2023 (1) TMI 1023 - HC - GST

Registered Persons Can Migrate TDS Credit from VAT to GST Under Section 140(1) of JGST Act Without Penalty

The HC held that under Section 140(1) of the JGST Act, registered persons are entitled to migrate the credit of TDS amounts from the VAT regime to GST, as ... Transitional arrangements for input tax credit - credit of amount of Value Added Tax and Entry Tax - tax deducted at source (TDS) under Section 44 of the JVAT Act - admissibility as input tax credit - proviso to Section 140(1) - qualification of main provision - rule-making power and subordinate legislation inconsistent with parent ActCredit of amount of Value Added Tax and Entry Tax - tax deducted at source (TDS) under Section 44 of the JVAT Act - transitional arrangements for input tax credit - Whether unadjusted TDS deducted under Section 44 of the JVAT Act is a 'credit of the amount of value added tax' eligible for migration to the electronic credit ledger under Section 140(1) of the JGST Act. - HELD THAT: - The Court held that Section 140(1) must be read purposively as a transitional provision enabling migration of unadjusted tax components carried forward under the previous regime for adjustment against output tax liability under GST. Under the JVAT scheme tax paid consisted of input tax, tax deducted as TDS and entry tax, and both entry tax and TDS were available for adjustment against output tax under the JVAT Act. The legislature's use of the phrase 'credit of amount of Value Added Tax and Entry Tax' in Section 140(1) was intended to permit migration of such carried forward unadjusted amounts (including TDS) so as to avoid requiring assessees to claim refunds after repeal of the earlier law. Consequently, unadjusted TDS deducted under Section 44 of the JVAT Act qualifies as a 'credit of amount of value added tax' and is migratable to the electronic credit ledger under Section 140(1). [Paras 14, 18]Unadjusted TDS under Section 44 JVAT is migratable as 'credit of amount of value added tax' under Section 140(1) JGST.Proviso to Section 140(1) - qualification of main provision - admissibility as input tax credit - Section 17(5) restricted credits - Scope and effect of proviso (i) to Section 140(1): whether it bars migration of credits which are not admissible as input tax credit under the GST Act, and whether that would exclude TDS generally. - HELD THAT: - The Court applied established principles governing interpretation of provisos: a proviso ordinarily qualifies or excepts from the main enactment and cannot be read so as to nullify the principal provision. The proviso to Section 140(1) qualifies migration only where the said amount of credit is expressly not admissible as input tax credit under the GST Act. The Court concluded that the proviso should be read harmoniously with Section 17(5); migration is excluded only for categories expressly barred by Section 17(5). A broader construction that treats TDS as universally barred would defeat the object of the transitional provision and render parts of Section 140(1) otiose. [Paras 15, 16]The proviso to Section 140(1) excludes migration only where the credit is expressly inadmissible under the GST Act (e.g., as in Section 17(5)); it does not, by itself, operate to disallow migration of unadjusted TDS generally.Rule-making power and subordinate legislation inconsistent with parent Act - Rule 117 of the JGST Rules - constitutional court may ignore ultra vires rules - Whether Rule 117 of the JGST Rules, to the extent it restricts migration to 'input tax credit' and thereby excludes TDS, can be enforced against assessees. - HELD THAT: - The Court examined Rule 117 and found that it restricts Section 140(1) by permitting migration only of 'input tax credit' and not of the broader 'credit of value added tax and entry tax' specified in the parent Act. Being subordinate legislation, Rule 117 cannot be used to curtail the statutory right conferred by Section 140(1). Reliance was placed on precedents that subordinate rules inconsistent with the Act may be ignored when enforcement would defeat the Act's provisions. The Court therefore declined to apply Rule 117 so as to deny migration of unadjusted TDS which falls within the statutory transitional credit. [Paras 17, 18]Rule 117 cannot be enforced to restrict migration of credits granted by Section 140(1); it is to be ignored to the extent that it is inconsistent with the parent enactment.Final Conclusion: The writ petitions were allowed: the impugned orders and demand notices denying migration of unadjusted TDS and imposing interest and penalty were quashed and set aside; petitioners are entitled to migrate the unadjusted TDS amounts under Section 140(1) of the JGST Act. No order as to costs. Issues Involved:1. Whether the amount deducted towards TDS under Section 44 of the Jharkhand Value Added Tax Act qualifies as 'credit of the amount of value added tax' for migration to the electronic credit ledger under the GST regime.Detailed Analysis:Issue 1: Whether the amount deducted towards TDS under Section 44 of the Jharkhand Value Added Tax Act qualifies as 'credit of the amount of value added tax' for migration to the electronic credit ledger under the GST regime.Brief Facts:The petitioners were engaged in business activities in Jharkhand and were registered under the Jharkhand Value Added Tax Act, 2005 (JVAT Act). Post-GST implementation, they registered under the GST Act, 2017. They filed returns showing excess input tax credit (ITC) and unadjusted TDS deducted under Section 44 of the JVAT Act. They claimed this amount as transitional credit under the GST regime, which was subsequently disallowed by the tax authorities, leading to the imposition of interest and penalties.Petitioners' Arguments:- Petitioners argued that Section 140(1) of the JGST Act allows for the migration of 'credit of value added tax' which includes TDS as it is a form of VAT deducted in advance.- They contended that Rule 117 of the JGST Rules, which restricts the migration to 'input tax credit,' is contradictory to the main enactment and should be ignored.- They highlighted that under the JVAT Act, TDS was treated as excess ITC in statutory returns and was allowed to be carried forward, thus should be eligible for migration.- They argued that if TDS was not allowed to be carried forward, it would have been refundable, and the denial of migration is against the legislative intent of transitional provisions.Respondents' Arguments:- Respondents justified the denial based on Rule 117 of the JGST Rules, which restricts the migration to 'input tax credit' and not TDS.- They argued that TDS and ITC are distinct under both JVAT and JGST Acts, with TDS being in the nature of output tax.- They relied on Section 51(5) of the JGST Act, stating that TDS is credited to the electronic cash ledger, not the electronic credit ledger.- They contended that the proviso to Section 140(1) restricts migration of credits not admissible as ITC under the GST Act.Court's Analysis:- The court noted that transitional provisions aim to facilitate the migration of unadjusted tax credits from the previous tax regime to the GST regime.- It emphasized that the terms 'credit of amount of value added tax and entry tax' in Section 140(1) include TDS, as it was adjustable against output tax under the JVAT Act.- The court rejected the restrictive interpretation of the proviso to Section 140(1) and held that it only restricts migration where there is an express prohibition under Section 17(5) of the JGST Act.- It found Rule 117 of the JGST Rules, which restricts migration to 'input tax credit,' to be ultra vires as it contradicts the main enactment.- The court highlighted that denying migration of TDS would entitle the petitioners to refunds, which was not the legislative intent.Conclusion:The court concluded that the petitioners are entitled to migrate the TDS amount under Section 140(1) of the JGST Act. The impugned orders denying migration and imposing interest and penalties were quashed. The writ petitions were allowed, and it was declared that the petitioners could migrate the TDS amount to their electronic credit ledger under the GST regime. No costs were awarded.