Transitional credit under GST cannot be denied through GST recovery proceedings for alleged defects under the repealed VAT regime.

Transitional credit carried into GST could not be denied through GST recovery proceedings merely because the underlying credit was alleged to be inadmissible under the repealed VAT regime. The Court held that disputes about the legality of pre-GST credit must be examined under the law governing that earlier regime, within the repeal and saving framework, and GST authorities lacked jurisdiction to decide such admissibility through proceedings for wrongly availed input tax credit. The adjudication and appellate orders based on that denial were quashed, and the amount recovered by adjustment from the electronic credit ledger was ordered to be restored with statutory interest, while the revenue was left free to proceed under the earlier VAT law if so advised.

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Issues: (i) Whether proceedings under the Jharkhand Goods and Services Tax Act, 2017 could be used to deny transitional credit on the ground that the underlying credit was allegedly inadmissible under the repealed VAT regime. (ii) Whether the impugned adjudication order and appellate order, together with the recovery from the electronic credit ledger, were liable to be quashed with restoration of the reversed amount.

Issue (i): Whether proceedings under the Jharkhand Goods and Services Tax Act, 2017 could be used to deny transitional credit on the ground that the underlying credit was allegedly inadmissible under the repealed VAT regime.

Analysis: Transitional credit carried forward into the GST regime under the statutory transition provisions could not be examined and denied by invoking the GST recovery machinery merely because the credit was alleged to be inadmissible under the earlier VAT law. The challenge related to the legality of credit under the repealed regime, and such a dispute had to be tested under the law governing that regime. The repeal and saving framework preserved the proper forum and competence for proceedings concerning pre-GST liabilities and credits, and the GST authorities could not assume jurisdiction to decide admissibility of credit under the earlier enactment through proceedings for wrongly availed input tax credit under GST.

Conclusion: The objection to transitional credit under the GST proceedings was not sustainable, and the denial was held to be without jurisdiction.

Issue (ii): Whether the impugned adjudication order and appellate order, together with the recovery from the electronic credit ledger, were liable to be quashed with restoration of the reversed amount.

Analysis: Since the GST-based denial of transitional credit could not stand, the adjudication order and the appellate order founded on that denial were liable to be set aside. The amount already recovered by adjustment from the electronic credit ledger was directed to be restored with statutory interest. At the same time, liberty was reserved to the authorities to proceed under the repealed VAT law for the relevant period if so advised.

Conclusion: The impugned orders were quashed and the recovered amount was directed to be restored to the credit ledger.

Final Conclusion: The petitioner succeeded on the core challenge to the GST-based denial of transitional credit, while the revenue was left free to pursue remedies under the earlier VAT regime for the relevant period.

Ratio Decidendi: Transitional credit disputes arising from alleged inadmissibility under a repealed tax regime cannot be adjudicated and denied through proceedings under the GST recovery provisions; such issues must be dealt with under the law governing the earlier regime, subject to the repeal and saving framework.

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