Legitimate pre-GST input tax credit cannot be lost due to defective electronic transfer mechanisms under Section 140(7)

The Bombay HC addressed petitioners' challenge regarding transition of input tax credit under Section 140(7) of CGST Act. Petitioners argued their legitimate pre-GST input tax credit was being permanently lost due to defective electronic mechanisms preventing transfer to Electronic Credit Ledger, despite statutory entitlement. The HC observed that legitimately available input tax credit cannot be permanently lost merely due to inadequate GST procedural mechanisms for ECL transfer. The court recommended GST Council examine these transitional credit issues and their impact under Section 140(7). Proceedings were adjourned to August 9, 2024 pending GST Council's examination to assist the court's final determination.

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Issues Involved:
The petitioners, registered as Input Service Distributors, raise concerns regarding the transition of Input Tax Credit on the appointed day (1 July 2017) under the Central Goods and Services Tax Act, 2017.

Details of the Judgment:

Issue 1: Transition of Input Tax Credit
The petitioners argue that their entitled input tax credit was not allowed to be transitioned due to a defective electronic mechanism. They filed petitions seeking a writ of mandamus to direct the respondents to permit them to avail eligible transition and credit as per Section 140 of the CGST Act without restrictions.

Issue 2: Interpretation of Section 140
The court deliberated on the legal effect of sub-sections (1) and (7) of Section 140 of the CGST Act concerning the transitional arrangements for carrying forward and utilizing input tax credit by Input Service Distributors. The court noted the specific provisions of sub-section (7) which deal with the eligibility of input tax credit for distribution by Input Service Distributors.

Key Points:
- The court considered extensive arguments from both parties, including learned Senior Counsel for the Petitioners and the Additional Solicitor General.
- The primary focus was on interpreting sub-section (7) of Section 140 and its implications on the transition of input tax credit for Input Service Distributors.
- The court highlighted the need for a thorough examination by the GST Council to understand the impact of the provision on the transition of input tax credit.
- The proceedings were adjourned to allow for further examination by the GST Council, with the court emphasizing the importance of not losing legitimately available input tax credit due to procedural shortcomings.
- The court decided to keep the proceedings "Part Heard" and granted the continuation of ad-interim reliefs until the next hearing scheduled for 9th August 2024.

By deferring further arguments and seeking input from the GST Council, the court aims to ensure a comprehensive understanding of the issues raised by the petitioners regarding the transition of input tax credit under the CGST Act.

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