2021 (5) TMI 285 - HC - GST

High Court upholds show cause notice on transitioned input tax credit under GST

The High Court declined to interfere with a show cause notice challenging the transitioned input tax credit from the Service Tax era to the GST era. The ... Validity of SCN - Carried forward Input Tax Credit in TRAN-1 from the era of Service Tax under Finance Act, 1994 to the era of GST - Eligible services or not - HELD THAT:- A perusal of the notice indicates that there was a verification of the Form TRAN-1 by the Audit Department of the GST and it was noticed that Cenvat credit had been availed on various services relating to investments in shares, debentures, mutual fund, securitization etc. The officer was of the opinion that since the receipts from the aforesaid avenues was exempted, the availment of the credit was itself not in order. The availment of Cenvat credit on services related to the provision of food, accommodation and travels was also questioned by the Officer on the ground that it is not eligible. The same goes with regard to the credit related to registry operations, custodial services, trustee for debenture and convertible note issues, securitization facilities as well as services related to parking and auction seized vehicle. Thus the Officer classifies the aforesaid services as those in respect of which Cenvat credit ought not to have been transitioned in terms of Section 141 of the Act, per se. Let the petitioner put forth its objections in regard to the proposed reversal of carried-forward of input tax credit within a period of four weeks from today. Petition dismissed. Issues: Challenge to show cause notice regarding input tax credit transitioned from Service Tax era to GST era.Analysis:1. The petitioner challenged a show cause notice dated 26.11.2019 issued by the Assistant Commissioner of GST and Central Excise regarding the input tax credit (ITC) carried forward from the Service Tax era to the GST era under Section 73(1) of the CGST Act.2. The petitioner's counsel argued that the language of the show cause notice indicated an intention to recover the input tax credit, which had not been set off by the petitioner and remained in the credit ledger. The counsel contended that recovery was premature as the credit had not been utilized against tax liability.3. On the other hand, the Senior Standing Counsel for the respondents argued that the challenge to the show cause notice was premature as it only called for a reply from the petitioner, which could have been provided. He emphasized that quantifying the demand and assessing the credit utilization would occur during the assessment proceedings, making the challenge premature at this stage.4. The High Court acknowledged the premature nature of the challenge, noting that the language of the notice may suggest recovery, which is not permissible under a show cause notice. The Court highlighted that the proper term should have been 'reversal' instead of 'recovery' at this stage.5. The Court declined to interfere with the show cause notice, stating that the notice aimed to question the accuracy of the carried-forward ITC, which should be addressed during the assessment proceedings. The Court emphasized that the actual availment of credit is a factual matter to be determined by the authorities during the assessment process.6. The notice revealed that the Audit Department of GST had verified Form TRAN-1 and identified discrepancies in the availed Cenvat credit related to various services like investments, provision of food, accommodation, travels, registry operations, custodial services, trustee services, securitization facilities, and parking services. The Officer deemed the availed credits on these services ineligible due to exemptions and other reasons.7. The Officer classified the mentioned services as ineligible for transitioned Cenvat credit under Section 141 of the Act. The Court directed the petitioner to submit objections to the proposed reversal of the input tax credit within four weeks for consideration. The Court dismissed the writ petition and closed the connected miscellaneous petition without costs.