Current management not liable for transitional credit before resolution plan approval under tax rules

The HC upheld that the current management was not liable for transitional credit relating to the period before the resolution plan approval date, as it was not the taxpayer during that time. The liability and credit pertaining to the earlier management cannot be transferred to the current management. However, the HC found error in the adjudicating authority's direction to recover the entire transitional credit amount with interest and penalties, ruling this contrary to SC precedents. Consequently, the petitioner was denied the claimed transitional credit of Rs. 92,13,412/- for the period prior to the resolution plan approval. The application was allowed in part, restricting transitional credit claims to the period post-approval and disallowing recovery of the full amount with penalties.

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Issues Involved:
1. Legality of the Order-in-Original confirming the demand of Rs. 6,02,34,616/-.
2. Validity of the Demand-cum-Notice to Show Cause.
3. Entitlement to restoration of Form TRAN-1.
4. Restraint on coercive action for realizing any amount.
5. Any other appropriate relief.

Summary:

Issue 1: Legality of the Order-in-Original confirming the demand of Rs. 6,02,34,616/-

The petitioner challenged the Order-in-Original dated 24.02.2023, which confirmed a demand of Rs. 6,02,34,616/- under Section 74(9) of the CGST Act, 2017, citing irregular availment of transitional credit during 2017-18. The petitioner argued that the order was illegal and arbitrary, passed without considering their show cause reply and the Supreme Court's judgment in Ghanshyam Mishra and Sons Private Ltd. v. Edelweiss Asset Reconstruction Company Ltd. The court observed that as per the Supreme Court's judgment, no recovery or proceeding can continue against the petitioner for dues prior to 17.04.2018, the date on which the National Company Law Tribunal approved the resolution plan. The court found that the adjudicating authority misdirected itself by holding that the whole amount taken as transitional credit was liable to be recovered along with interest and penalties. Consequently, the Order-in-Original was quashed and set aside.

Issue 2: Validity of the Demand-cum-Notice to Show Cause

The petitioner received a Demand-cum-Notice to Show Cause dated 09.02.2023, directing them to explain why ITC amounting to Rs. 6,02,34,616/- should not be imposed. The court noted that the adjudicating authority correctly held that the current management was not a taxpayer for the period prior to 04.06.2018, and thus the liability of the earlier management should not be shifted to the current management. However, the court also held that the credit available to the earlier management would not be available to the current management.

Issue 3: Entitlement to restoration of Form TRAN-1

The petitioner sought a direction to restore Form TRAN-1, arguing that they were entitled to it under the facts and circumstances. The court held that the petitioner could not take credit of the ITC for the period prior to 17.04.2018, the date on which the National Company Law Tribunal approved the resolution plan. Hence, the petitioner was not entitled to claim Rs. 92,13,412/- as transitional credit by filing new TRAN-1.

Issue 4: Restraint on coercive action for realizing any amount

The petitioner requested to restrain the respondents from taking any coercive action for realizing any amount pursuant to the Order-in-Original. The court quashed the Order-in-Original and all consequential orders, thus restraining any coercive action based on the quashed order.

Issue 5: Any other appropriate relief

The court partly allowed the writ application, granting relief by quashing the Order-in-Original but denying the petitioner's claim to transitional credit for the period prior to 17.04.2018. Any pending I.A. was also closed.

Conclusion:

The court quashed the Order-in-Original confirming the demand of Rs. 6,02,34,616/- but held that the petitioner could not claim transitional credit for the period prior to 17.04.2018. The petitioner's request for restoration of Form TRAN-1 was denied, and the writ application was partly allowed.

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