2022 (8) TMI 1282 - HC - GST

Landmark Ruling: CENVAT Credit Transition Allows ISD to Rectify GST Portal Entries and Regularize Transitional Credit

Colgate Palmolive (I) Limited Versus Union of India & Ors.

HC resolved dispute regarding CENVAT Credit transition by Input Service Distributor (ISD). Court directed reopening of GST portal for TRAN-1 and TRAN-2 ... Transition and distribution of CENVAT Credit by Input Service Distributor (ISD) of the balance of Service Tax/Excise Duty as on 30th June, 2017 - procedure for transition of the said CENVAT credit being balance of the ISD credit and its distribution to the other units of Petitioner - Section 140 of the CGST Act - HELD THAT:- It appears that most of the procedural issues have arisen due to the fact that the GST was at the nascent stage of its implementation and there was a prevalent ambiguity with regard to the transitional provisions. The Respondents are directed to open the common portal for filing concerned forms for availing Transitional Credit through TRAN-1 and TRAN-2 for two months, i.e., with effect from 1st September, 2022 to 31st October, 2022 - Once, the credit taken by the respective units is regularized by filing revised electronic or manual declaration (as the case may be) in Form GST TRAN-1, the credit balance shown in Electronic Credit Ledger of Petitioner being the balance of ISD credit transitioned shall be deemed to have lapsed/deleted. Petition disposed off. Issues:Transition and distribution of CENVAT Credit by Input Service Distributor (ISD) as on 30th June, 2017.Analysis:1. The Petition was filed concerning objections raised regarding the transition and distribution of CENVAT Credit by ISD. The Petitioner filed a declaration in Form GST TRAN-1 to transition the accumulated CENVAT credit balance under Section 140 of the CGST Act within the prescribed time and manner.2. The transition of the CENVAT credit was permitted, and the balance was credited to the Electronic Credit Ledger of the ISD registration on the GST common portal. Invoices were issued to transfer the transitional credit to other units, and the recipient units availed the input tax credit by disclosing the transferred amount in their returns.3. A Show Cause Notice was issued to the Petitioner, challenging the transition of ISD credit, claiming ISD was not eligible to carry forward the balance credit to the electronic credit ledger under Section 140(1) of the CGST. The case also alleged transition of credit for invoices not received before 30th June, 2017.4. The Petitioner argued their eligibility to claim and transition the credit, with the dispute revolving around the procedure for transitioning and distributing the ISD credit. It was clarified that no ineligible credit was transitioned, and even credit for invoices post 30th June, 2017, could be availed under Section 140(7) of the CGST Act.5. The High Court noted that procedural issues arose due to the early stage of GST implementation, leading to ambiguity in transitional provisions. Referring to a Supreme Court order in a similar case, the Court directed the Respondents to open the common portal for filing forms for availing Transitional Credit through TRAN-1 and TRAN-2.6. Recipient units were allowed to file revised declarations in Form GST TRAN-1 to regularize the credit already distributed by the ISD. Once revised declarations were filed, the credit taken by recipient units would be treated as valid, and any further claims by the Petitioner were prohibited to avoid double credit.7. The Petitioner undertook to make debit entries in the Electronic Credit Ledger of recipient units if the credit was reflected again. Once the credit taken by recipient units was regularized, the balance of ISD credit transitioned would be deemed lapsed/deleted, and authorities were directed not to proceed with the impugned Show Cause Notice.8. The Petition was disposed of, granting liberty to the Petitioner to raise other issues in appropriate proceedings if needed.