The Goods and Services Tax Appellate Tribunal (GSTAT), Kolkata Bench, has held that proceedings under Section 73 of the Central Goods and Services Tax Act, 2017, for recovery of allegedly inadmissible CENVAT credit transitioned through FORM GST TRAN-1 were unsustainable for lack of jurisdiction in the case before it.

The Bench of Satya Gopal Chattopadhyay (Judicial Member) and Anindya Mitra (Technical Member) allowed the taxpayer’s appeal after finding that the dispute was covered by the Jharkhand High Court’s judgment in Usha Martin Limited and the binding Calcutta High Court ruling in Kunjal Synergies Private Limited.

Buy Now: 210+ GST Judgments E-Magazine – October 2026

The dispute concerned CENVAT credit carried forward by the appellant/assessee from the earlier tax regime into GST for the period July 1, 2017, to March 31, 2018.

During scrutiny of the company’s TRAN-1 declaration, the department noticed that it had carried forward ₹4,26,573 for Unit I and ₹10,00,088 for Unit II, aggregating to ₹14,26,661.

According to the department, however, the original ER-1 returns for June 2017 reflected a nil closing credit balance for Unit I and ₹4,61,533 for Unit II. It consequently alleged that the company had availed excess transitional credit of ₹9,65,128.

The department also examined the company’s declaration of ₹9,34,793 as unavailed CENVAT credit relating to capital goods in Table 6(a) of TRAN-1. Within this declaration, it questioned credit of ₹3,52,678 relating to invoices issued before April 2017.

A show-cause-cum-demand notice dated December 20, 2021, proposed recovery of ₹13,17,806 under Section 73(1) of the CGST Act. The notice also alleged that relevant documents sought for verification had not been submitted.

The company maintained that it had filed revised ER-1 returns manually on July 14, 2017, before the jurisdictional departmental offices, which had acknowledged their receipt.

It argued that these revised returns supported the transitional credit of ₹14,26,661 and that the credit had therefore been correctly carried forward.

Regarding the capital-goods component, the company submitted that the disputed ₹3,52,678 had not been availed under the earlier regime and was available for transition under Section 140(2) of the CGST Act.

The adjudicating authority rejected the explanation concerning revised returns, observing that they should have been filed electronically within the prescribed time. It also rejected the capital-goods claim by referring to the absence of the relevant invoice credit in the ER-1 return for the concerned period.

By an order dated October 12, 2023, the Assistant Commissioner confirmed the demand of ₹13,17,806 with interest and penalty.

The first appellate authority, through its order dated June 12, 2024, upheld the rejection of the disputed carried-forward credit.

Although it acknowledged that revised ER-1 returns had been submitted manually, it observed that the revised figures were not reflected in the electronic system. It further noted that the company had not identified the provision and procedure permitting the revision.

However, the appellate authority set aside the demand of ₹3,52,678 relating to capital goods.

It found that this component rested on a suspicion that the credit had already been availed during the first quarter of financial year 2017–18. The show-cause notice contained no corroboration for that allegation.

The authority also accepted the company’s reconciliation showing that the remaining 50% credit had not been taken during that quarter. The taxpayer subsequently approached GSTAT against the adverse portion of the appellate order.

Before GSTAT, the company argued that the eligibility of CENVAT credit under the earlier Central Excise regime could not be determined through proceedings under Section 73 of the CGST Act.

It relied on Section 174(2)(e), the repeal-and-savings provision, to submit that proceedings concerning earlier-regime liabilities and credit could be instituted under the laws governing those matters.

According to the company, the department should have invoked the appropriate provisions of the Central Excise Act, 1944, to dispute its underlying CENVAT entitlement.

The taxpayer separately argued that substantive transitional-credit benefits should not be denied merely because revised returns were filed manually rather than electronically. It also raised objections concerning compliance with Rule 142, the adequacy of reasons in the impugned order, and the levy of interest and penalty.

The Tribunal ultimately disposed of the appeal on the jurisdictional issue.

The department defended the proceedings by invoking Rule 121 of the CGST Rules, which provides for verification of transitional credit and proceedings under Sections 73 or 74 in respect of credit wrongly availed.

It argued that Section 140 creates an entitlement subject to prescribed conditions and does not confer an unconditional right to every amount declared in TRAN-1.

The department maintained that the dispute concerned wrongful transition and availment of credit under GST and therefore fell within the competence of GST authorities.

It also sought to distinguish Usha Martin Limited, asserting that the facts and legal issues in that case differed from the present dispute concerning statutory verification of transitional credit.

The Tribunal treated jurisdiction as a threshold question.

Referring to Supreme Court decisions on the consequences of an absence of jurisdiction, the Bench explained that a defect affecting an authority’s power to decide the subject matter strikes at the validity of the proceedings.

It then examined the Jharkhand High Court’s ruling in Usha Martin Limited v. Additional Commissioner, Central GST and Excise.

As discussed in the GSTAT order, that judgment concerned the use of Section 73 to question CENVAT credit allegedly inadmissible under the earlier Central Excise and service-tax laws but subsequently transitioned through TRAN-1.

The High Court held that the GST authority could not determine the admissibility of such earlier-regime CENVAT credit through Section 73 proceedings in the circumstances before it. It also explained that the repeal-and-savings provision preserved appropriate proceedings under the earlier laws.

The Tribunal also relied on Kunjal Synergies Private Limited v. Assistant Commissioner of CGST & CX, in which the Calcutta High Court followed Usha Martin and quashed a Section 73 notice concerning transitional credit for want of jurisdiction.

Both High Court decisions, as discussed in the Tribunal’s order, recognised that proceedings under the relevant earlier laws could be initiated in accordance with law.

GSTAT found that the present case similarly concerned CENVAT credit transitioned through TRAN-1, with recovery proceedings initiated under Section 73 of the CGST Act.

The Bench observed that the Revenue had merely asserted that Usha Martin was distinguishable without demonstrating how the legal issue differed from the dispute before it.

It consequently held that the appeal was squarely covered by the Jharkhand High Court judgment and the binding Calcutta High Court ruling.

The Tribunal concluded that the proceedings under the CGST Act for recovery of the allegedly inadmissible CENVAT credit were legally unsustainable because of the inherent lack of jurisdiction of the CGST authorities.

It accordingly set aside the impugned appellate order and allowed the taxpayer’s appeal, making no order as to costs.

Membership Required to Access Case Details & Order Copy

To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.

Read More: GST Audit Detection Alone Doesn’t Prove Wilful Suppression: GSTAT Quashes S. 74 Proceedings