2023 (4) TMI 493 - HC - GST

GST Credit Dispute: Procedural Fairness Prevails, Tax Authorities Ordered to Conduct Reasoned Review Under Section 25

Shapoorji Pallonji and Company Pvt. Ltd. Versus Union of India & Ors.

HC analyzed GST transitional credit dispute, focusing on procedural fairness. The court quashed tax authority's order denying VAT credit carry-forward, ... Transitional Credit - Revision of return on MVAT for June 2017 - Petitioner noticed a discrepancy in the return filed in June 2017, and the Petitioner filed a revised return for the period June 2017 under section 20(4)(a) of the Maharashtra Value Added Tax (MVAT) Act, 2002 - HELD THAT:- As regards the notice dated 18 September 2019 issued under Rule 142(1) of the Central Goods and Services Tax (CGST) Rules, 2017 is concerned, the learned Special Counsel for the Respondents points out that show cause notice dated 18 September 2019 was not taken further, and the relevant notice is one dated 21 June 2022 issued under Rule 30 of the Maharashtra Value Added Tax (MVAT) Rules, 2005 in Form 309 upon which the impugned order is passed. In view of this clarification, it is not necessary to set aside notice dated 18 September 2019 and the same has been abandoned. There are no discussion in the impugned order as to whether the Petitioner is entitled to the term set of the transitional credit. The learned Special Counsel for the Respondents sought to argue that apart from the Circular, the statute would demonstrate that the Petitioner is not entitled to set of. The learned Counsel for the Petitioner contends that the statutory scheme would show that the Petitioner is entitled to set of and that this statute as it stands does not make any distinction between the regular return and revised return, and the circular being beyond the scope of the statute should not be relied upon apart from the reliance on the Circular No. 35A - It cannot be that the Authority passes an order without reasons, and then arguments are advanced in a writ jurisdiction at the first instance. If the Respondents proceed to exercise power under section 25 of the MVAT Act of 2002, will issue notice to the Petitioner as per law and pass necessary orders - petition disposed off. Issues involved:The issues involved in this case are related to the entitlement of transitional credit under the GST regime, the validity of the notice issued for review of the assessment order, and the interpretation of Section 25 of the Maharashtra Value Added Tax (MVAT) Act, 2002.Entitlement of Transitional Credit:The Petitioner, a private limited company engaged in works contract services, filed a revised VAT return in June 2017 under the MVAT Act, 2002. Upon the implementation of the GST regime, the Petitioner carried forward the unadjusted closing balance of VAT credit to the GST Transition Form -1. An assessment order was passed allowing excess credit, which the Petitioner later sought rectification for. However, a subsequent order denied the unadjusted VAT credit carried forward under the GST regime, citing Circular No. 35A. The Petitioner challenged this order, arguing that the statutory scheme entitles them to the set-off and that the circular should not override the statute. The High Court noted that the order lacked reasoning and relied solely on the circular, emphasizing the need for a self-speaking order. The Court quashed the order and directed the authorities to issue a notice to the Petitioner under Section 25 of the MVAT Act for necessary orders.Validity of Notice for Review:The Petitioner received a notice for review of the assessment order, which stated that the transitional credit based on the revised return was not permissible as per Circular No. 35A. The High Court clarified that the notice under Rule 142(1) of the CGST Rules was abandoned, and the relevant notice was issued under Rule 30 of the MVAT Rules. The Court emphasized the importance of specifying reasons for exercising power under Section 25 of the MVAT Act, which is akin to revision by the Commissioner. The Court highlighted the need for a reasoned order and quashed the impugned order, directing the authorities to proceed within the period of limitation.Interpretation of Section 25 of MVAT Act, 2002:Section 25 of the MVAT Act empowers the Commissioner to call for records and pass necessary orders after any order is passed by a subordinate officer. The Court observed that the power under this section, though termed as review, is akin to revision and can have consequences on taxpayers. The Court stressed the requirement for the order to be self-speaking and reasoned, especially when impacting taxpayers. The Court set aside the order passed under Section 25 and directed the authorities to initiate and complete proceedings within six weeks.This judgment clarifies the entitlement of transitional credit under the GST regime, emphasizes the importance of providing reasoned orders, and interprets the powers under Section 25 of the MVAT Act, ensuring procedural fairness and adherence to statutory provisions.