2024 (6) TMI 1242 - HC - GST

Input tax credit validly availed under TNVAT Act 2006 is indefeasible and must be allowed for transition under Section 140 of TNGST Act 2017

The Madras HC held that input tax credit validly availed under TNVAT Act 2006 is indefeasible and must be allowed for transition under Section 140 of ... Indefeasibility of input tax credit - transition of unutilised input tax credit under Section 140 - procedural irregularity not defeating substantive entitlement - verification of validity of credit under antecedent statuteIndefeasibility of input tax credit - procedural irregularity not defeating substantive entitlement - Input tax credit validly availed under the TNVAT Act, 2006 is indefeasible and a substantive entitlement cannot be defeated by mere procedural lapse in transition. - HELD THAT: - The Court held that credits availed under the TNVAT Act, 2006 are indefeasible in nature, relying on the principle in Collector of Central Excise, Pune Vs. Dai Ichi Karkaria Ltd. Once validly availed, such credit is intended to prevent tax cascading and remains available unless the law provides for its lapse. Although Section 54 of the TNGST Act, 2017 does not expressly provide for refund of unutilised transitional credits, the petitioner cannot be made to suffer if the credit was validly availed. Consequently, procedural non-compliance in filing the prescribed transition declaration should not, by itself, result in denial of a substantive right to set off the credit where entitlement is established. [Paras 11, 12, 13]Held that input tax credit validly availed under TNVAT Act, 2006 is indefeasible and, if entitlement is established, procedural infraction in transition cannot be a ground to deny utilization or relief.Transition of unutilised input tax credit under Section 140 - verification of validity of credit under antecedent statute - Whether the petitioner was entitled to transition the unutilised input tax credit under Section 140 of the TNGST Act, 2017 was not adjudicated on merits and was remitted for fresh consideration. - HELD THAT: - The impugned assessment order was set aside and remitted to the fourth respondent for fresh adjudication limited to verification of whether the petitioner had validly availed the input tax credit under the TNVAT Act, 2006 and whether the availed credit satisfied the requirements of Section 19 of the TNVAT Act, 2006 read with relevant rules. The fourth respondent is directed to call for original invoices and, after verification, to decide entitlement to transition under Section 140 of the TNGST Act, 2017. If entitlement is established, the credit may be allowed to be set off despite procedural non-compliance in filing TRANS-01. [Paras 14, 15]Impugned order set aside; matter remitted to the fourth respondent to verify original invoices and decide on entitlement to transition under Section 140, allowing set off if entitlement is proved despite procedural lapses.Final Conclusion: Writ petition partly allowed: the assessment order is set aside and remitted for verification of the validity of the input tax credit availed under the TNVAT Act, 2006; the Court held such credit to be indefeasible and directed that, if entitlement is established on verification, the credit must be allowed to be set off notwithstanding procedural irregularity in transition. Issues:1. Challenge to impugned order dated 27.12.2023 for Assessment Year 2017-2018 and Notification No. 09/2023-Central Tax, dated 31.03.2023.2. Transition of unutilized input tax credit under TNVAT Act, 2006 to respective GST enactments.3. Validity of availing input tax credit under TNVAT Act, 2006 straightway in monthly returns without following prescribed procedure under TNGST Act, 2017.4. Indefeasibility of input tax credit availed under TNVAT Act, 2006.5. Refund of unutilized input tax credit not transitioned under Section 140 of TNGST Act, 2017.6. Setting aside impugned order for verification of valid availing of input tax credit under TNVAT Act, 2006.Analysis:1. The petitioner challenged an order and a notification related to Assessment Year 2017-2018. The petitioner initially challenged the notification but later withdrew that prayer.2. The dispute arose during the transition from TNVAT Act, 2006 to GST enactments in 2017. The petitioner claimed entitlement to transition unutilized input tax credit from TNVAT Act to GST enactments as per Section 140.3. The petitioner directly reflected VAT credit in monthly GST returns without following prescribed procedures, leading to denial of credit utilization by tax authorities.4. The court emphasized the indefeasibility of credits availed under TNVAT Act, 2006, citing a Supreme Court decision on Central Excise Rules.5. The judgment highlighted that unutilized credits must be refunded if not allowed for tax discharge under GST Acts unless provided for lapsing.6. The impugned order was set aside for verification of valid availing of input tax credit under TNVAT Act, 2006, directing the tax authority to examine original invoices for credit transition under Section 140 of TNGST Act, 2017. The court stressed that procedural errors should not deny credit if entitlement is established.7. The judgment partially allowed the writ petition with observations on the importance of rules as handmaids of justice, not its mistress, referring to a Supreme Court decision on sales tax refund procedures. No costs were awarded, and connected petitions were closed.