2023 (1) TMI 1023 - HC - GST

Migration of TDS Credit from VAT to GST - Transitional provisions - whether the deduction is a credit of the amount of value added tax which a registered person is entitled to migrate in its electronic credit ledger? - HELD THAT - The transitional provisions are made to make special provisions for the application of legislation to the circumstances which exist at the time when the legislation comes into force. In the case of UOI. VERSUS FILIP TIAGO DE GAMA OF VEDEM VASCO DE GAMA 1989 (11) TMI 307 - SUPREME COURT , it has been held that transitional provisions are to be purposefully construed and the paramount object in statutory interpretation is to discover what the legislature intended and this intention is primarily to be ascertained from the text of the enactment in question. It is in the aforesaid background that the provisions of Section 140(1) of the JGST Act are required to be construed. The said provision unambiguously provides for migration of credit i.e. tax paid under the erstwhile tax regime and the words used in Section 140(1) of the JGST Act, namely, credit of amount of value added tax and entry tax is to be understood in the context in which it has been used - Admittedly, under the JVAT Act even entry tax was levied vide Section 11 and the said levy of entry tax was available as input tax credit for adjustment against output tax liability. TDS amount was also available for adjustment against output tax liability apart from the input tax credit which was available for adjustment against output tax liability. Proviso to Section 140(1) of the JGST Act provides that a registered person shall not be allowed to tax credit where the said amount of credit is not admissible as input take credit under the GST Act. It was contended by the Respondents that since TDS was in the nature of output tax, it was not admissible as input tax credit under the GST Act and, hence, cannot be allowed to be migrated. The Petitioners at the time of filing of their returns were left with no option but to forward the unadjusted TDS amount as excess input tax credit in the succeeding months and were not required or compelled to claim refund of unadjusted TDS amount. Thus, at this stage, the Respondents cannot contend that unadjusted TDS amount cannot be allowed to be migrated in terms of Section 140(1) of the JGST Act. Even otherwise, the stand of the Respondents is self-destructive, as if the Petitioners are not allowed to migrate the unadjusted TDS amount under the GST Regime, they would have become entitled for refund of the same with effect from 1st July, 2017 and would have certainly been entitled to statutory interest @ 9% on the said amount in terms of Section 52/53 of the JVAT Act. The action of the Respondent-authorities in passing the impugned orders denying migration of TDS amount and, consequently, levying interest and penalty thereupon is not sustainable in the eye of law and are liable to be quashed - It is declared that the Petitioners are entitled for migration of the TDS amount in terms of Section 140(1) of the JGST Act - Petition allowed.

Summary

Issues Involved:
1. Whether the amount deducted towards TDS under Section 44 of the Jharkhand Value Added Tax Act qualifies as 'credit of the amount of value added tax' for migration to the electronic credit ledger under the GST regime.

Detailed Analysis:

Issue 1: Whether the amount deducted towards TDS under Section 44 of the Jharkhand Value Added Tax Act qualifies as 'credit of the amount of value added tax' for migration to the electronic credit ledger under the GST regime.

Brief Facts:
The petitioners were engaged in business activities in Jharkhand and were registered under the Jharkhand Value Added Tax Act, 2005 (JVAT Act). Post-GST implementation, they registered under the GST Act, 2017. They filed returns showing excess input tax credit (ITC) and unadjusted TDS deducted under Section 44 of the JVAT Act. They claimed this amount as transitional credit under the GST regime, which was subsequently disallowed by the tax authorities, leading to the imposition of interest and penalties.

Petitioners' Arguments:
- Petitioners argued that Section 140(1) of the JGST Act allows for the migration of 'credit of value added tax' which includes TDS as it is a form of VAT deducted in advance.
- They contended that Rule 117 of the JGST Rules, which restricts the migration to 'input tax credit,' is contradictory to the main enactment and should be ignored.
- They highlighted that under the JVAT Act, TDS was treated as excess ITC in statutory returns and was allowed to be carried forward, thus should be eligible for migration.
- They argued that if TDS was not allowed to be carried forward, it would have been refundable, and the denial of migration is against the legislative intent of transitional provisions.

Respondents' Arguments:
- Respondents justified the denial based on Rule 117 of the JGST Rules, which restricts the migration to 'input tax credit' and not TDS.
- They argued that TDS and ITC are distinct under both JVAT and JGST Acts, with TDS being in the nature of output tax.
- They relied on Section 51(5) of the JGST Act, stating that TDS is credited to the electronic cash ledger, not the electronic credit ledger.
- They contended that the proviso to Section 140(1) restricts migration of credits not admissible as ITC under the GST Act.

Court's Analysis:
- The court noted that transitional provisions aim to facilitate the migration of unadjusted tax credits from the previous tax regime to the GST regime.
- It emphasized that the terms 'credit of amount of value added tax and entry tax' in Section 140(1) include TDS, as it was adjustable against output tax under the JVAT Act.
- The court rejected the restrictive interpretation of the proviso to Section 140(1) and held that it only restricts migration where there is an express prohibition under Section 17(5) of the JGST Act.
- It found Rule 117 of the JGST Rules, which restricts migration to 'input tax credit,' to be ultra vires as it contradicts the main enactment.
- The court highlighted that denying migration of TDS would entitle the petitioners to refunds, which was not the legislative intent.

Conclusion:
The court concluded that the petitioners are entitled to migrate the TDS amount under Section 140(1) of the JGST Act. The impugned orders denying migration and imposing interest and penalties were quashed. The writ petitions were allowed, and it was declared that the petitioners could migrate the TDS amount to their electronic credit ledger under the GST regime. No costs were awarded.