Reversal of transitional credit preserves VAT refund entitlement, with statutory interest payable under the refund provision.

Reversal of transitional VAT credit carried into GST through TRAN 1 did not defeat refund of the underlying unutilized VAT input tax credit, because once the credit was revised to nil and reversed in the electronic credit ledger, no surviving utilization remained. On that basis, refund under the Gujarat VAT framework could not be refused merely by reference to section 142(3) of the GST Act. The refund was required to be processed under the VAT law, and statutory interest was payable under section 38 of the VAT Act from the date the refund became due until payment.

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Issues: Whether the petitioner was entitled to refund of unutilized input tax credit under the Gujarat Value Added Tax Act, 2003 after revising TRAN 1 to show nil credit and reversing the amount in the electronic credit ledger, and whether such refund carried statutory interest.

Analysis: The petitioner had originally carried forward the VAT credit into the GST regime through TRAN 1, but later revised the form and reversed the corresponding credit by filing DRC-03. On the facts, there was no surviving utilization of the VAT credit, and the amount remained an unutilized credit under the VAT regime. Following the earlier decision applied by the Court, once the credit stood reversed, the bar in section 142(3) of the GST Act did not defeat refund under the VAT Act. The refund was therefore required to be processed under the VAT framework, and interest was payable in accordance with section 38 of the VAT Act from the date of eligibility till payment.

Conclusion: The petitioner was held entitled to refund of the unutilized VAT input tax credit with statutory interest, and the authorities were directed to process the refund application accordingly.

Final Conclusion: The dispute was resolved in favour of the assessee by recognizing refund entitlement under the VAT law after reversal of the transitional credit, with consequential interest.

Ratio Decidendi: Where transitional credit carried forward into GST is later reversed and no utilization of the underlying VAT credit remains, refund under the VAT regime cannot be denied merely because the credit had once been reflected in TRAN 1; statutory interest follows under the VAT refund provision.

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