ITC Transition not to be denied in case of Input Service Distributor (ISD)

[CA Bimal Jain]

The Hon’ble Bombay High Court in the case of SIEMENS LTD. AND UNICHEM LABORATORIES LIMITED VERSUS UNION OF INDIA THROUGH THE JT. SECRETARY (REVENUE) AND ORS. - 2024 (3) TMI 272 - BOMBAY HIGH COURT, relying upon sub-section (7) of Section 140 of the Central Goods and Services Tax Act, 2017 (“the CGST Act”) adjourned the matter for further hearing and continued the interim stay granted in favour of Assessee being Input Service Distributor (“ISD”) on the ground that, ITC which is legitimately available with the Assessee before the Appointed day, cannot be lost or lapsed, merely because of lack of effective procedural mechanism for ITC to be transferred to the Electronic Credit Ledger for utilization, thereby creating a situation of such ITC being permanently lost.

Facts:

Siemens India Ltd. (“the Petitioner”), registered as ISD has filed a writ petition regarding allowance of transition of Input Tax Credit (“ITC”) available with them on July 1, 2017 (“the Appointed Day”), contending that, ITC was not permitted to be transitioned/and or taken in the Electronic Credit Ledger, by the Revenue Department (“the Respondent”), even when the Petitioner was entitled to it, merely on the ground that there is a defective electronic mechanism to give effect to such ITC. 

The present proceedings were commenced by the Hon’ble High Court in compliance with the order dated March 24, 2023, passed by the Hon’ble Supreme Court in the case of UNION OF INDIA & ORS. VERSUS SIEMENS LTD. & ORS. - 2023 (3) TMI 1409 - SUPREME COURT wherein the proceedings were remanded for fresh consideration and judgement to be delivered on merits, taking into consideration the contention made and relevant provisions of law.

Issue:

Whether ISD is eligible to transition ITC available with them on Appointed Day?

Held:

The Hon’ble Bombay High Court in the case of SIEMENS LTD. AND UNICHEM LABORATORIES LIMITED VERSUS UNION OF INDIA THROUGH THE JT. SECRETARY (REVENUE) AND ORS. - 2024 (3) TMI 272 - BOMBAY HIGH COURT,  held as under:

• Observed that, the central issue for consideration is the legal effect of sub-section (1) and sub-section (7) of Section 140 of the CGST Act, enumerates upon the transitional arrangements for carry forward and utilization of ITC by the ISD.
• Relying upon sub-section (7) of Section 140 of the CGST Act, the Court noted that, ITC which is legitimately available with the Petitioner before the Appointed day, cannot be lost or lapsed, merely because the GST machinery has not created effective procedural mechanism, for ITC to be transferred to the Electronic Credit Ledger to be utilized, thereby creating a situation of such ITC being permanently lost.
• Opined that, appropriate examination of the aforesaid issues by the GST Council would assist the Court in adjudication of the matter.
• Held that, interim relief granted to the Petitioner would continue.
• Directed that, the matter is adjourned to August 9, 2024.

Relevant Provisions:

Sub-section (1) of Section 140 of the CGST Act

            “Section 140: Transitional Arrangements for Input Tax Credit

(1) A registered person, other than a person opting to pay tax under section 10, 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, furnished by him under the existing law within such time and in such manner as may be prescribed:

Provided that the registered person shall not be allowed to take credit in the following circumstances, namely:-

(i) where the said amount of credit is not admissible as input tax credit under this Act; or

(ii) where he has not furnished all the returns required under the existing law for the period of six months immediately preceding the appointed date; or

(iii) where the said amount of credit relates to goods manufactured and cleared under such exemption notifications as are notified by the Government.

Sub-section (7) of Section 140 of the CGST Act

“Section 140: Transitional Arrangements for Input Tax Credit

(7) Notwithstanding anything to the contrary contained in this Act, the input tax credit on account of any services received prior to the appointed day by an Input Service Distributor shall be eligible for distribution as credit under this Act, within such time and in such manner as may be prescribed, even if the invoices relating to such services are received on or after the appointed day.”

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