Mere reflection of transitional credit of VAT from pre-GST regime in electronic credit ledger could not be treated as availment or utilisation unless such availment or utilisation of credit reduces tax liability, which is recoverable u/s 73(1), i.e., any portion thereof is put to use so as to become recoverable

Mere reflection of transitional credit of VAT from pre-GST regime in electronic credit ledger could not be treated as availment or utilisation unless such availment or utilisation of credit reduces tax liability, which is recoverable u/s 73(1), i.e., any portion thereof is put to use so as to become recoverable

FACTS

The appellant, a registered dealer under VAT, filed an application in terms of section 143 of CGST Act, 2017 to take credit of surplus value-added tax and entry tax of Rs. 42.73 lakhs and to carry forward the same in its electronic ledger in the GST regime. The competent authority passed an order by invoking section 73 of the CGST Act, 2017 rejecting the appellant’s application on the ground that it was not entitled to the availment of the credit reflected in the electronic credit ledger and such reflection of credit would amount to either availment or utilisation of the credit. The adjudicating authority also ordered recovery of this amount, holding it to be outstanding tax liability against the appellant. Being aggrieved, the appellant filed the present appeal.

HELD

The Hon’ble High Court noted that Revenue’s contention is that reflection on the electronic credit ledger is a confirmation of a wrong availment even if the said credit was not utilised and it is liable for proceeding u/s 73. The Court held that the legislative intent present in the provisions of section 73 and rules 117 and 121 is eloquent, i.e. be it a charge of wrong availment or utilisation, each is a positive act and it is only when such act is substantiated that it makes the dealer concerned liable for recovery of such amount of tax. But in both the cases (i.e. ITC availed or utilised), 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 utilisation of credit to reduce tax liability, which is recoverable u/s 73(1) read alongside the other provisions present thereunder. In fact, the position is made clearer by reading the said provision alongside sub-sections (5), (7), (8), (9) to (11).

Further, the High Court held that the legislative intent reflected from a purposeful reading of the provisions underlying section 140 alongside the provisions of section 73 and rules 117 and 121 of CGST Rules, 2017 is that even a wrongly reflected transitional credit in an electronic ledger on its own is not sufficient to draw penal proceedings until the same or any portion thereof is put to use so as to become recoverable. As regards reliance placed by Revenue on the decision of the Hon’ble Supreme Court in Union of India vs.

Ind- Swift Laboratories Ltd. [2011] 9 taxmann.com 282 (SC), the High Court distinguished the same by observing that in the said case such credit has been utilised by a dealer and it is in such circumstances that the Supreme Court, on the basis of the note on the adjudication done by the Settlement Commission, has recorded its opinion. The High Court therefore quashed the impugned order passed by the competent authority in purported exercise of the power vested in him u/s 73 being per se illegal and an abuse of the statutory jurisdiction.