Transitional Credit cannot be disallowed just by serving a summary of Show Cause Notice

[CA Bimal Jain]

The Hon’ble Jharkhand High Court in the case of Aditya Medisales Ltd. v. State of Jharkhand [2023 (10) TMI 793 - JHARKHAND HIGH COURT] held that the initiation of proceedings is bad in law, in as much as, in this case, only a summary of show cause notice vide Form DRC – 01 was served and not the proper show cause notice. Thus, the writ application stands allowed and therefore the recovery notice is set aside.

Facts:

Aditya Medisales Ltd. (“the Petitioner”) primarily deals in medicine and medicinal products through its depot in the State of Jharkhand. The Petitioner claimed a Transitional credit under Section 140 of the Jharkhand Goods and Services Tax, 2017 (“the JGST Act”). The Revenue Department (“the Respondent") issued the summary of Show Cause Notices dated September 14, 2018, in Form GST DRC-01 for demand recovery of the Transitional Credit amount claimed by the Petitioner. On January 16, 2019, a summary of the order in Form DRC-07 (“the Impugned Order”) was received by the Petitioner. On being aggrieved by the Impugned Order, the Petitioner filed an appeal before the Joint Commissioner of State Tax (Appeal), Ranchi (“the Appellate Authority”) under Section of the JGST Act.

The Appellate Authority after hearing the Petitioner's counsel and Departmental Officials, modified the Impugned Order dated January 16, 2019, and said that is self-explanatory and legally justifiable. Further, the Appellate Authority held that the transition of Input Tax Credit (“ITC”) was illegal and raised a demand with Interest and Penalty in Form GST APL-04 dated August 27, 2019 ("the Appellate Order”)

Thereafter, the Respondent issued a notice for recovery under Section 79 of the JGST Act in Form GST DRC-13 to the Petitioner's bank, i.e., State Bank of India (“SBI”) on March 10, 2021, demanding payment of Rs. 19,69,441/-. SBI informed the Petitioner that its account had been put on hold. In the meantime, the Assessment Order for the Period 2016-17 was passed under the Value Added Tax, 2005 (“the VAT Act”), in which no discrepancy was found in the figures of purchases disclosed by the Petitioner.

Hence, the Petitioner filed a Writ Petition for the issuance of an appropriate writ/order/direction including a writ in the nature of certiorari quashing and setting aside the Appellate Order, the summary of show cause notices issued in Form GST DRC-01 dated October 29, 2018, and December 14, 2018, the Impugned Order, the notice issued under Section 79 in Form GST DRC-13 dated March 10, 2021, and mandamus to the SBI to release the Petitioner's Bank Account to the extent of Rs. 19,69,441/- which has been kept on hold since March 19, 2021.

Issue:

Whether the transitional credit be denied by issuing the summary of the Show Cause Notice?

Held:

The Hon’ble Jharkhand High Court in the case of 2023 (10) TMI 793 - JHARKHAND HIGH COURT held as under:

• Observed that, the Impugned Order has been served upon the Petitioner and not the actual adjudication order. Also, the Appellate Order was perverse as it disallowed transitional credit on the ground that the Petitioner did not have possession of declarations in Form JVAT 410/411.
• Relied upon the judgements of Juhi Industries (P) Ltd. v. State of Jharkhand [2022 (7) TMI 448 - JHARKHAND HIGH COURT] and NKAS Services Pvt. Ltd. v. State of Jharkhand [2021 (10) TMI 880 - JHARKHAND HIGH COURT], and held that the foundation of the proceeding in both the cases suffers from material irregularity and hence not sustainable, the entire proceedings had been set aside.
• Opined that, Assessing Officer for the purpose of transition of credit, is only required to verify the figures specified in the TRAN-1. Further, the maximum extent to which the Respondent can verify the genuineness of the transitional credit, is to see whether the transitional credit is admissible as credit under this Act, i.e., the JGST Act. Section 18(6) of the JVAT Act, does not contemplate production of JVAT 404 Forms as a mandatory condition for availing benefit of ITC. Undoubtedly, tax paid on purchases of medicine products/food products is admissible as tax under the JGST Act, more particularly because it does not fall within any of categories specified under section 17(5) of the JGST Act.
• Further Opined that, as per Section 142(8)(a) of the JGST Act, if any sum is found to be recoverable from a dealer in respect of assessment done under the JVAT Act, the same can be covered as an arrear of tax under the JGST Act. Thus, the interest of the revenue is already protected.
• 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. The initiation of proceedings is bad in law, since, in this case only a summary of show cause notice in DRC – 01 was served and not the proper show cause notice. Accordingly, the writ application stands allowed.

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