the differing interpretations of the term used in the course or furtherance of business which forms the basis for determining eligibility of credit under GST.

Companies argue that:

IPO expenses are incurred to raise funds required for working capital expansion and business operations which ultimately support taxable output
Expenses incurred for business expansion should qualify as business expenditure
The definition of business under GST law is wide enough to include capital raising activities

Tax authorities on the other hand argue that:

IPO expenses are capital in nature and do not directly contribute to taxable supplies
Input tax credit must be linked to output transactions that generate GST liability
Allowing credit on IPO expenses would lead to unintended expansion of credit scope

Due to this conflict several cases are pending before various tax authorities tribunals and courts. The decision in the Indigo Paints case will add to the jurisprudence surrounding this issue.

Potential Impact on Indigo Paints and Stakeholders

Although the company has clarified that there is no immediate financial or operational impact a tax demand of this size involves several implications depending on the outcome of the appeal.

Short Term Impact

The company will incur legal and professional expenses to prepare and pursue the appeal before the Goods and Service Tax Appellate Tribunal.
Investors may closely track updates on the case as it involves a considerable monetary amount.
The disclosure ensures that all stakeholders are informed which supports transparency and good governance practices.

Medium Term Impact

If the tribunal rules against the company Indigo Paints may be required to pay the entire amount demanded.
The company may then need to consider approaching higher judicial authorities such as the High Court.
A negative outcome may lead the company to revisit its tax positions relating to other capital expenditure.

Long Term Impact

If the tribunal rules in favour of Indigo Paints it would reaffirm the company’s tax treatment of IPO expenses.
Such a ruling could act as a precedent for other companies facing similar disputes.
A favourable order would reduce potential future disputes over similar claims.

An adverse outcome on the other hand could widen scrutiny by tax authorities on companies that have claimed ITC on capital raising expenses.

Market and Investor Reaction

Investors typically evaluate tax disputes on the basis of their materiality and the likelihood of financial outflow. In the present case:

The amount involved while substantial is not expected to disrupt the company's financial stability.
The company has clearly communicated that an appeal is being filed meaning no immediate cash outflow is required.
The transparent disclosure of the issue aligns with expectations of good corporate governance.

Historically markets have not reacted sharply to similar disputes unless the matter pertains to extremely large sums or indicates deeper compliance concerns. In this case Indigo Paints’ clarity in communication provides comfort to stakeholders.

About Indigo Paints Limited

Indigo Paints is a rapidly growing company in the Indian decorative paints industry offering a wide range of products including emulsions enamels primers cement paints and specialty coatings. The company has a strong presence in Tier Two and Tier Three markets supported by its distribution network and product innovation strategy. The current GST dispute pertains solely to tax treatment of IPO related expenses and does not have any connection with its operational performance manufacturing capabilities or product offerings.

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