TaxTMI 
TaxTMI 
2026 (7) TMI 77
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....terials upon payment of Value Added Tax at the rate of 15% and sold the finished goods on payment of VAT at the rate of 5%. Consequently, it is claimed by the petitioner that as on 30.06.2017, it had accumulated excess ITC amounting to Rs. 23,74,689/-, as reflected in its return filed in Form-201 for the month of June, 2017 under the VAT Act. (3) With effect from 01.07.2017, the Central Goods and Services Tax Act, 2017 and the Gujarat Goods and Services Tax Act, 2017 (hereinafter collectively referred to as "the GST Acts") came into force, resulting in the repeal of the VAT Act insofar as the goods purchased and sold by the petitioner were concerned. (4) The petitioner accordingly migrated its registration from the VAT regime to the GST regime for the purpose of carrying on its business. Upon introduction of the GST regime with effect from 01.07.2017, the petitioner carried forward the accumulated ITC of Rs. 23,74,689/- pertaining to State Goods and Services Tax (hereinafter referred to as the "transitional credit") under Section 140 of the GST Acts by filing Form GST TRAN-1. Consequently, the said transitional credit stood reflected in the petitioner's ECL in July, 2017.....
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....ount of an inverted duty structure. SUBMISSIONS ON BEHALF OF THE PETITIONER : (11) Learned advocate Mr. Kuntal Parikh appearing on behalf of the petitioner has made the following submissions: (12) That the petitioner's entitlement to carry forward accumulated ITC under Section 140 of the GST Acts has never been disputed by the respondents, and the transitional SGST credit carried forward through Form GST TRAN-1 from VAT to GST was duly accepted by the department and stood credited to the petitioner's ECL without any objection. Thus, since the validity, admissibility and quantum of such credit having attained finality, the respondents cannot now seek to deny its legal character while considering the petitioner's claim for refund under Section 54(3) of the GST Acts. (13) That upon migration of the ITC under Section 140 of the GST Acts, it becomes part of the ECL Ledger, and such credit forms an integral part of the ITC available under the GST enactments. It is submitted that the statute does not recognize any distinction between credit carried forward under Section 140 of the GST Acts and credit earned subsequent to the implementation of GST, hence in the abse....
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....d through the transitional mechanism under Section 140 of the GST Acts. (17) That the expression "Input Tax Credit" occurring in Section 54(3) of the GST Acts cannot be assigned a meaning different from the identical expression employed in Section 49(4) of the GST Acts. The respondents themselves concede that the transitional credit carried forward under Section 140 of the GST Acts can be utilized towards discharge of output tax liability under Section 49(4) of the GST Acts. Having accepted that position, the respondents cannot contend that the very same credit ceases to be "Input Tax Credit" when refund is claimed under Section 54(3) of the GST Acts. Such mutually inconsistent interpretation of the same statutory expression is wholly impermissible in law. (18) That the respondents have failed to appreciate that utilization of Input Tax Credit under Section 49(4) of the GST Acts and refund thereof under Section 54 of the GST Acts are not competing rights but complementary statutory consequences flowing from the same credit. Where the credit is capable of being utilized, the registered person may discharge his output tax liability. Conversely, where such utilization becomes im....
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....ecided on 10.01.2024. It was further submitted that the Special Leave Petition preferred against the said judgment came to be dismissed by the Supreme Court on merits. The said principle has subsequently been followed by the Gujarat High Court in the cases of Torrent Pharmaceuticals Ltd. vs. Union of India, 2024 (22) Centax 431 (Guj) and Ford India Pvt. Ltd. vs Union of India, 2025(94) GSTL 84 (Guj.) thereby consistently recognizing the entitlement of an assessee to refund in respect of accumulated credit notwithstanding its transitional origin. (23) Reliance is also placed upon the decision of the Gujarat High Court in the case of Weatherproof Solution vs. State of Gujarat, 2025 (32) Centax 258 (Guj.), wherein the Court held that an assessee who had not carried forward accumulated credit through Form GST TRAN-1 was entitled to seek refund under the existing law. (24) That without prejudice to the aforesaid submissions, learned advocate Mr. Parikh has further contended that even assuming the respondents were of the view that any part of the refund claim was inadmissible, respondent No. 2 was bound to follow the mandatory procedure prescribed under Rule 92 of the GST Rules by ....
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....statutory distinction between carry forward of ITC and refund of such credit is fundamental to the legislative scheme. Under the erstwhile taxation laws, a dealer possessed an independent statutory remedy for claiming refund of accumulated credit, wherever permissible under the relevant enactment. Parliament has consciously preserved this distinction under the GST Acts by providing that accumulated credit under the existing laws may either be carried forward into the GST regime for future utilization under Section 140 of the GST Acts or be dealt with in accordance with the provisions governing refund under the existing law. The two remedies, according to the respondents, are mutually exclusive and cannot be simultaneously invoked in respect of the same credit. (30) In this context, reliance has been placed upon Section 142(3) of the GST Acts, which mandates that every claim for refund of tax, duty, interest or Central Value Added Tax Credit (for short "CENVAT credit") arising under the existing law shall be disposed of in accordance with the provisions of the existing law and any amount eventually found refundable shall be paid in cash. Particular emphasis has been laid upon the....
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....o the GST regime by virtue of the transitional mechanism contained in Section 140 of the GST Acts. (35) That the mere reflection of transitional credit in the ECL does not alter its intrinsic character or source. Such credit continues to derive its origin from the erstwhile VAT law and does not become ITC generated under the GST enactments merely because it is reflected in the ECL. (36) That according to the respondents, acceptance of the petitioner's interpretation would render the second Proviso to Section 142(3) of the GST Acts wholly redundant and defeat the legislative object underlying the transitional provisions contained in Chapter-XX of the GST Acts. It is submitted that the transitional provisions have been enacted as a self-contained code governing migration of rights and liabilities from the erstwhile tax regime and are intended to ensure seamless transition while simultaneously preventing duplication of fiscal benefits. (37) That permitting refund of transitional VAT credit under Section 54(3) of the GST Acts would also seriously disturb the fiscal architecture contemplated under the GST regime. Taxes collected under the erstwhile VAT enactments formed par....
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....t rejected the component representing transitional VAT credit carried forward from the erstwhile regime. (41) Learned AGP has also invited attention to Rule 89(5) of the GST Rules, which prescribes the formula for computation of refund arising from an inverted duty structure. Particular emphasis has been placed upon Explanation (a) thereto, which defines "Net ITC" to mean "Input Tax Credit availed on inputs during the relevant period." It is submitted that the expression "during the relevant period" assumes considerable significance, inasmuch as the transitional VAT credit carried forward through Form GST TRAN-1 was admittedly not availed during the relevant tax period, namely July, 2017 to March, 2018, on account of taxable inward supplies received under the GST enactments. Rather, it constituted a pre-existing balance standing to the petitioner's credit as on 30.06.2017, which was merely migrated into the GST regime through the statutory transitional mechanism. Such credit, therefore, falls outside the ambit of "Net ITC" contemplated under Rule 89(5) of the GST Rules and cannot be considered while computing refund under Section 54(3) of the GST Acts. (42) That the petit....
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....are two distinct statutory concepts governed by different provisions, operating in different fields, subject to different conditions and intended to achieve different legislative objectives. Any interpretation equating the right of utilization with a right to claim refund would not only be contrary to the plain language of the statute but would also render the carefully structured transitional provisions contained in Chapter XX of the GST Acts otiose. (46) Learned AGP further submitted that the legislative intent underlying Sections 140 and 49(4) of the GST Acts is to ensure a seamless transition from the erstwhile indirect tax regime to the GST regime by preserving eligible accumulated credits and permitting their utilization towards discharge of future GST liabilities. The object of these provisions is to prevent cascading of taxes and to ensure that legitimate credits earned under the repealed enactments do not lapse merely on account of the introduction of the GST regime. (47) That Section 54(3) of the GST Acts, however, operates in an altogether different field. The said provision carves out a limited exception by permitting refund of unutilized ITC only in the contingen....
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....ovision superfluous or otiose. ANALYSIS OF THE STATUTORY FRAME WORK GOVERNING TRANSITIONAL ITC : (53) The issue raised in the writ petition is though concise, but it takes within its ambit various provisions regulating the claim of refund of ITC under GST regime after its transition from erstwhile tax regime. The accumulated ITC of the petitioner of Rs. 23,74,689/- under the VAT regime was transferred to GST regime with effect from 01.07.2017, under Section 140 of the GST Acts by filing Form GST TRAN-1 under Rule 117 of the GST Rules. Consequently, the said transitional credit stood reflected in the petitioner's ECL in July, 2017. Accordingly, for the period from 01.07.2017 to 31.03.2018, the petitioner accumulated excess ITC aggregating to Rs. 28,54,987/-. Out of Rs. 28,54,987/-, the petitioner preferred an application for refund of SGST amounting to Rs. 23,50,000/- in Form GST RFD-01A under Rule 89 of the GST Rules. (54) Vide communication dated 09.10.2019, respondent No. 2 sanctioned refund of only Rs. 4,75,324/- out of the total claim of Rs. 23,50,000/-. Simultaneously, respondent No. 2 issued Payment Advice in Form GST RFD-05 dated 09.10.2019, pursuant to which th....
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....lly rejected, the amount so rejected shall lapse: Provided further that no refund shall be allowed of any amount of CENVAT credit where the balance of the said amount as on the appointed day has been carried forward under this Act." (59) Section 142 of the GST Acts deals with the Miscellaneous transitional provisions governing the ITC. Section 142(3) of the GST Acts stipulates that the claim of refund of any amount of credit, duty, tax, interest or any other amount paid under the existing laws, i.e VAT, etc, shall be disposed of in accordance with the provisions of such laws, i.e, VAT, etc, and the amount accruing shall be paid in cash. The first Proviso, provides of lapsing of fully and partially rejected credit of existing law(VAT), whereas, the second Proviso restricts / debars claim of refund of the amount of CENVAT Credit (VAT), where the balance of the said amount has been carried forwarded under the GST Acts. Thus, GST regime never placed any restriction on the tax payers of erstwhile regime to claim refund of credit even prior to or after the implementation of GST regime. The legislature in order to secure the interest of tax payers enacted the generous provisio....
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....dger may be used for making payment towards tax, interest, etc., for any amount under the provisions of the GST Acts. Section 49(4) of the GST Acts stipulates that the amount available in Electronic Credit Ledger may be used for making any payment towards output tax under GST or IGST in such manner and subject to conditions as may be prescribed. Section 49(6) of the GST Acts permits the balance in the Electronic Cash Ledger or Electronic Credit Ledger under GST or the Rules to be refunded in accordance with Section 54. (62) Chapter-XI of the GST Acts encompasses Section 54 which governs refund of tax. Thus, it is apparent from combined reading of the scheme of section 49(4) and section 54(3) of the GST Acts that Section 49(4) allows the amount in Electronic Credit Ledger to be "utilized for the purpose of making payment towards output tax", whereas Section 54(3) permits claim of refund in two circumstances enumerated therein. Firstly, in case of zero-rated supplies made without payment of tax, and Secondly, on inverted tax structure. The calculation of the refund in both these circumstances is governed by the formulas provided under Rule 89(4) and (5) of the GST Rules. The first....
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....he main Section 142(3), whereas the 2nd Proviso restricts claim of refund of credit, if the credit is transitioned. The petitioner cannot claim refund of credit under the provisions of old regime, on transitioning of the credit. Such claim is restricted only under Section 143(3) and rejection/allowance of credit claimed under Section 143(3) is governed by 1st proviso. Merely because the transit/transfer is permitted by TRAN-1 to GST regime, such transfer of credit will not ipso facto make the credit worthy of refund under Section 54(3). The legislature has introduced an exclusive Chapter regulating transition of credit from former regime to GST. Ultimately, Section 142(3) of the GST is a check to ensure a taxpayer does not claim a refund of the erstwhile regime once that credit has been carried forward and transitioned into the GST framework. The petitioner cannot insist on refund of transitioned GST de hors the statute. (64) We may now deal with the decisions cited on behalf of the petitioner. The petitioner has primarily placed reliance on the judgement of this Court in the case of Torrent Pharmaceuticals Ltd. (supra). The facts and discussion of law in the said judgement indi....
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....ame reads as thus: "10. Refund of taxes paid under existing laws: Sub-sections (3), (4) and (5) of section 142 of the CGST Act provide that refunds of tax/duty paid under the existing law shall be disposed of in accordance with the provisions of the existing law. It is observed that certain taxpayers have applied for such refund claims in FORM GST RFD-01A also. In this regard, the field formations are advised to reject such applications and pass a rejection order in FORM GST PMT-03 and communicate the same on the common portal in FORM GST RFD-01B. The procedures laid down under the existing laws viz., Central Excise Act, 1944 and Chapter V of the Finance Act, 1994 read with above referred sub-sections of section 142 of the CGST Act shall be followed while processing such refund claims. 10.1 Furthermore, it has been brought to the notice of the Board that the field formations are rejecting, withholding or re- crediting CENVAT credit, while processing claims of refund filed under the existing laws. In this regard, attention is invited to sub-section (3) of section 142 of the CGST Act which provides that the amount of refund arising out of such claims shall be refund....
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....is ground would be an exercise in futility. The petitioner has claimed refund of credit by inviting this Court's definitive findings on the operation of statutory provisions which is a pure legal issue. Given that the petitioner has articulated the claim through pleadings, oral and written submissions, and the respondents have clarified their stance for refusal, relegating the matter back to the authorities for reconsideration, after obtaining the opinion of this Court, would constitute a mere empty formality. (72) As far as the compliance of Rule 93 of the GST Rules apropos re-crediting of the amount of credit in the ECL is concerned, during the course of hearing, the learned AGP has tendered the communication dated 16.06.2026, wherein the Deputy Commissioner of State Tax (for), Range-8, Mahesana, has clarified that if the petitioner files an application before the concerned authority for re-credit of the amount in ECL, the respondent Department will pass an order under Form GST PMT-03 and will re-credit the amount in the ECL. Thus, so far as prayer "B" of the writ petition is concerned, the grievance of the petitioner gets satisfied in view of the submissions made before us by....