2022 (11) TMI 1266 - HC - GST

Transitional tax credit claims tied to past CENVAT violations: s.73 CGST proceedings rejected as lacking jurisdiction, order quashed.

The dominant issue was whether proceedings under s.73 CGST Act could be initiated to deny transitional credit where the alleged inadmissibility related to ... Transitional credit under Section 140 - input tax credit v. CENVAT credit - jurisdiction to proceed under Section 73 of the CGST Act - repeal and saving clause under Section 174 - verification of TRAN-1 entries and Rule 121 - exclusive remedy and writ jurisdiction on jurisdictional questionsJurisdiction to proceed under Section 73 of the CGST Act - input tax credit v. CENVAT credit - Whether initiation of adjudication proceedings under Section 73(1) of the CGST Act for alleged wrongful availment of CENVAT credit carried forward in TRAN 1 was within the jurisdiction of the CGST adjudicating authority. - HELD THAT: - The Court analysed the distinction between 'input tax credit' under the CGST Act and 'CENVAT credit' under the pre GST statutes and observed that Section 73 of the CGST Act authorises proceedings only in respect of wrongly availed or utilised input tax credit under the CGST Act. The transitional mechanism in Section 140 permits eligible CENVAT credit to be credited to the Electronic Credit Ledger, subject to the proviso circumstances. The impugned show cause notice and adjudication proceed on alleged contraventions of the Central Excise Act, the Finance Act and the CENVAT Credit Rules, i.e., on whether under the pre GST law the CENVAT credit was admissible. The Court held that Section 73 does not speak of CENVAT credit and that the CGST authority therefore lacked jurisdiction to determine, by invoking Section 73, the admissibility of CENVAT credit under the erstwhile laws; the assumption of jurisdiction was not proper (see reasoning at paragraphs 16-19 and finding at paragraph 18). [Paras 18]Proceedings under Section 73(1) were beyond the jurisdiction of the CGST adjudicating authority and the adjudication under that provision cannot be sustained.Repeal and saving clause under Section 174 - verification of TRAN-1 entries and Rule 121 - Whether, in view of Section 174, alleged inadmissible CENVAT credit must be adjudicated under the pre GST statutes (Central Excise Act/Finance Act read with CENVAT Credit Rules) rather than under the CGST Act. - HELD THAT: - The Court examined Section 174's repeal and saving provisions and observed that the repeal of the pre GST statutes did not extinguish inchoate rights or pending proceedings; subsection (2)(e) preserves investigation, assessment, adjudication and recovery under the repealed/ amended Acts as if they had not been repealed. Allowing CGST authorities to adjudicate the admissibility of CENVAT credit under Section 73 would permit parallel and inconsistent proceedings under the new regime and the old law. For legal certainty and to avoid conflicting fora, the Court concluded that alleged inadmissibility of CENVAT credit (i.e., disputes founded on the pre GST law) must be dealt with under the existing/erstwhile statutes and not by invoking Section 73 of the CGST Act (see reasoning at paragraphs 20-22 and conclusion at paragraph 22). [Paras 21, 22]In view of Section 174, disputes as to admissibility of CENVAT credit under the pre GST laws must be adjudicated under those pre GST statutes; the CGST adjudication in respect of such alleged pre GST contraventions was beyond jurisdiction.Final Conclusion: The adjudication order dated 30th March 2022 passed under Section 73(9) of the CGST Act was quashed as being beyond jurisdiction; respondent authorities remain free to initiate or continue proceedings under the pre GST statutes (Central Excise Act/Finance Act read with the CENVAT Credit Rules) in accordance with law. Issues Involved:1. Jurisdiction of the adjudicating authority under the CGST Act, 2017.2. Validity of the proceedings initiated under Section 73 of the CGST Act, 2017.3. Applicability of Section 174 of the CGST Act, 2017.4. Transition of CENVAT Credit under Section 140 of the CGST Act, 2017.Detailed Analysis:1. Jurisdiction of the Adjudicating Authority under the CGST Act, 2017:The petitioner challenged the jurisdiction of the respondent No. 1, Additional Commissioner, CGST & Excise, Jamshedpur, to decide upon the availment of CENVAT credit by the petitioner under the pre-GST regime. The petitioner argued that proceedings for wrongful availment of CENVAT Credit should have been initiated under the erstwhile Central Excise Act and Finance Act, not under the CGST Act. The court noted that the impugned order related to availment of CENVAT Credit allegedly inadmissible under the Central Excise Act and Finance Act read with CENVAT Credit Rules, 2004. It was determined that the adjudicating authority did not have jurisdiction under the CGST Act to decide on the availment of CENVAT Credit accrued under the previous regime.2. Validity of the Proceedings Initiated under Section 73 of the CGST Act, 2017:The petitioner contended that the proceedings under Section 73 of the CGST Act were initiated for alleged wrongful availment of CENVAT Credit, which should have been dealt with under the pre-GST laws. The court examined the provisions of Section 73 of the CGST Act, which deals with cases of tax not paid, short paid, or input tax credit wrongly availed or utilized. The court concluded that Section 73 of the CGST Act does not cover CENVAT Credit, which was part of the erstwhile regime. Therefore, the initiation of proceedings under Section 73 of the CGST Act was beyond the jurisdiction of the adjudicating authority.3. Applicability of Section 174 of the CGST Act, 2017:The court analyzed Section 174 of the CGST Act, which deals with the repeal and saving provisions. It was noted that the repeal of the existing laws (Central Excise Act, Finance Act, etc.) did not affect any investigation, inquiry, verification, assessment proceedings, adjudication, or other legal proceedings for recovery of arrears or remedy in respect of any duty, tax, surcharge, penalty, fine, interest, etc. The court emphasized that legal proceedings for inchoate rights could be continued under the existing laws as if they had not been repealed. Therefore, proceedings for wrongful availment of CENVAT Credit could still be initiated under the erstwhile laws.4. Transition of CENVAT Credit under Section 140 of the CGST Act, 2017:The court examined the provisions of Section 140 of the CGST Act, which allows for the transition of CENVAT Credit from the pre-GST regime to the GST regime. The petitioner argued that the CENVAT Credit transitioned under Section 140 was not inadmissible under the CGST Act. The court noted that the conditions under which a registered person is not entitled to take credit of any input tax are specified in Section 16(2) of the CGST Act. It was found that the show cause notice and the impugned order did not allege any contravention under Section 16(2) of the CGST Act but rather under the erstwhile laws. Consequently, the court held that the proceedings for transition of CENVAT Credit alleged to be inadmissible should be conducted under the existing laws, not under the CGST Act.Conclusion:The court quashed the impugned adjudication proceedings and the order in original dated 30th March, 2022, as being without jurisdiction. The respondent authorities were given the liberty to initiate proceedings under the provisions of the existing laws, i.e., Central Excise Act, 1944, Finance Act, 1994 read with CENVAT Credit Rules, 2004, against the petitioner for the relevant tax period in accordance with the law.