The Goods and Services Tax Appellate Tribunal (GSTAT), Thane Bench, has held that GST department cannot invoke proceedings under Section 74 of the Central Goods and Services Tax (CGST) Act to question the admissibility of CENVAT credit that had already accrued under the pre-GST regime and was never disputed under the erstwhile indirect tax laws.
The Division Bench comprising Ramesh Nair (Judicial Member) and Prallhad S. Paranjape (Technical Member) while restoring Rs. 32.80 crore transitional Input Tax Credit (ITC) ruled that the jurisdiction of GST authorities is confined to the CGST Act and does not extend to re-examining the legality of CENVAT credit validly accumulated under the repealed service tax and VAT laws unless proceedings had already been initiated under those laws.
The appellant/assessee which operates the e-commerce platform TataCliQ, had accumulated CENVAT credit under the erstwhile service tax regime and VAT input tax credit before the introduction of GST on 1 July 2017. Pursuant to Section 140 of the CGST Act, the company transitioned this credit into the GST regime by filing Form GST TRAN-1.
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The transition credit consisted primarily of service tax CENVAT credit, VAT credit on stock-in-trade and Krishi Kalyan Cess (KKC), aggregating to approximately ₹32.80 crore. Although the company later reversed the KKC credit under protest because of uncertainty surrounding its eligibility, the remaining transitional credit continued to be reflected in its electronic credit ledger.
In January 2022, the department issued a show cause notice alleging that the assessee had failed to produce sufficient documentary evidence to establish eligibility for the transitioned credit. The adjudicating authority subsequently confirmed recovery of the entire transitional credit together with interest and imposed a 100% penalty, a decision later upheld by the first appellate authority.
The principal question before the Tribunal was whether GST authorities exercising powers under Section 74 of the CGST Act could reopen and reassess CENVAT credit earned under the pre-GST regime merely because that credit had been transitioned through TRAN-1, despite the fact that the credit had never been disputed by authorities administering the erstwhile indirect tax laws.
The Tribunal held that proceedings concerning admissibility of CENVAT credit accumulated under the Finance Act, 1994 or the VAT laws must be initiated and adjudicated only under those respective statutes.
The Bench observed that Sections 142 and 174 of the CGST Act, which preserve pending proceedings under repealed laws, do not authorise GST officers to reopen or reassess credits validly earned under the erstwhile regime merely because those credits were transitioned into GST.
According to the Tribunal, if the department believed the CENVAT credit itself had been wrongly availed before GST, it ought to have initiated proceedings under the erstwhile laws rather than under Section 74 of the CGST Act.
The Tribunal placed significant reliance on the Jharkhand High Court’s judgment in Usha Martin Ltd., which held that GST authorities cannot determine the admissibility of CENVAT credit earned under repealed laws by invoking Sections 73 or 74 of the CGST Act.
It also followed subsequent decisions of the Jharkhand High Court in Steel Authority of India Ltd. and the Calcutta High Court in Kunjal Synergies Pvt. Ltd., both of which reiterated that disputes regarding pre-GST CENVAT credit must be adjudicated exclusively under the erstwhile statutes and not under the GST framework.
Following these precedents, the Tribunal concluded that the proceedings initiated by the department were without jurisdiction.
The Tribunal rejected the department’s insistence that the assessee should produce invoice-wise evidence to justify the closing balance of CENVAT credit transitioned into GST.
It observed that the balance carried forward under TRAN-1 represented a cumulative closing balance derived from opening balances, credit availed and credit utilised over time. Such balances could not reasonably be correlated to individual invoices years later.
The Bench further remarked that demanding copies of invoices, payment records and CENVAT registers to validate an undisputed closing balance amounted to reopening assessments that had never been questioned under the pre-GST regime, an exercise beyond the powers conferred by the CGST Act.
The Tribunal also upheld the transition of Krishi Kalyan Cess (KKC) credit.
Relying upon the Bombay High Court’s judgment in Godrej & Boyce Manufacturing Co. Ltd., it observed that Explanation 3 inserted into Section 140 through the CGST (Amendment) Act, 2018 could not be enforced independently because the corresponding amendments to Explanations 1 and 2 had never been operationalised through notification.
The Bench additionally referred to CBIC Circular No. 87/06/2019-GST, noting that the Board itself had clarified that certain amendments relating to transitional credit would not be notified. Consequently, denial of KKC credit was held to be legally unsustainable. The Tribunal also observed that although the Revenue had challenged the Bombay High Court’s judgment before the Supreme Court, no stay had been granted, and therefore the High Court’s decision continued to bind the authorities.
The Tribunal also restored VAT credit of over ₹22 lakh transitioned under Section 140(6), observing that the department had failed to record any specific finding demonstrating why the credit was inadmissible.
It held that the lower authorities had merely clubbed this component with the larger disputed credit without independently examining the evidence or identifying any statutory violation.
Having concluded that the proceedings themselves lacked jurisdiction, the Tribunal also set aside the 100% penalty imposed under Section 74.
It noted that the entire transitional credit had been disclosed through TRAN-1 and supported by detailed submissions before departmental authorities, leaving no basis for alleging fraud, suppression or wilful misstatement.
The GSTAT ultimately held that the transitioned ITC was legally admissible and that the department had exceeded its jurisdiction by questioning pre-GST CENVAT credit through proceedings under the CGST Act.
The Tribunal set aside the impugned order, allowed the appeal and granted consequential relief, restoring the disputed transitional credit.
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