2025 (1) TMI 773 - HC - GST

Transitional Cenvat Credit qualifies as input tax credit under Section 140, interest valid but penalty quashed for bona fide error

M/s. Deendayal Port Authority Through Secretary Versus Union Of India & Ors.

Gujarat HC held that transitional Cenvat Credit qualifies as input tax credit under CGST Act per Section 140, making interest levy under Section 50(3) ... Interest under Section 50(3) of the CGST Act for wrongly availing and utilizing Cenvat Credit - imposition of penalty under Section 122(2)(b) read with Section 74(1) of the CGST Act - transitional Cenvat Credit qualifies as 'input tax credit' under the CGST Act or not. Levy of interest under Section 50(3) of the CGST Act for wrongly availing and utilizing Cenvat Credit - HELD THAT:- On perusal of the impugned orders passed by the respondent authorities, it appears that the petitioner has made a claim to carry forward excess Cenvat Credit in Form GST TRAN-I under a bona fide belief. The interest can be levied under section 50 (3) of the CGST Act which has been substituted by the Finance Act, 2022 with effect from 01.07.2017 where the input tax credit has been wrongly availed and utilized. The definition of “input tax credit” as per section 2 (63) means the credit of input tax whereas “input tax” has been defined in section 2 (62) of the Act in relation to a registered person means the Central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him and includes the tax payable under the provisions of sub-sections (3) and (4) of section 9 of the CGST Act and SGST Act and sub-sections (3) and (4) of section 7 of the Union Territory Goods and Services Tax Act. Thus, on a first blush, it appears it is not an input tax and therefore, not an input tax credit. However, the provisions of section 140 of the CGST Act, stipulates transitional arrangement for input tax credit - the credit available as per the existing law in form of Cenvat credit or any other input tax credit, would fall within the scope of “input tax credit” under the CGST Act also. Therefore, we are of the opinion that the petitioner was liable to pay interest as computed under the provisions of section 50 (3) for wrongly availing Cenvat credit and the petitioner has rightly deposited such amount after the impugned order was passed. Imposition of penalty under Section 122(2)(b) read with Section 74(1) of the CGST Act - absence of fraud, willful misstatement, or suppression of facts - HELD THAT:- The petitioner was under bona fide belief that amount of Cenvat credit to the extent of Rs. 99,46,810/- was available to be carried forward. Out of the said amount when verification was made by the respondent authority, the petitioner accepted that Cenvat credit to the extent of Rs. 27,78,825/- could not have been carried forwarded and therefore, the provisions of section 122 (1) (b) read with section 74 (1) could not have been invoked by the adjudicating authority, more particularly, when the petitioner has not challenged the confirmation of demand of the excess ITC claimed in Form TRAN-I. Reliance placed by the appellate authority on the decision in case of Union of India v. Rajasthan Spinning & Weaving Mills [2009 (5) TMI 15 - SUPREME COURT] discussing the imposition of penalty under section 11AC of the Central Excise Act, 1944 which is stated to be pari-materia provision for levy of imposition of penalty under the GST Act is not applicable in the facts of the case as there was no conscious or deliberate wrong doing on part of the petitioner and as such, the order passed by the adjudicating authority confirming the disallowance of claim of the petitioner of transitional Cenvat Credit of Rs. 27,78,825/- out of transitional Cenvat credit of Rs. 99,46,810/- cannot be said to be claim made for a reason on account of fraud or any suppression of fact to evade tax. The findings arrived at by both the authorities that the petitioner deliberately misstated the facts in TRAN-I so as to utilise Cenvat credit in its payment of output GST liability which was found during the verification of TRAN-I cannot be the basis for imposition of penalty as it cannot be said that there was any intention on part of the petitioner which is a Government company to evade tax. Conclusion - Transitional Cenvat Credit, once carried forward, is treated as input tax credit under the CGST Act, attracting interest if wrongly availed and utilized, but penalties require evidence of fraudulent intent. The levy of interest upheld but the penalty imposed on the petitioner is quashed, recognizing the absence of fraudulent intent. Petition allowed in part. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:Whether the petitioner was liable to pay interest under Section 50(3) of the CGST Act for wrongly availing and utilizing Cenvat Credit.Whether the imposition of penalty under Section 122(2)(b) read with Section 74(1) of the CGST Act was justified in the absence of fraud, willful misstatement, or suppression of facts.Whether transitional Cenvat Credit qualifies as 'input tax credit' under the CGST Act, thereby attracting interest and penalty provisions.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Liability to Pay InterestRelevant Legal Framework and Precedents: Section 50(3) of the CGST Act mandates interest on wrongly availed and utilized input tax credit. The definition of 'input tax credit' under Section 2(63) and 'input tax' under Section 2(62) were pivotal in determining applicability.Court's Interpretation and Reasoning: The court interpreted that transitional Cenvat Credit, once credited to the Electronic Credit Ledger, falls within the scope of 'input tax credit' under the CGST Act.Key Evidence and Findings: The petitioner had carried forward Cenvat Credit in Form GST TRAN-1, which was credited to their Electronic Credit Ledger.Application of Law to Facts: The court concluded that the petitioner was liable to pay interest as the Cenvat Credit was wrongly availed and utilized.Treatment of Competing Arguments: The petitioner argued that transitional credit is not input tax credit; however, the court disagreed, citing the inclusive nature of the definitions.Conclusions: The court upheld the levy of interest under Section 50(3).Issue 2: Imposition of PenaltyRelevant Legal Framework and Precedents: Section 74(1) and Section 122(2)(b) of the CGST Act deal with penalties for fraud or willful misstatement. The court referred to the decision in Union of India v. Rajasthan Spinning & Weaving Mills regarding penalty imposition.Court's Interpretation and Reasoning: The court found no evidence of fraud or willful misstatement by the petitioner, a government entity, and noted the lack of personal benefit.Key Evidence and Findings: The petitioner had accepted the disallowance of Rs. 27,78,825/- as ineligible credit and had paid the amount without contesting the demand.Application of Law to Facts: The court determined that the imposition of penalty was unwarranted as there was no intent to evade tax.Treatment of Competing Arguments: The respondents argued that penalty was justified due to the excess credit claim, but the court emphasized the absence of fraudulent intent.Conclusions: The court quashed the penalty of Rs. 27,78,825/- imposed on the petitioner.Issue 3: Nature of Transitional Cenvat CreditRelevant Legal Framework and Precedents: The court examined the definitions of 'input tax' and 'input tax credit' under the CGST Act and the transitional provisions under Section 140.Court's Interpretation and Reasoning: The court held that transitional Cenvat Credit, once carried forward, becomes part of the input tax credit under the CGST regime.Key Evidence and Findings: The petitioner's credit was carried forward as per the transitional provisions and credited to the Electronic Credit Ledger.Application of Law to Facts: The court applied the inclusive definitions to conclude that transitional credit is indeed input tax credit.Treatment of Competing Arguments: The petitioner's reliance on the CBIC circular and definitions was considered but ultimately found unpersuasive against the statutory framework.Conclusions: The court affirmed that transitional Cenvat Credit qualifies as input tax credit.3. SIGNIFICANT HOLDINGSVerbatim Quotes of Crucial Legal Reasoning: 'The credit available as per the existing law in form of Cenvat credit or any other input tax credit, would fall within the scope of 'input tax credit' under the CGST Act also.'Core Principles Established: Transitional Cenvat Credit, once carried forward, is treated as input tax credit under the CGST Act, attracting interest if wrongly availed and utilized, but penalties require evidence of fraudulent intent.Final Determinations on Each Issue: The court upheld the levy of interest but quashed the penalty imposed on the petitioner, recognizing the absence of fraudulent intent.