The Bombay High Court has held that eligible transitional input tax credit cannot be denied merely because a taxpayer declared it under an incorrect provision or column in Form TRAN-1, where entitlement to the credit and its quantum are undisputed and the declaration was filed within time.
The Bench of Justice M. S. Karnik and Justice Sandesh D. Patil has observed that an incorrect provision or reporting category could not justify denying an otherwise admissible credit claim.
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The petitioner/assessee manufactures ethyl acetate and operates two units under a common GST registration. Superior Denatured Spirit, an input used in manufacturing, was imported or procured from sugar factories.
According to the company, the material was stored in tanks at its second unit and transferred through a pipeline to its first unit with the necessary permissions. Accounts were maintained recording these transfers.
Following the introduction of GST, the company filed Form TRAN-1 and transitioned CENVAT credit under Section 140(5) of the Central Goods and Services Tax Act, 2017. The credit was subsequently utilised.
The dispute concerned credit relating to seven bills of entry, aggregating to ₹6.29 crore. The High Court recorded that the department did not dispute the quantum of credit and that the company had filed TRAN-1 within the prescribed time.
The department issued a show-cause notice alleging that the company had wrongly transitioned ₹6,29,02,146 under Section 140(5). It proposed disallowance and recovery of the credit.
The demand was confirmed after the company submitted its reply. Its appeal was subsequently dismissed through the order dated February 24, 2022, leading to the writ petition.
Before the High Court, the company argued that its substantive eligibility for CENVAT credit or input tax credit had never been questioned. Duty or tax had been paid on the inputs, returns had been filed under the earlier regime, and the TRAN-1 declaration had been accepted.
The company submitted that an inadvertent disclosure in the form could not justify denying the benefit. Its counsel also relied on entitlement under Section 140(1) and the Bombay High Court’s judgment in Heritage Lifestyles and Developers Private Limited v. Union of India.
The Revenue supported the impugned order.
The Bench examined the transitional arrangements under Section 140 of the CGST Act read with Rule 117 of the CGST Rules, 2017.
Section 140(1) concerns the carry-forward of eligible CENVAT credit reflected in the return for the period immediately preceding the introduction of GST, subject to statutory requirements.
Section 140(5) addresses eligible duties and taxes on inputs or input services received on or after the appointed day where the supplier had paid duty or tax under the earlier law. It includes a requirement concerning the recording of invoices or tax-paying documents in the recipient’s books within the prescribed period, with a limited extension available from the Commissioner.
The Court noted that the company had applied to the jurisdictional Commissioner for an extension beyond 30 days under Section 140(5).
Crucially, the Bench recorded that even the impugned order did not dispute the company’s eligibility for transitional credit and acknowledged entitlement under Section 140(1).
The High Court found that the Revenue’s case rested on the company having taken credit under Section 140(5) instead of Section 140(1).
It explained that TRAN-1 is a declaration subject to verification and scrutiny by the department. However, reporting credit under the wrong category or column could not, by itself, justify disallowing an otherwise eligible claim.
The Bench characterised unutilised credit arising from duty or tax already paid as a vested right that could not be taken away on technical grounds. It also described the right to input credit as indefeasible in the circumstances before it.
The decisive consideration was that substantive entitlement remained undisputed. The declaration was timely, and the department’s objection concerned the provision or column used to report the credit.
The Bench relied on Heritage Lifestyles and Developers Private Limited v. Union of India, reported at 2020 (43) GSTL 33 (Bom.). The High Court had intervened where the authorities accepted eligibility for input credit but denied the benefit on technical grounds connected with TRAN-1 filing.
The present Bench reproduced the earlier decision’s reasoning that denying admitted credit merely on technical grounds would be unfair and could justify the exercise of writ jurisdiction.
The earlier decision also discussed the Supreme Court’s judgment in Mangalore Chemicals and Fertilizers Ltd. v. Deputy Commissioner, which concerned procedural permission where substantive entitlement to a benefit was undisputed.
Applying that reasoning, the Bench held that the company’s admitted credit could not be denied merely because it had been transitioned under an incorrect provision.
The High Court concluded that, in the absence of any dispute over eligibility for credit of ₹6,29,02,146, the impugned order was without jurisdiction and deserved to be quashed.
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