2021 (12) TMI 223 - HC - GST

Transitional tax credit - grievance of the petitioner is that the notice had been issued only for the assessment under the VAT Act and the order came to be passed on 12.01.2021 under the VAT Act where the authority examined and disallowed the transitional tax credit claimed under the GST Act, raising the huge demand of tax along with interest and penalty - HELD THAT - Noticing that the issue essentially raised is of non-availment of an opportunity of hearing, more particularly, while disallowing the transitional tax credit and also noticing that the Input Tax Credit was lying unutilized in the Electronic Credit Ledger and the respondent authority has demanded the tax under the VAT Act where this aspect also has been covered, let the opportunity of hearing be made available to the petitioner. Learned APP for the respondent has no objection to the very officer hearing the matter afresh in accordance with law. Any documentary evidences if are needed to be further adduced, the same be done within a period of one week from the date of receipt of a copy of this order and the hearing shall be completed within a period of four weeks thereafter. The impugned order dated 12.01.2021 passed by the Assistant Commissioner of State Tax (2), Unit-68 (12), Surat is quashed and set aside without entering into the merits of the case and only on the nonavailment of an opportunity of hearing on the aspect of disallowance of the transitional tax credit - Petition allowed.

Summary

Issues:
1. Claim of Input Tax Credit under the VAT Act and GST Act for capital goods used in manufacturing taxable and exempt goods.
2. Disallowance of transitional tax credit claimed under the GST Act by the assessing authority under the VAT Act without providing an opportunity of hearing.

Analysis:
1. The petitioner, engaged in dyeing and printing fabrics, claimed Input Tax Credit for capital goods purchased between April to June 2017, which were used for manufacturing both taxable and exempt goods. The petitioner relied on Section 18(1)(d) of the GST Act, allowing credit for capital goods when exempt goods become taxable. The petitioner carried forward this credit to the GST Electronic Credit Ledger but faced disallowance during VAT Act assessment for the same period.

1.1 The petitioner argued that the authority had no jurisdiction to disallow transitional tax credit as per Section 140(1) of the GST Act, which allows testing of credits from the earlier regime under the GST Act provisions. The petitioner emphasized the lack of opportunity for a hearing before disallowance and questioned the legality of the decision.

2. The High Court noted the issue of non-availability of a hearing before disallowing the transitional tax credit and the unutilized credit in the Electronic Credit Ledger. The Court directed the matter to be reheard by the concerned officer or a higher official, ensuring the petitioner receives a fair opportunity for presenting their case.

2.1 The Court allowed the petition, quashing the order of the Assistant Commissioner of State Tax without delving into the case's merits, solely based on the lack of an opportunity for a hearing regarding the disallowed transitional tax credit. The Court instructed the hearing to be completed within four weeks, with any necessary documentary evidence to be submitted within one week.

In conclusion, the High Court's judgment focused on procedural fairness, emphasizing the importance of providing a hearing opportunity before disallowing transitional tax credit claimed under the GST Act during a VAT Act assessment. The Court's decision to set aside the order was based on ensuring due process and allowing the petitioner a fair chance to present their case.