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2024 (1) TMI 1398 - HC - GSTRefund of unutilized Input Tax Credit (ITC) under Section 54(3) of the CGST Act - whether the transitional credit as per the form Trans-1 filed by the petitioner and accepted by the department can be considered as an opening balance in electronic credit ledger as unutilized ITC available for granting refund as per the provisions of Section 54 (3) of the CGST Act to the petitioner as per per the claim made by the petitioner in form RFD01A? HELD THAT - The provisions of Goods and Service Tax Act replaced the indirect tax regime with effect from 01.07.2017. Central Goods and Service Tax Act 2017 and State Goods and Service Tax Act 2017 and Integrated Goods and Service Tax 2017, were enacted by the legislature which came into effect from 01.07.2017, which intended to subsume all indirect taxes including the Central Excise Act, 1944, the Finance Act, 1994 (Service Tax Act) and Value Added Tax Act. As per the scheme of the GST all the three Acts provide for seamless flow of Input Tax Credit to avoid cascading effect of various taxes. The CGST Act therefore provided the transitional arrangement for carry forward and availing of credit of eligible indirect taxes paid on the Goods Services under the erstwhile regime. Rule 117 of the Rules provides that if a registered person has to claim Transitional Credit under Section 140 of the CGST Act, a declaration in Form GST TRAN-1 was required to be filed within 90 days of the appointed day i.e. on or before 28.09.2017. As per the provisions of Section 140 of the CGST Act read with Rule 117 of the Rules, the transitional credit, closing balance of credit of taxes lying and shown in last return filed by the assessee prior to introduction of CGST i.e. as on 30.06.2017 will be carried forward as credit in Electronic Credit Ledger as on 01.07.2017. in view of the above, GST regime, the credit balance as on of the unutilized input tax credit in erstwhile regime as on 30.06.2017 shall be available as opening balance of unutilized input tax credit as on 01.07.2017. As per provisions of Section 140(1) of the CGST Act, a registered person shall be entitled to take, in his electronic credit ledger, the amount of CENVAT credit of eligible duties carried forward in the return relating to the period ending with the day immediately preceding the appointed day i.e. 01.07.2017. The petitioner, is therefore, entitled to get the benefit of amount of CENVAT credit of eligible duties carried forward in the return in GST Form TRAN-1, which was verified and approved by the GST authority. The adjudicating authority has rightly sanctioned the refund to the petitioner considering the closing balance of CENVAT credit carried forward as per GST Form TRAN-1 filed by the petitioner as on 01.07.2017. However, the Commissioner (Appeals) appears to have a very pedantic literal approach of the provisions of Section 54(3) of the CGST Act, 2017 thereby allowed the appeal of the department on the ground that when the petitioner filed refund claim in statement 3A of the GST-RFD-01A for the months of July and August, 2017, the transitional credit as per form GST TRAN-1 was not verified and was not given effect in the electronic credit ledger and therefore, obviously there cannot be any balance of such unutilized CENVAT credit which was carried forward as on 01.07.2017. The Commissioner (Appeals) committed an error by in relying upon Circular No. 59 dated 04.09.2018, which would not be applicable in the facts of the case as the petitioner is entitled to get the benefit of carried forward of CENVAT credit as on 01.07.2017 in view of the provisions of Section 140(1) read with Section 54(3) of the CGST Act, 2017 read with Rule 89(4) and 117 of the Rules - also, the petitioner would never be available to utilize the carried forward of CENVAT credit, which would contrary to the provisions of Section 140(1) of the CGST Act. The impugned order dated 22.03.2019 passed by the Commissioner (Appeals) is hereby quashed and set aside - petition allowed.
Issues Involved:
1. Eligibility for refund of unutilized Input Tax Credit (ITC) under Section 54(3) of the CGST Act. 2. Consideration of transitional credit as an opening balance in the electronic credit ledger. 3. Compliance with procedural requirements, including issuance of show cause notice under Section 107 of the CGST Act. 4. Application of Circular No. 59/33/2018-GST and its impact on refund claims. 5. Interpretation of provisions under the CGST Act regarding transitional credits and their effect on refund eligibility. Issue-wise Detailed Analysis: 1. Eligibility for Refund of Unutilized ITC: The petitioner claimed refunds for unutilized ITC on inputs and input services used in zero-rated supplies as per Section 54(3) of the CGST Act. The adjudicating authority initially sanctioned the refund claims based on the balance in the electronic credit ledger. However, the Commissioner (Appeals) overturned this decision, stating that there was no unutilized ITC available for refund. The court found that the adjudicating authority rightly sanctioned the refund considering the transitional credits carried forward, which were not accounted for by the Commissioner (Appeals). 2. Consideration of Transitional Credit: The petitioner argued that the transitional credit, as per GST TRAN-1, should be considered as an opening balance in the electronic credit ledger. The court agreed, stating that under Section 140(1) of the CGST Act, the petitioner was entitled to carry forward the CENVAT credit from the previous regime as an opening balance on 01.07.2017. The Commissioner (Appeals) failed to account for this, leading to an erroneous decision. 3. Compliance with Procedural Requirements: The petitioner contended that the Commissioner (Appeals) violated procedural norms by not issuing a show cause notice before ordering the recovery of the refund. The court noted that Section 107(11) of the CGST Act mandates the issuance of a show cause notice when tax is erroneously refunded, and the failure to do so violated the principles of natural justice. 4. Application of Circular No. 59/33/2018-GST: The Commissioner (Appeals) relied on Circular No. 59/33/2018-GST to deny the refund, interpreting it to mean that transitional credits could not be considered for refund eligibility. The court found this reliance misplaced, as the circular should not negate the statutory provisions allowing the carry forward of transitional credits under Section 140(1) of the CGST Act. 5. Interpretation of Provisions Regarding Transitional Credits: The court emphasized that the CGST Act and related rules provide for the seamless transition of credits from the previous tax regime. Section 140(1) clearly allows for the carry forward of CENVAT credit, which should be reflected in the electronic credit ledger from 01.07.2017. The Commissioner (Appeals) erred in not recognizing this, leading to the wrongful denial of the refund claims. Conclusion: The court concluded that the petitioner was entitled to the refund of unutilized ITC, considering the transitional credits as part of the opening balance in the electronic credit ledger. The impugned order by the Commissioner (Appeals) was quashed, and the consequential recovery notices were set aside. The court upheld the petitioner's right to the refund, reinforcing the statutory provisions under the CGST Act.
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