2019 (7) TMI 1452 - HC - GST

Court quashes illegal order, clarifies transitional credit not utilization

The court quashed the order dated 6.11.2018, deeming it illegal and an abuse of statutory jurisdiction. It clarified that the reflection of transitional ... Transitional input tax credit - electronic credit ledger reflection - input tax credit wrongly availed or utilized - proceedings under Section 73 for recovery of wrongly availed credit - Rule 117 and Rule 121 - verification and initiation of recoveryTransitional input tax credit - electronic credit ledger reflection - input tax credit wrongly availed or utilized - Whether mere reflection of transitional credit in the electronic credit ledger amounts to 'availment' or 'utilization' of input tax credit making the dealer liable under provisions for wrongly availed credit. - HELD THAT: - The Court held that 'availment' and 'utilization' are positive acts by which input tax credit is put to use to reduce tax liability. A mere reflection of transitional credit in the electronic credit ledger consequent to an application under the transitional provisions does not, without more, constitute availment or utilization. Section 73 speaks of recovery where credit has been wrongly availed or utilized; the statutory scheme, read with Rules 117 and 121, contemplates verification and, only if credit is actually availed/ utilized (i.e., brought into use reducing the dealer's tax liability), can recovery proceedings be sustained. Absent evidence that the credited amount was applied to meet any tax liability, the ledger entry alone cannot be treated as an act attracting proceedings under Section 73.Reflection of transitional credit on the electronic ledger is not, by itself, availment or utilization; it cannot be treated as wrongful availment in the absence of evidence of use to reduce tax liability.Proceedings under Section 73 for recovery of wrongly availed credit - Rule 117 and Rule 121 - verification and initiation of recovery - Whether the Assistant Commissioner could convert the transitional-credit rejection into a Section 73 recovery proceeding for the entire ledger balance without establishing quantification of the amount actually availed or utilized. - HELD THAT: - The Court found that the Assistant Commissioner misapplied Section 73 by treating the entire transitional credit reflected in the electronic ledger as an outstanding tax liability and initiating recovery including interest and penalty, despite absence of any record showing that the credit had been availed or utilized to discharge tax liability. The statutory scheme permits initiation of recovery only when credit has been wrongly availed or utilized; Rule 121 allows verification and initiation of proceedings in respect of wrongly availed credit, but not merely because a credit is reflected. Consequently, initiation of a Section 73 proceeding against the whole credited amount without demonstration of actual use or reduction of tax liability was erroneous and amounted to abuse of jurisdiction.The impugned order initiating recovery under Section 73 in respect of the ledger balance was illegal and an abuse of jurisdiction; the order was quashed.Final Conclusion: The writ petition is allowed; the order dated 6.11.2018 initiating recovery under Section 73 in respect of the transitional credit reflected in the petitioner's electronic credit ledger is quashed because mere reflection of transitional credit does not constitute availment or utilization and, in absence of evidence of use to reduce tax liability, Section 73 proceedings and the consequent demand for tax, interest and penalty could not be sustained. Issues Involved:1. Legality of the order dated 6.11.2018 passed by the Assistant Commissioner of State Taxes under Section 73(1) of the Bihar Goods and Service Tax Act, 2017 (BGST Act).2. Entitlement of the petitioner to transitional credit under Section 140 of the BGST Act.3. Whether the reflection of transitional credit in the electronic credit ledger amounts to availment or utilization of credit.4. Jurisdiction of the Assistant Commissioner to initiate proceedings under Section 73 of the BGST Act based on the reflected transitional credit.Issue-Wise Detailed Analysis:1. Legality of the Order Dated 6.11.2018:The petitioner challenged the order dated 6.11.2018, claiming it was illegal and without jurisdiction under Section 73(1) of the BGST Act. The court examined whether the Assistant Commissioner of State Taxes had the authority to pass such an order. The court found that the Assistant Commissioner had misinterpreted the statutory provisions and wrongly initiated proceedings under Section 73, treating the reflected transitional credit as an outstanding tax liability. The order was thus quashed and set aside as being per se illegal and an abuse of statutory jurisdiction.2. Entitlement to Transitional Credit:The petitioner sought to carry forward input tax credit earned under the VAT Act and Entry Tax Act into the BGST regime through an application under Section 140 of the BGST Act. The credit amounts were Rs. 18,33,304.76 for 2007-08 and Rs. 20,79,256.00 for 2011-12. The court noted that the petitioner had not pressed for relief regarding the rejection of the refund application and would pursue statutory remedies. Therefore, the court did not express an opinion on the entitlement to transitional credit but allowed the petitioner to challenge the rejection through appropriate legal channels.3. Reflection of Transitional Credit in the Electronic Credit Ledger:The core issue was whether the mere reflection of transitional credit in the electronic credit ledger amounted to availment or utilization of credit. The court held that availment or utilization of credit requires a positive act of using the credit to reduce tax liability. The court emphasized that the legislative intent of Section 73 of the BGST Act is clear: it deals with actual utilization of credit for tax liability, not mere reflection in the ledger. The court concluded that the petitioner's credit was not availed or utilized, as evidenced by the unchanged credit balance in the ledger.4. Jurisdiction to Initiate Proceedings under Section 73:The Assistant Commissioner initiated proceedings under Section 73 of the BGST Act, claiming the petitioner had wrongly availed transitional credit. The court found this action to be based on a misapprehension of the law. The court clarified that Section 73 allows for proceedings in cases of wrong availment or utilization of credit, but only when such credit is actually used to offset tax liability. Since the petitioner had not utilized the credit, the initiation of proceedings under Section 73 was deemed inappropriate. The court highlighted that the reflection in the electronic credit ledger alone does not constitute availment or utilization.Conclusion:The court quashed the order dated 6.11.2018, holding it illegal and an abuse of statutory jurisdiction. It clarified that mere reflection of transitional credit in the electronic ledger does not amount to availment or utilization, and thus does not justify proceedings under Section 73 of the BGST Act. The petitioner was allowed to pursue statutory remedies regarding the rejection of the refund application. The writ petition was allowed.