The Hon'ble High Court of Patna in Commercial Steel Engineering Corporation v. State of Bihar [2019] 28 GSTL 579 (Patna) dated June 27, 2019 held that mere wrong reflection of transitional credit in the electronic credit ledger cannot be treated as an act of availment or utilization of credit for initiating proceedings under section 73(1) of the Bihar Goods and Services Tax Act, 2017.
Facts of the Case:
The Petitioner, Commercial Steel Engineering Corporation, a partnership firm, was registered under the Bihar Value Added Tax Act, 2005 (VAT Act), the Central Sales Tax Act, 1956 (CST Act), and the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale therein Act, 1993 (Entry Tax Act).
After the implementation of the Goods and Services Tax (GST) regime with effect from July 1, 2017, the Petitioner filed an application under Section 140 of the Bihar Goods and Services Tax Act, 2017 (BGST Act) in Form GST TRAN-1 to claim credit of the surplus VAT and entry tax amounting to Rs. 42.73 lakhs and carry forward the same in its electronic credit ledger.
The Competent Authority, in purported exercise of power under Section 73 of the BGST Act, passed an order rejecting the Petitioner's application filed under Section 140. The authority held that the Petitioner had wrongly availed input tax credit under the VAT Act and Entry Tax Act, and such reflection of credit in the electronic credit ledger would amount to either availment or utilization of the credit. The Competent Authority further treated the amount of Rs. 42.73 lakhs reflected in the electronic credit ledger as outstanding tax liability against the Petitioner and ordered its recovery.
Aggrieved by the order, the Petitioner filed a writ petition before the High Court of Patna.
Issue:
Whether mere wrong reflection of the transitional credit in the electronic credit ledger could be treated as an act of availment or utilization of credit for the purpose of initiating proceedings under Section 73(1) of the BGST Act?
Held by the Court:
The High Court held that mere wrong reflection of the transitional credit in the electronic credit ledger could not be treated as an act of availment or utilization of credit for initiating proceedings under Section 73(1) of the BGST Act.
The court observed that both availment and utilization of credit are positive acts, and it is only when such acts are substantiated that the dealer concerned becomes liable for recovery of such amount of tax as availed from the input tax credit or utilized by him. A plain reading of Section 73 confirms that it is only on such availment or utilization of credit to reduce tax liability, which is recoverable under Section 73(1) read alongside the other provisions present thereunder.
The High Court opined that even if the Competent Authority was of the view that the Petitioner was not entitled to such transitional credit, at best, the claim could be rejected. However, such rejection of the claim for transitional 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 court held that treating the mere reflection of the transitional credit in the electronic credit ledger as an act of availment for initiating proceedings under Section 73(1) would be stretching the term 'availment' beyond prudence. Section 73 is self-explanatory, and it is only if such availment is for reducing a tax liability that it vests jurisdiction in the assessing authority to recover such tax together with levy of interest and penalty under Section 50.
The High Court observed that the Competent Authority had completely misappreciated the legal position, which lies at the foundation of the demand raised by the impugned order. The credit amount reflected in the credit ledger was treated as outstanding tax liability against the Petitioner, and its recovery was ordered along with interest and penalty, even when the electronic credit ledger status confirmed a credit in favor of the Petitioner, i.e., a negative tax liability.
In view of the above, the High Court held that the impugned order passed by the Competent Authority in purported exercise of power under Section 73 of the BGST Act was per se illegal and an abuse of statutory jurisdiction. Accordingly, the court quashed and set aside the impugned order.
Relevant Sections:
- "Section 73" of the Bihar Goods and Services Tax Act, 2017
- "Section 140" of the Bihar Goods and Services Tax Act, 2017
- "Rule 117" and "Rule 121" of the Bihar Goods and Services Tax Rules, 2017
This ruling clarifies that mere reflection of transitional credit in the electronic credit ledger does not amount to availment or utilization of such credit. For initiating recovery proceedings, the authorities have to demonstrate that the credit was put to use for reducing tax liability.
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