The Bombay High Court has said that the transitional Input Tax Credit under Goods and Services Tax (GST) cannot be refused only for claiming it under an incorrect provision. The bench set aside the Rs 6.29 crore credit reversal.
The Division Bench of Justice M. S. Karnik and Justice Sandesh D. Patil stated that claiming credit u/s 140(5) of the GST Act, 2017, rather than Section 140(1), cannot be given as a reason to refuse the credit when the taxpayer is genuinely eligible.
Laxmi Organic Industries Ltd is a public company. They were engaged in the manufacturing of Ethyl Acetate and had two business units under a common GST registration.
Following the implementation of the GST Act, the applicant submitted Form TRAN-1 and carried forward CENVAT credit into the GST regime u/s 140(5), with the total claim amounting to Rs 6,29,02,146.
A show cause notice (SCN) has been issued by the department alleging that the credit was incorrectly claimed u/s 140(5) of the GST Act. The complete credit was not permitted, and the department reversed the transitional credit.
The petitioner submitted before the High Court that they were entitled to claim credit under Section 140(1), but had inadvertently mentioned Section 140(5) in the declaration form. The petitioner explained that this error was unintentional and not deliberate.
The High Court observed that the department raised no objection regarding the total amount of credit, and also acknowledged that the petitioner had filed Form TRAN-1 within the prescribed time limit.
The applicant has genuinely transitioned CENVAT credit u/s 140(5), and the order of the department exhibited that the company is qualified for transition u/s 140(1).
In such a case, denying credit solely on the grounds that it was requested under the wrong category, column, or provision.
The credit must not have been disallowed on that basis, the court specified.
The High Court said that:
“The unutilized credit arising on account of duty/tax paid is a vested right which cannot be taken away on a technical grounds. Right to input credit is an indefeasible right. Only because incorrect provision/column was mentioned was not sufficient to disallow the same.”
The court took note of the judgment in the case of ‘Heritage Lifestyles and Developers Private Limited v. Union of India’. In this case, the court held that when a taxpayer is entitled to claim a credit, they cannot be denied the same solely on technical grounds. Doing so is entirely unfair and makes a mockery of justice.
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The Bombay High Court found that the credit was refused on a technical basis. It applied the principles mentioned in the precedents and allowed the credit of Rs 6.29 crore.
The court permitted the applicant and set aside the order reversing the credit.
| Case Title | Laxmi Organic Industries Ltd. vs. The Union of India |
| Case No. | NO. 5508 OF 2024 |
| For the Petitioners | Mr Bharat Raichandani, Mr Mahesh Raichandani, Mr Bhagrati Sahu |
| For the Respondent | Ms Juimala Ostwal and Ms Sangeeta Yadav |
| Bombay High Court | Read Order |
