REFLECTION OF CREDIT IN ELECTRONIC CREDIT LEDGER CANNOT BE TREATED AS AVAILMENT

[Mr. M. GOVINDARAJAN]

Transitional credit

Provisions have been made for the smooth transition of Input Tax Credit available under VAT, Excise Duty or Service Tax to GST.  A registered dealer opting for composition scheme will not be eligible to carry forward ITC available in the previous regime.   The credit will be available only if the returns for the last 6-months i.e. from January 2017 to June 2017 were filed in the previous regime.  Every registered person entitled to take credit under section 140 shall, within 90 days from 01.07.2017, i.e., the date on which GST Act came into force, submit a declaration electronically in Form GST TRAN – 1, duly signed on the common portal specifying herein, separately, the amount of input tax credit to which he is entitled under section 140.

Reflection of credit in credit ledger

.  The amount of credit specified in the application in Form GST TRAN – 1 shall be credited to the electronic credit ledger of the applicant maintained in Form GST PMT – 2 on the common portal.  There are many disputes and issues arised in such transfer.  One among them is whether the credit in the electronic credit ledger due to the transfer of transitional credit would amount to availing of the credit.  If such credit is rejected whether the Revenue can initiate recovery proceedings against the registered person under section 73 of the GST Act? This issue has been settled by the Patna High Court.

In ‘Commercial Steel Engineering Corporation v. State of Bihar’ – 2019 (7) TMI 1452 - PATNA HIGH COURT the petitioner is a partnership firm registered under Bihar VAT Act.  An assessment proceeding was held under section 31 of the VAT Act and an assessment order was passed on 07.09.2010 showing an input tax credit of ₹ 18,33,304.76 for the financial year 2007 – 08.  Similarly another proceeding was held for the year 2011-12 on 27.08.2016 showing an input tax credit of ₹ 20,79,256.00.  The said orders have attained finality since no appeal has been filed against these orders by the Revenue.

Though the petitioner was entitled to carry forward this credit but due to inadvertent mistake of the Accountant, the same was not reflected in the returns filed for the subsequent years and it is only in 2017 that the mistake of unadjusted input tax credit of the said credits was detected.  A refund application for the financial year 2007 – 08 was filed which was rejected on the ground of time bar.  The petitioner filed appeal before Commissioner (Appeals).  The refund application filed for the financial year 2011 – 12 was entertained but there was no disposal by the Authority.

In this between the GST was enforced with effect from 01.07.2017.  The petitioner filed an application under section 140 of the Bihar GST Act to take credit of the surplus input tax credit and to carry forward the same in his electronic credit ledger in TRAN – 1 form.  The total credit of ₹ 39,12,560.76 was reflected in the electronic credit ledger of the petitioner.    The application to the transfer of the said credit was rejected by the Assistant Commissioner on 06.11.2018 on the ground that the credit was wrongly availed.  The Assistant Commissioner also raised a demand on tax liability to the tune of ₹ 42,73,86/- on which transitional credit was allegedly claimed and by imposing interest at the rate of 18% for availment of such credit quantified @ ₹ 9,16,833.00 and imposing a penalty equivalent to 10% tax @ ₹ 4,27,387/- and total demand @ ₹ 56,18,089/-.  Feeling aggrieved against the said orders the petitioners filed the present writ petition before the High Court to quash the same.

The petitioner submitted the following before the High Court-

• Section 140 of the Act enables the tax payers to carry forward the input tax credit under the erstwhile VAT Act to the electronic credit ledger.
• The petitioner filed his application to carry forward the input tax credit earned by the petitioner under the erstwhile indirect tax regime.
• The Assistant Commissioner of State Taxes in absolute abuse of statutory power, while rejecting the application, has proceeded to exercise jurisdiction under section 73 of the Bihar GST Act.
• Even if the application filed by the petitioner under section 140 of the Act on the claim of transitional credit was not found lawfully sustainable, it was liable for rejection but certainly a rejection of such claim did not empower the Revenue to convert the said proceedings into a proceeding under section 73 of the Act for assessment of liability as well as for levy of interest and penalty.
• The said two proceedings are independent to each other and could not have been amalgamated.
• The proceedings under section 73 is not sustainable.
• A mere reflection of the transitional credit on the application filed by the petitioner under section 170 of the Bihar GST Act would not amount to either availing or utilizing the credit nor would be sufficient to invite a proceeding under section 73 of the Act until such time the Revenue by reference to records are able to demonstrate that the said credit was either availed of or utilized by the petitioner.
• The petitioner has never availed or utilized the credit so reflected in the ledger for the period 2007 – 08 or 2011 – 12.
• The petitioner has paid all the taxes and therefore there cannot be any issue of either availment of utilization of the credit reflected in his electronic credit ledger.

The Revenue submitted the following before the High Court-

• The very fact that the petitioner filed an application under section 140 of the Bihar GST Act and the credit balance got reflected in the electronic credit ledger would amount to availing of credit.
• In view of the provisions under Rule 117 read with Rule 121, since the petitioners had wrongly availed the credit the petitioner was liable for being proceeded under section 73 of the Bihar GST Act.
• There is no infirmity in the order passed by the Assistant Commissioner.
• Section 73 allows penal proceedings against a dealer who has wrongly availed or utilized input tax credit.
• Even, if the petitioner has tried to demonstrate that the petitioner has not utilized the transitional credit but the moment the same is reflected in the electronic credit ledger, it amounts to availment and the period, for which such availment has been made by the petitioner, he is liable to pay interest as well as penalty.

The High Court heard the submissions made by both the parties. The High Court has taken the following issues to be decided in the present petition-

• Whether or not the reflection of ₹ 42 lacks approximately in the electronic credit ledger of the petitioner is a confirmation of availment or his entitlement for utilization?
• Whether the petitioner could have been subjected o a proceeding under section 73 of the Bihar GST Act, 2017 for the entire credit reflecting in the ledger without quantification of the amount which has been either availed or utilized?

The High Court analyzed the provisions of section 73 of Bihar GST Act, Rule 117 and Rule 121.   The High Court observed that the legislative intent present in these provisions is eloquent and there may be no confusion to hold that be it a charge of wrong availment or utilization, each is a positive at and it is only when such act is substantiated hat it makes the dealer concerned, liable for recovery of such amount of tax as availed from the input tax credit or utilized by him in each of the two circumstances, the tax available at the credit of the dealer concerned must have been brought into use by him, thus, reducing the credit balance.   A plain reading of section 73 would confirm that it is only on such availment or utilization of credit to reduce tax liability, which is recoverable under section 73(1) read with the other provisions.  Despite the legal intent being so loud and clear it is on absolute misappropriation of the statutory prescriptions and even when the amount of ₹ 42 lacs and odd yet remains to the credit of the petitioner.

The High Court further observed that even if the Assistant Commissioner, who issued the impugned order, was of the opinion that the petitioner was not entitled to such transitional credit at best, the claim could be rejected but such rejection of the claim for transititional credit does not bestow any statutory jurisdiction upon the assessing authority to correspondingly create a tax liability especially when neither any such outstanding liability exists nor such credit has been put to use.  The High Court quashed the proceedings of the Assistant Commissioner vide the impugned order.