2023 (12) TMI 151 - HC - GST

Demand of GST u/s 74 - Wrongful / excess claim of transitional credit (Tran-1) - Violation of principles of natural justice - transition of and availment of excess amount of TDS under the VAT regime as transitional credit under the GST regime in terms of Section 140(1) of the Act of 2017 - HELD THAT - The sub-clause (i) to the proviso of Section 140(1) clearly states that no registered company shall be allowed to take credit in the circumstances where the said amount of credit is not admissible as input tax credit under this Act i.e. GST Act. Sub-clause (ii) thereof also provides that such amount of credit won t be admissible where the company has not furnished all the returns required under the existing law for the period of six months immediately preceding the appointed date. Sub-clause (c) of Section 17(5) deals with the case of the petitioner and stipulates that input tax credit shall not be available in respect of the works contract service when supplied for construction of immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service. Petitioner, in the instant case, not only seems to have carried forward the excess TDS amount as transitional credit believing it to be eligible ITC; though excepted under Section 17(5) (c), but also seems to have availed it since upon scrutiny of its returns, such discrepancy was found in the notice issued under GST ASMT-10 under Section 61 of the Act of 2017 followed by the notice under Section 74(1) of the Act of 2017. These provisions of the Act of 2017 permit of no exception. The appellate authority rightly held that the petitioner company is not entitled to avail the ITC of GST trade on goods and services used for construction as per Section 17(5) (c) and Section 17(5) (d) of the Act of 2017. The appellate authority has also found that though the appellant has claimed state tax as transitional input tax credit, but there is no record of local purchase of taxable commodities during the tax period 2016-17 and 2017-18, nor any reflection of tax credit carried forward in the returns submitted by the appellant for the tax period 2016-17 and 2017-18. Section 74(1) of the Act of 2017 provides for imposition of tax and penalty equivalent to the tax amount plus interest if the charges leveled under it are found to be true and proved, both the adjudication authority and the appellate authority have found that the petitioner had not only wrongly transitioned ineligible ITC from the VAT regime, but had also availed it; therefore it was a clear willful misstatement on the part of the petitioner, as ignorance of law cannot be pleaded in such matters. This Court does not find any grounds made out to interfere in the adjudication order dated 18.11.2021 and the order of the appellate authority dated 16.03.2023 - Petition dismissed.

Summary

Issues Involved:
1. Violation of principles of natural justice.
2. Entitlement to transition of excess TDS amount as input tax credit (ITC) under GST.
3. Applicability of Section 17(5) of the GST Act, 2017.
4. Imposition of tax, penalty, and interest under Section 74 of the GST Act, 2017.

Summary:

Violation of Principles of Natural Justice:
The petitioner claimed that the impugned order dated 16.03.2023 was passed without a personal hearing, violating principles of natural justice. However, the court found that the petitioner had been given opportunities to present their case and failed to do so adequately.

Entitlement to Transition of Excess TDS Amount as ITC:
The petitioner argued that the excess TDS amount from the VAT regime should be transitioned as ITC under Section 140(1) of the GST Act, 2017. The petitioner relied on a Jharkhand High Court decision stating that unadjusted TDS should be allowed to migrate under the GST regime to avoid cumbersome refund processes. However, the court noted that the petitioner could not substantiate this claim with sufficient evidence.

Applicability of Section 17(5) of the GST Act, 2017:
The court examined Section 17(5) (c) of the GST Act, which prohibits ITC for works contract services related to the construction of immovable property, except for further supply of works contract service. The petitioner's services did not qualify for this exception, making the transitional ITC claim ineligible.

Imposition of Tax, Penalty, and Interest under Section 74:
The adjudicating authority found that the petitioner had wrongly availed ineligible ITC, leading to a tax demand of Rs. 11,88,811.00, along with equivalent penalty and interest under Section 74 of the GST Act, 2017. The appellate authority upheld this decision, noting that the petitioner's claim lacked merit and was based on incorrect interpretations of the law.

Conclusion:
The court dismissed the writ petition, upholding the adjudication and appellate orders. The petitioner was found to have wrongly transitioned and availed ineligible ITC, justifying the imposition of tax, penalty, and interest. The court also dismissed claims of violation of natural justice, noting that adequate opportunities for hearing were provided.