An issue that generated majority of litigation in initial years of GST law (except of course the wrath of check post officers under sections 129 and 130 of the CGST Act) and consumed significant time of the High Court’s across the country was disputes around carry-forward of input tax credit/Cenvat credit (‘Transition Credit’) from the erstwhile regime (VAT/service tax/central excise) into the GST regime.
Ultimately, the issue attained finality in favour of the taxpayer in view of the Supreme Court judgement in Union of India & Anr Vs Filco Trade Centre Pvt Ltd & Anr reported in (2022-VIL-38-SC) wherein it was held:
1. Goods and Service Tax Network (GSTN) is directed to open common portal for filing concerned forms for availing
Transitional Credit through TRAN-1 and TRAN-2 for two months i.e. w.e.f. 01.09.2022 to 31.10.2022.
2. Considering the judgments of the High Courts on the then prevailing peculiar circumstances, any aggrieved registered assessee is directed to file the relevant form or revise the already filed form irrespective of whether the taxpayer has filed writ
petition before the High Court or whether the case of the taxpayer has been decided by Information Technology Grievance Redressal Committee (ITGRC).
3. GSTN has to ensure that there are no technical glitch during the said time.
4. The concerned officers are given 90 days thereafter to verify the veracity of the claim/transitional credit and pass appropriate orders thereon on merits after granting appropriate reasonable opportunity to the parties concerned.
5. Thereafter, the allowed Transitional credit is to be reflected in the Electronic Credit Ledger.
6. If required GST Council may also issue appropriate guidelines to the field formations in scrutinizing the claims.
Thereafter, vide Miscellaneous Application Nos. 1545-1546 of 2022 in S.L.P. (C) Nos. 32709-32710 of 2018, decided on 2-9-2022 – 2022-VIL-63-SC, above time limit was further extended by four weeks. Therein it was also held that:
“It is clarified that all questions of law decided by the respective High Courts concerning Section 140 of the Central Goods and Services Tax Act, 2017 read with the corresponding Rule/Notification or direction are kept open.”
The above order put the controversy to rest and allowed one last opportunity to the taxpayers who had missed the bus or boarded the wrong bus earlier, etc., to finally rectify their mistakes and file revised form GST-TRAN-01 by 30th November 2022 one last time to carry forward their transition credit. The Supreme Court recognizing the gravity of the issue and its far-reaching impact especially on the small taxpayers across the length and breadth of the nation did complete justice in the matter which is duly recognized under Article 142 of the Constitution of India which provides that the Supreme Court in the exercise of its jurisdiction may pass such decree or make such order as is necessary for doing complete justice in any cause or matter pending before it.
It is to be remembered that the decision in Filco Trade (above) waspassedin department SLP filed under Article 136 of the Constitution of India which itself is an extraordinary power vested in the Supreme Court under the Constitution. Well, the purpose of this piece is not to narrate how great the above story was which it was in any case but to discuss the outcomes flowing thereafter which have serious legal repercussions specially concerning the jurisdiction of the officers.
That in the aftermath of the said order, Board issued Circular No. 180/12/2022-GST dated 9th September, 2022 prescribing the manner of filing of revised GST-TRAN-01 and Circular No. 182/14/2022-GST dated 10th of November, 2022 prescribing the detailed methodology and procedure to be followed for verifying the revised GST-TRAN-01. The broad guidelines were as follows:
– The verification of transitional credit shall be conducted by the jurisdictional tax officer (central tax authorities or the state tax authorities) following the principles of natural justice;
– Where the applicant is under the jurisdiction of central tax officer and the transitional credit has component of state tax, the jurisdictional central tax officer shall refer the said claim for verification of state tax to his counterpart state tax officer and vice-versa;
– After verification counterpart officer will prepare verification report, specifying eligible and non-eligible amount, along with detailed reasons/ grounds;
– After receiving the verification report, the jurisdictional tax officer shall decide upon the admissibility of credit and issue notice in case of rejection. If required, the jurisdictional tax officer may seek comments of the counterpart officer;
– After considering the facts, verification report, submissions made by the applicant and the comments, if any, of the counterpart officer on the same, the jurisdictional tax officer shall proceed to pass a reasoned order, specifying the amount of transitional credit allowed or disallowed
Although, the Court had given ninety days to the concerned officers to verify the revised claims and allow/disallow the same as per law, the same cannot be understood as extending or limiting the jurisdiction of any officer which must flow from the statutory provisions themselves more so because there is nothing in the said order which extends or abridges the jurisdiction of any officer under the GST Act. In-fact in the order dated 02/09/2022 the question of law concerning Section 140 of the CGST Act was expressly kept open. As a logical corollary, the jurisdiction of any officer to disallow any credit under Section 140 of the CGST Act would also be open to challenge in appropriate proceedings. With this understanding, let us delve into some legal nuances of the said ‘verification exercise’.
During verification, it is observed that the officers are not only verifying the eligibility of input tax under the CGST Act such as under section 16(2) or 17(5) but also determining the eligibility of credit per-se under the erstwhile laws in addition to determining the eligibility of ITC under the CGST Act. It is also unfortunate that in many cases the jurisdictional officers are blindly referring to the report of the counterpart central or state tax officers and denying the transition credit citing the procedure prescribed in the above Circular. At the first glance these appears to be routine verification exercises, however on deeper analysis it goes to the root of the matter being a jurisdictional issue requiring detailed scrutiny.
To illustrate: some officers are denying the transition of Cenvat credit on the ground that the same was not eligible as Cenvat credit under the Cenvat Credit Rules, 2004 or as valid input tax credit under the respective state VAT Act’s.
There are two fundamental issues with the said approach which make the exercise prone to challenges and litigation.
First, the independence of adjudicating authority which is a quasi-judicial authority is itself compromised. The adjudicating authority being a quasi-judicial authority must act independently and form its own opinion and it cannot decide the issues being influenced or on the directions of some other authority. The law in this regard is well settled and does not require detailed elaboration and for the sake of brevity reliance is placed on the decision of Supreme Court in Orient Paper Mills Ltd Vs Union Of India reported in (1968-VIL-02-SC-CE) wherein it was held:
“8. If the power exercised by the Collector was a quasi-judicial power as we hold it to be, that power cannot be controlled by the directions issued by the Board. No authority however high placed can control the decision of a judicial or a quasi-judicial authority. That is the essence of our judicial system.
…
It is true that the assessing authorities as well as the appellate authorities are judges in their own cause; yet when they are called upon to decide disputes arising under the Act they must act independently and impartially. They cannot be said to act independently if their judgment is controlled by the directions given by others. Then it is a misnomer to call their orders as their judgments; they would essentially be the judgments of the authority that gave the directions and which authority had given those judgments without hearing the aggrieved party.”
Second, the adjudicating authority under the CGST Act is not and cannot be the proper officer to decide the eligibility, if any of Cenvat credit or VAT ITC under the erstwhile laws which exercise can only be undertaken by the proper officer under the respective erstwhile laws. Reliance in this regard is placed on the decision of the Jharkhand High Court in Usha Martin Ltd. Versus Addl. Commissioner of CGST & Ex., Jamshedpur reported in (2022-VIL-779-JHR) wherein it was held that:
“If proceedings for transition of Cenvat credit alleged to be inadmissible is permitted to be carried under the CGST Act, it may lead to uncertainty not only in the minds of the ordinary citizen but also in the minds of the Tax authorities. In some cases a jurisdictional proper officer under the CGST Act may initiate proceedings under the provisions of the CGST Act for such contravention. In other cases the competent jurisdictional officer may initiate proceedings under the existing law that is the CEA and Finance Act for the same contravention in view of the repeal and saving provisions under Section 174 of the CGST Act. Such a course cannot be countenanced in law. As such, we are of the considered view that the initiation of proceedings by respondent No. 1 under Section 73(1) of the CGST Act, 2017 for alleged contravention of the CEA and Finance Act, read with CCR against the petitioner by filing TRAN-1 in terms of Section 140 of the CGST Act for transition of Cenvat credit as being inadmissible under the existing law was beyond his jurisdiction.”
The above view was again followed in Aditya Medisales Ltd Vs. State of Jharkhand (2023-VIL-713-JHR) by the Jharkhand High Court as follows:
“10. … From a perusal of the impugned appellate order it is evident that the transitional credit has been disallowed not because of non-conformity with condition stipulated in Section 140(3) but because of considerations which were the subject matter of assessment under JVAT Act.
.. 11. This court has therefore clearly held that under the garb of disallowing transitional credit, the Assessing Officer under the JGST Act cannot conduct an assessment of the returns filed under the JVAT Act.“
Reliance is placed on the larger bench decision of the Supreme Court in M/s Canon India Pvt Ltd Vs Commissioner of Customs reported in(2021-VIL-34-SC-CU) wherein it was stated on the issue of jurisdiction of “the proper officer” that:
“14. It is well known that when a statute directs that the things be done in a certain way, it must be done in that way alone. As in this case, when the statute directs that “the proper officer” can determine duty not levied/not paid, it does not mean any proper officer but that proper officer alone.“
That on reading of the above judgements the following principles can be deduced:
o Proper officer exercising powers under the CGST Act cannot deny transition credit on the ground of credit being inadmissible under the erstwhile laws;
o The proper course of action in such cases is to deny the credit and initiate recovery, etc., under the appropriate provisions of the erstwhile laws read with the saving clause i.e., Section 174 of the CGST Act;
o Proceedings under section 73/74 of the CGST Act can only be initiated for denial/recovery of ‘input tax credit’ i.e., the ITC of CGST/SGST/IGST and not Cenvat credit or VAT ITC
To conclude, the practice of denial of transition credit by the proper officer under the CGST Act on above grounds does not appear to be in consonance with the time tested judicial principles and the said exercise is legally impermissible and prone to challenge before the Courts in the times to come.
Has the TRAN-01 litigation really come to an end’ Certainly not!
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