2023 (11) TMI 709 - HC - GST

Validity of Show Cause Notice (SCN) - Payment of tax under the compounding scheme under Section 8(f)(i) of the KVAT Act - Wrongful availment of TRAN Credit - HELD THAT - TRAN credit is transitional input tax credit made use of by a dealer under the KVAT Act regime under Section 140(6) of the KGST Act 2017, it is specified that the dealer who was either paying tax at a fixed rate or paying a fixed amount in lieu of the tax payable under the existing law shall be entitled to take, in his electronic credit ledger, credit of eligible duties in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day. The petitioner has claimed credit of this TRAN credit in its returns for the period from 01.07.2016 to 30.06.2017. The Judgment in the case of M/S. USHA MARTIN LIMITED, VERSUS ADDITIONAL COMMISSIONER, CENTRAL GST AND EXCISE, EXCISE, JAMSHEDPUR, JOINT COMMISSIONER, CENTRAL GST AND EXCISE, JAMSHEDPUR, COMMISSIONER OF CGST CX, JAMSHEDPUR, UNION OF INDIA 2022 (11) TMI 1266 - JHARKHAND HIGH COURT wherein it has been held that initiation of proceedings under Section 73 (1) of the CGST Act, 2017 for contravention of Central Excise Act and Finance Act, read with Central Credit Rules by filing TRAN 1 in terms of Section 140 of the CGST Act for transition of CENVET Credit is without jurisdiction has no application to the facts of the present case. In the present case the petitioner has claimed the TRAN in respect of the purchases made by him during 01.07.2016 to 30.06.2017 for which he has claimed credit in GST TRAN. On examination, the authority has found that the claim of the petitioner is not borne out from the records. Challenge to the show cause notice in writ Court is maintainable only in certain situations that is where the notice is wholly without jurisdiction or there is violation of principles of natural justice - it is not found that the show cause notice issued is without jurisdiction or the authority is not vested with the power to investigate the matter and issuance of show cause notice for alleged incorrect availing of input tax credit. There are no substance in the writ petition and it is hereby dismissed.

Summary

Issues Involved:
The issues involved in the judgment are:
1. Discrepancies in tax payments under the compounding scheme of the Kerala Value Added Tax Act and the Goods and Services Tax Act.
2. Allegations of incorrect input tax credit availed by the petitioner under the State GST Act.
3. Investigation by the Intelligence Unit of the State GST regarding ineligible transitional credit availed by the petitioner.

Issue 1: Discrepancies in Tax Payments:
The petitioner, a registered dealer under the Kerala Value Added Tax Act, transitioned to the Central GST and Kerala State GST Act post-GST implementation. During the KVAT period, the petitioner opted for the compounding scheme under Section 8(f)(i) of the KVAT Act. The petitioner was entitled to collect tax not exceeding 1.15% under the compounding scheme for gold, even for interstate purchases. Post-GST, discrepancies were noted in the petitioner's tax payments, leading to show cause notices and scrutiny of returns by the Central GST and State GST authorities.

Issue 2: Incorrect Input Tax Credit Allegations:
The State GST Department issued a show cause notice to the petitioner for allegedly availing incorrect input tax credit, specifically focusing on the transitional credit claimed by the petitioner. The Intelligence Unit conducted an investigation and found discrepancies in the transitional credit availed by the petitioner, leading to allegations of improper transitional credit claims amounting to Rs. 84,11,135. The notice under Section 74 of the Act was issued, applying the extended period of limitation to the case.

Issue 3: Investigation by State GST Intelligence Unit:
The Intelligence Unit of the State GST investigated the petitioner's transitional credit claims and alleged discrepancies. The authorized representative of the petitioner failed to provide accurate stock details for the transitional period between the KVAT regime and the GST regime. The Intelligence Officer concluded that the petitioner had wrongly claimed transitional credit beyond the eligible amount, invoking Section 74 of the CGST/SGST Act for alleged tax evasion through incorrect utilization of transitional credit.

Judgment Summary:
The High Court dismissed the writ petition filed by the petitioner challenging the show cause notice issued by the State GST Department. The Court held that the issue of incorrect utilization of transitional credit was not before the Central GST, and therefore, the State GST was not barred from proceeding based on its investigation findings. The Court also rejected the petitioner's argument that there is no provision under GST for disallowing transitional credit from the KVAT regime. Citing relevant provisions, the Court emphasized that incorrect transitional credit claims fall under Section 74 of the Act, not Section 70. The Court distinguished a previous judgment and found it inapplicable to the present case. The Court ruled that challenging a show cause notice is only maintainable in specific situations, which were not found to be present in this case. The petitioner was permitted to file a reply to the show cause notice within ten days for further adjudication in accordance with the law.