2024 (3) TMI 272 - HC - GST

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

Siemens Ltd. and Unichem Laboratories Limited Versus Union Of India Through The Jt. Secretary (revenue) And Ors.

The Bombay HC addressed petitioners' challenge regarding transition of input tax credit under Section 140(7) of CGST Act. Petitioners argued their ... Interpretation of statute - provisions of sub-section (7) of Section 140 of CGST Act - Transition of the Input Tax Credit - petitioners contend that such input tax credit was not permitted to be transitioned and / or to be taken in the electronic credit ledger, although it was statutorily entitled to them, and merely, because there is a defective electronic mechanism to give effect to such input tax credit - HELD THAT:- It would be appropriate that the GST Council considers the issues inter alia the effect that Sub-Section (7) of Section 140 would bring about, on the transition of the input tax credit, being permitted under such provision. More particularly, as it is urged on behalf of the Petitioners, that it is ill-conceivable that the input tax credit which was legitimately available with the petitioners before the appointed day, cannot be permanently lost or lapsed, merely because the GST, machinery does not create an effective procedural mechanism, for such credit to be transferred to the Electronic Credit Ledger (ECL) to be utilized, thereby, creating a situation of such credit being permanently lost. It is also their submission that this can never be the intention of the legislation even on a plain reading of sub-section (7) of Section 140. It is opined that, an appropriate examination of such issues by the GST Council shall assist the Court in taking an appropriate view of the matter. These proceedings adjourned to 9th August 2024. 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 CreditThe 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 140The 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.