Transitional input tax credit under GST cannot be denied merely because the underlying transaction arose before the appointed day.

Transitional input tax credit under Section 140 of the CGST Act, 2017 cannot be denied merely because the underlying inputs or input services relate to transactions before the appointed day. The provision must be read with both sub-sections (1) and (5): sub-section (1) covers CENVAT credit carried forward from the pre-GST return period, while sub-section (5) separately permits credit of eligible duties and taxes on inputs or input services received on or after the appointed day, subject to prescribed conditions. An overly restrictive reading that limits transition only to post-appointed-day transactions is inconsistent with the statutory scheme, and eligible transitional credit remains admissible.

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Issues: Whether input tax credit under the transitional provisions could be denied on the ground that the inputs or input services related to transactions prior to the appointed day under the GST regime.

Analysis: Section 140 of the Central Goods and Services Tax Act, 2017 permits transition of CENVAT credit carried forward in the return relating to the period ending immediately before the appointed day. It also separately enables credit of eligible duties and taxes in respect of inputs or input services received on or after the appointed day where the duty or tax was paid under the existing law and the prescribed conditions are satisfied. The impugned view treated Section 140(5) as if it confined transition only to post-appointed-day transactions, but that reading ignored Section 140(1) and the structure of the transitional scheme. The statutory text does not support exclusion merely because the underlying transaction occurred before 01.07.2017 if the credit otherwise falls within the transition mechanism.

Conclusion: The denial of transitional credit was unsustainable and the assessee was entitled to succeed on the issue.

Ratio Decidendi: Transitional credit under Section 140 of the Central Goods and Services Tax Act, 2017 must be construed in accordance with both sub-sections (1) and (5), and cannot be denied on an overly restrictive reading that excludes eligible credit merely because it relates to pre-appointed-day transactions.

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