2022 (10) TMI 950 - HC - GST

Levy of 100% penalty - larger part of transitional credit was allowed - only minor part of the credit was disallowed - transitional period of switching over from the previous sales tax regime to the GST regime - carry forward of credit in terms of Section 140 of CGST Act 2017 - HELD THAT - There is no doubt that since the larger part of the claim in excess of Rs.6 crore has been upheld in favour of the assessee the imposition of penalty for the corresponding amount will no longer apply. But the issue now arises as to whether the 100 per cent penalty imposed for the remainder of the claim to the extent of Rs.30, 73, 908/- should also be interfered with. The assessee refers to Sections 73 and 74 of the Act of 2017. The assessee brings out the distinction between Section 73 and the strict applicability of Section 74 when there is an attempt by the assessee to defraud the revenue by making any misrepresentation or by suppression of material facts - The assessee suggests that since it was a huge sum which had been lost to the assessee the assessee merely invoked the discretion of the Department in allowing the claim at a later stage since the assessee had not availed of it whether by mistake or oversight at the time of claiming refund for the month of June 2017. Since the claim of the assessee to the extent of Rs.6, 55, 99, 154/- has been upheld no question arises of any penalty or interest or other charge being imposed in respect of such amount. The penalty on the balance amount would not be covered under Section 74 of the Act since there was no attempt to defraud the revenue or mislead it or any suppression of material facts. Indeed since there is no failure to pay any amount in the strict sense in this case as the show-cause notice only pertained to a claim that had been made to which the assessee was not entitled this would not be an appropriate case for imposing any penalty. Petition is allowed by setting aside the appellate order to the extent that it disallowed the petitioning assessee s claim of Rs.6, 55, 99, 154/- and by upholding the appellate order to the extent that it rejected the balance claim of Rs.30, 73, 908/-. Further the penalty imposed by the appellate order is set aside in its entirety.

Summary

Issues:
1. Cenvat credit entitlement during the transitional period from the sales tax regime to the GST regime.
2. Admissibility of cenvat credit claimed by the assessee.
3. Claim of Rs.30,73,908/- availed through TRAN-1.
4. Interpretation of Section 140 of the Central Goods and Services Tax Act, 2017.
5. Exemption notification impact on cenvat credit carry forward.
6. Imposition of penalty by the Department.
7. Application of Sections 73 and 74 of the Act of 2017.
8. Legitimacy of the claim and penalty imposition.

Analysis:
The judgment revolves around the transition from the sales tax regime to the GST regime, focusing on the cenvat credit entitlement of the petitioner. The Court referred to a previous judgment involving Amrit Cement Limited to assess the appellate order concerning a show-cause notice dated July 31, 2019. The Department contested the petitioner's claim of Rs.6,86,73,062/-, particularly disputing the Rs.30,73,908/- credit availed through TRAN-1. The Department argued that this claim was impermissible, citing exemption notification No.20/2007. However, the Court found the petitioner entitled to the cenvat credit limit of Rs.6,55,99,154/-, as the Department's grounds against it were previously rejected in Amrit Cement Limited.

Regarding the Rs.30,73,908/- claim, the Court analyzed Section 140 of the Act of 2017 and the exemption notification's impact. It determined that the petitioner should have included this amount in its refund claim of June 2017, as per the notification's conditions. Since the petitioner failed to do so, it was deemed to have abandoned the credit. Consequently, the amount could not be carried forward in the subsequent TRAN-1 submission. Although the petitioner may have been entitled to the amount in equity, the Court emphasized that exemption provisions must be enforced without considering equitable principles.

Regarding the penalty imposed by the Department, the Court differentiated between Sections 73 and 74 of the Act of 2017. It concluded that since the larger part of the claim was upheld, the penalty for that portion would no longer apply. However, for the remainder of the claim, the Court found no attempt by the petitioner to defraud the revenue, leading to the penalty imposition being set aside. The interest imposed on the Rs.30,73,908/- claim was maintained. The judgment allowed the petitioner's claim of Rs.6,55,99,154/-, rejected the Rs.30,73,908/- claim, and set aside the penalty in its entirety.