2025 (2) TMI 133 - HC - GST

GST authority orders quashed for denying CENVAT credit transition from JVAT to JGST Act

HC quashed GST authority orders denying transition of CENVAT credit from JVAT Act to JGST Act. Following precedent in Usha Martin Limited case, court held ... Transition of input tax credit from the Jharkhand Value Added Tax Act, 2005 (JVAT Act) to the Jharkhand Goods and Services Tax Act, 2017 (JGST Act) - eligibility of CENVAT credit/Input Tax Credit - HELD THAT:- Te issue involved in the instant writ petition is covered by a coordinate Bench of this Court in the case of Usha Martin Limited [2022 (11) TMI 1266 - JHARKHAND HIGH COURT] where it was held that the eligibility of CENVAT credit under the erstwhile Act should be adjudicated under the provisions of that Act, and migration to the GST regime cannot be denied merely because certain credits were ineligible under the repealed Act. Conclusion - The transition of CENVAT credit under the GST regime cannot be denied based on its eligibility under the repealed Act, as this falls outside the jurisdiction of the GST authorities. The instant writ petition is disposed of in terms of the order dated 10th November, 2022 passed in the case of Usha Martin Limited and the impugned adjudication Order dated 08.01.2018 (Annexure-9) and the Appellate Order dated 13.12.2019 (Annexure-15) are, hereby, quashed and set aside. Application disposed off. The Court considered several issues in this case, primarily revolving around the transition of input tax credit from the Jharkhand Value Added Tax Act, 2005 (JVAT Act) to the Jharkhand Goods and Services Tax Act, 2017 (JGST Act). The petitioner, a Public Sector Undertaking (PSU), challenged an order by the Joint Commissioner of State Tax (Appeals) denying the carry forward of disputed credit and the subsequent actions taken by the tax authorities.Issues Presented and Considered:The core issues considered were:Whether the impugned order denying the transition of input tax credit was in violation of the principles of natural justice and legal provisions.Whether the blocking and subsequent adjustment of the State Goods and Services Tax (SGST) and Cess in the petitioner's credit ledger were arbitrary and illegal.Whether the petitioner was entitled to carry forward un-availed input tax credit on capital goods under the GST regime.The legality of issuing a show cause notice under Section 73 of the JGST Act for demanding transitional credit.The validity of Rule 121 of the Central Goods and Services Tax Rules, 2017.The imposition of interest and penalties in the given circumstances.Issue-Wise Detailed Analysis:1. Denial of Transitional Credit:The relevant legal framework included Section 140 of the JGST Act, which allows for the transition of input tax credit from the previous tax regime to the GST regime. The petitioner argued that the denial of credit was contrary to these provisions.The Court referenced the case of 'Usha Martin Limited vs. Additional Commissioner, Central GST & Excise' where it was held that the eligibility of CENVAT credit under the erstwhile Act should be adjudicated under the provisions of that Act, and migration to the GST regime cannot be denied merely because certain credits were ineligible under the repealed Act.The Court found that the adjudicating authority had improperly assumed jurisdiction to determine the admissibility of CENVAT credit under the existing law by invoking Section 73 of the CGST Act.2. Blocking and Adjustment of Credit:The petitioner contended that the blocking of SGST and Cess in the credit ledger, followed by their adjustment against the demand, was arbitrary and illegal.The Court concluded that since the adjudication order was quashed, the recovery of Rs. 30,29,99,999/- was also without legal basis, and thus, the amount should be restored to the petitioner's credit ledger.3. Carry Forward of Un-availed Input Tax Credit:The petitioner claimed entitlement to carry forward un-availed input tax credit on capital goods based on Section 140(2) of the JGST Act.The Court did not provide a detailed analysis on this point, given its decision to quash the impugned orders, but left the door open for proceedings under the repealed VAT Act if deemed necessary by the authorities.4. Show Cause Notice under Section 73:The petitioner argued that no show cause notice could be issued under Section 73 for demanding transitional credit.The Court agreed, emphasizing that Section 73 proceedings relate to the GST regime and cannot be used to adjudicate issues from the previous tax regime.5. Validity of Rule 121:The petitioner challenged Rule 121 as ultra vires the CGST Act.The Court did not provide a specific ruling on this issue, focusing instead on the broader jurisdictional errors in the adjudication process.6. Imposition of Interest and Penalties:The petitioner contested the imposition of interest and penalties as unjustified.Given the quashing of the adjudication and appellate orders, the Court implicitly agreed that the penalties and interest were improperly imposed.Significant Holdings:The Court quashed the adjudication order dated 08.01.2018 and the appellate order dated 13.12.2019, thereby invalidating the demand and associated penalties and interest.The Court directed the restoration of Rs. 30,29,99,999/- to the petitioner's credit ledger along with statutory interest.The Court held that the transition of CENVAT credit under the GST regime cannot be denied based on its eligibility under the repealed Act, as this falls outside the jurisdiction of the GST authorities.The Court allowed the respondent authorities the liberty to initiate proceedings under the repealed VAT Act for the relevant tax periods if they choose to do so.The Court's decision underscores the principle that the transition of tax credits must be adjudicated within the framework of the law under which they were originally accrued, and that new tax regimes cannot retroactively alter these entitlements without proper legal basis.