Suniti Ranjan Sharma Vs Systematic Conscom Ltd. (GSTAT Ghaziabad)
Summary : The Goods and Services Tax Appellate Tribunal (GSTAT), State Bench Ghaziabad, dismissed the State Revenue’s appeal against the order of the First Appellate Authority allowing transitional credit claimed by M/s Systematic Conscom Ltd. under Form GST TRAN-1. The dispute concerned ₹99,63,376 claimed as transitional credit, comprising ₹97,73,630 described by the taxpayer as refundable tax deducted at source (TDS) under the Uttar Pradesh Value Added Tax Act, 2008, and ₹1,89,746 claimed as purchase-related input tax credit. The VAT return reflected only ₹607, which the taxpayer described as a clerical error. The proper officer treated VAT TDS as distinct from input tax credit and confirmed tax of ₹99,62,769, interest of ₹26,39,998 and penalty of ₹9,96,277 under Section 73 of the GST law. The First Appellate Authority subsequently cancelled the demand and recognised transitional credit of ₹97,74,237. The Revenue challenged that appellate relief.
The Revenue argued that TDS deducted from works-contract receipts constituted payment towards the taxpayer’s output tax liability rather than input tax on inward supplies. Consequently, it contended that the amount could not be transferred to the GST electronic credit ledger under Section 140(1), read with Sections 2(62) and 2(63). The taxpayer maintained that the TDS amount had already been deposited with the Government and remained available for adjustment or refund under the UP VAT Act. It relied on Sections 15 and 34 of that Act and decisions including D.M.R. Constructions, Subhash Singh Choudhary and Magma Fincorp. The taxpayer also pointed out that its legacy VAT assessments remained pending, that its entitlement had not been finally reconciled, and that the original notice did not specifically dispute the transitional eligibility of the TDS component.
The Tribunal examined Notice No. 320 dated 7 August 2018 and found that it raised two objections: a discrepancy between the ₹607 reflected in the VAT return and the ₹99,63,376 claimed in TRAN-1, and non-furnishing of Form C particulars relating to inter-State sales. However, the proper officer subsequently accepted the Form C particulars and did not sustain that objection. The remaining demand was founded substantially on a different legal proposition: that TDS arising from outward works-contract receipts did not constitute eligible input tax. The Tribunal held that this distinct ground had not been formulated in the show cause notice. Relying on the principles recognised in Commissioner of Central Excise v. Brindavan Beverages and Oryx Fisheries v. Union of India, it emphasised that a notice must disclose the substantive allegations sufficiently to permit an effective defence. A general reference to Section 140 and Rule 117 could not substitute for a specific charge. Sections 75(6) and 75(7) further required reasoned determination within the grounds identified in the notice.
The Tribunal also found that neither the proper officer nor the First Appellate Authority had adequately reconciled the separate TDS and purchase-credit components. The Revenue had not produced a completed VAT assessment, refund-disposal order or other reliable reconciliation establishing whether the claimed legacy balance had been exhausted, adjusted or rejected. The Tribunal declined to presume that the taxpayer’s claim was invalid merely because the VAT authorities had not completed the relevant proceedings. It further held that the interest demand lacked a verifiable computation identifying the applicable provision, period, rate and actual utilisation of credit. The penalty could not be restored when the underlying tax determination itself was unsustainable. The Revenue’s additional reliance on decisions concerning strict interpretation of tax credit provisions did not overcome the defects in the notice and adjudication.
Importantly, the Tribunal did not determine the general question whether unadjusted VAT TDS is eligible for transition into the GST electronic credit ledger. It expressly left that substantive issue open, including the differing approaches adopted by the Madras, Jharkhand and Kerala High Courts. Its decision rested instead on the defective show cause notice, inadequate component-wise determination, absence of essential supporting evidence and unsupported consequential demands. Holding that remand merely to construct a fresh charge beyond the original notice would not cure the proceedings, the Tribunal dismissed the Revenue’s appeal, confirmed the First Appellate Authority’s order dated 15 October 2022 and maintained cancellation of tax of ₹99,62,769, interest of ₹26,39,998 and penalty of ₹9,96,277. The respondent was held entitled to consequential benefit through the applicable statutory mechanism.
Cases Discussed
- Fins Engineers and Contractors (P) Ltd. v. Superintendent / Chief Commissioner (Kerala High Court); W.P.(C) No. 10596 of 2023; 07/12/2023. Contrary interpretation on TDS transition noted; wider conflict left open.
- D.M.R. Constructions v. Assistant Commissioner (Madras High Court); W.P. No. 9991 of 2020 and connected matters. Relied upon by the respondent in support of VAT TDS transition; broader eligibility not decided.
- Subhash Singh Choudhary v. State of Jharkhand (Jharkhand High Court); W.P.(T) No. 2404 of 2020 and connected matter; 09/01/2023. Migration of unadjusted legacy TDS; respondent relied upon its reasoning.
- Magma Fincorp Ltd. v. State of Telangana (High Court). Concerned legacy credit, entitlement and the mechanism for transition; remand discussed.
- Commissioner of Central Excise, Bangalore v. Brindavan Beverages (P) Ltd. (Supreme Court); (2007) 5 SCC 388. Show cause notice is the foundation of the Revenue’s case.
- Oryx Fisheries Pvt. Ltd. v. Union of India (Supreme Court); (2010) 13 SCC 427. Fair opportunity to meet charges and an open mind required.
- Mangalore Chemicals & Fertilisers Ltd. v. Deputy Commissioner of Commercial Taxes (Supreme Court); 1992 Supp (1) SCC 21. Departmental inaction cannot itself defeat an established substantive entitlement.
- Union of India v. Rajasthan Spinning & Weaving Mills (Supreme Court); (2009) 13 SCC 448. Statutory preconditions for penalty must exist.
- ALD Automotive Pvt. Ltd. v. Commercial Tax Officer (Supreme Court); (2019) 13 SCC 225. Revenue cited statutory conditions governing input tax credit.
- Commissioner of Customs (Import), Mumbai v. Dilip Kumar & Company (Supreme Court); (2018) 9 SCC 1. Revenue cited strict interpretation of tax exemptions.
- Union of India v. VKC Footsteps India Pvt. Ltd. (Supreme Court); (2022) 2 SCC 603. Revenue cited strict application of statutory input-tax definitions.
- Khem Chand (Supreme Court); AIR 1958 SC 300. Reasonable opportunity includes notification of the charges and allegations.
FULL TEXT OF THE ORDER OF GSTAT GHAZIABAD
At the time of pronouncement of this final order Ld A. R. for the Revenue brought to notice of this Tribunal that in this matter last ordersheet has been wrongly uploaded which is in connection with some other case .
From perusal of the Daily cause list we find that as per todays cause list this matter is fixed for final order. Not only this Ld A. R has also filed written arguments which is available in the system . Both sides are also prsent before this Tribunal hence we find that it would be just and proper to pronounce the final order toady itself which has already been dictate .
1. Brief introduction
1.1. This appeal by the State Revenue challenges the order dated 15 October 2022 passed by the First Appellate Authority in Appeal No. 86/19. This departmental appeal, APL/D46/GZB/2026, concerns the transition of tax deducted at source (TDS) from the respondent’s works-contract receipts under the UP VAT Act into the GST electronic credit ledger through Form GST TRAN-1. The respondent, M/s Systematic Conscom Ltd., carries on trading and executes works contracts in Uttar Pradesh. It states that its contractees deducted tax from its bills under the Uttar Pradesh Value Added Tax Act, 2008 (the UP VAT Act). It also engaged subcontractors and deducted tax from payments made to them. According to the respondent, the tax deducted from its receipts exceeded its final VAT liability. It states that refunds had been allowed in earlier years. Notice No. 320 dated 7 August 2018 was issued under Section 73. It identified a TRAN-1 claim of Rs. 99,63,376 against only Rs. 607 shown as input tax credit carried forward in the VAT return for June. It also raised an objection about particulars of Form C against inter-State sales. The notice required a written explanation on 13 August 2018 and proposed disallowance, interest under Section 50 and penalty under the applicable provisions. The adjudication order records the respondent’s explanation that Rs. 607 was a clerical error and that the correct input-credit figure was Rs. 1,89,746. It separately identified Rs. 97,73,630 as refundable tax deducted at source, claimed in Form 52 for 2016-17. The respondent stated that the VAT assessments for 2016-17 and the relevant part of 2017-18 were pending when TRAN-1 was filed. The supplementary reply, reproduced in the adjudication order, stated that Rs. 26,60,305 of the claimed credit had been used before the notice. Challans for that amount and Rs. 1,17,783 towards interest were produced. The officer found that both sums remained in the electronic cash ledger and that the disputed credit had not been reversed or the liability discharged through the prescribed process.
2. Oral submission of the Revenue
2.1. The Revenue submits that TDS from works-contract receipts represents collection towards the respondent’s own output tax liability. It does not arise from an inward supply or from tax paid by the respondent on purchases. According to the Revenue, a right to adjustment or refund under the UP VAT Act does not by itself create a right to enter that amount as input tax credit in the GST electronic credit ledger. The Revenue relies on sections 2(62), 2(63) and 140(1) and the eligibility conditions attached to transition. It argues that the amount must qualify under the statutory provisions and be carried forward in the relevant return. It further submits that VAT TDS was not reported as purchase-based input tax credit and that the First Appellate Authority failed to maintain that distinction. The Revenue also refers to section 51 and the cash-ledger treatment of TDS under GST. It invokes section 49A in its submissions concerning the distinction between cash and input tax credit. The Revenue maintains that the proper officer validly proceeded under section 73 and seeks restoration of tax, interest and penalty.
2.2. The Revenue accepts the general proposition that VAT TDS may be adjusted against output tax liability or refunded in accordance with the legacy law. However we noticed that the Revenue has not supported its appeal with a completed VAT assessment, a refund- disposal order, or a component-wise reconciliation establishing the exact amount available or exhausted in this matter.
2.3 Reference has also been made to the contrary reasoning in Fins Engineers and Contractors (P) Ltd. v. Superintendent, W.P.(C) No. 10596 of 2023, decided by the Kerala High Court on 7 December 2023, concerning the proviso to section 140. In view of the limited issue arising for determination in the present appeal we do not consider it necessary to examine the difference of views expressed by the two Hon’ble High courts on the treatment of TDS under section 140 of GST Act and respectfully leave this question open . we find that neither approach would cures the defects in the present notice, determination and computation .
3. oral submission of the respondent
3.1. The respondent submits that tax deducted from its receipts was paid to the Government and remained available after adjustment of its VAT liability. It relies on sections 2(p), 15 and 34 of the UP VAT Act, particularly the proviso to section 34(6) and section 34(11). It also refers to section 51(5) of the GST Act and the language concerning VAT credit in section 140(1) of the State GST Act. The respondent relies on its explanation of the clerical entry, the return and Form 52 material referred to in the adjudication order, the acceptance of the Forms
C, the pendency of the legacy assessments and the challans produced with its supplementary reply. It submits that the demand neither properly separates the components of its claim nor explains the computation of interest.
3.2. Its written submissions dated 10 September 2026 and additional submissions dated 16 September 2026 have been considered. It relies on D.M.R. Constructions, Subhash Singh Choudhary, Magma Fincorp and the other authorities discussed below. It seeks protection of the tax already lying with the Government and, alternatively, refund if transition is not accepted. It also seeks cancellation of interest and penalty, asserting absence of fraud, willful misstatement and wrongful availment or utilization. The respondent further relies on Commissioner’s Circular No. 1318.
3.4 In D.M.R. Constructions v. Assistant Commissioner, W.P. No. 9991 of 2020 and connected matters the Madras High Court allowed transition of accumulated TDS under the Tamil Nadu VAT and GST provisions. It examined the legacy deduction, adjustment and carry-forward framework. The decision supports the respondent’s argument that amounts collected as tax should not be lost merely on a change of tax regime. It is persuasive in Uttar Pradesh, but its application requires comparison of the statutory provisions and facts. We neither adopt nor reject its wider eligibility conclusion in deciding this appeal. In Subhash Singh Choudhary v. State of Jharkhand, W.P.(T) No. 2404 of 2020 and the connected matter the Jharkhand High Court allowed migration of unadjusted TDS in the setting of the Jharkhand legislation and return forms. That reasoning supports the respondent’s concern that tax remaining with the State should receive lawful adjustment or refund. In Magma Fincorp Ltd. v. State of Telangana the dispute involved legacy credit following State bifurcation and its later transition. The Court noted that the State did not deny the underlying entitlement but disputed its form of use. It set aside the order and remitted the matter for fresh consideration. This was not a direct ruling on UP VAT TDS. Its relevance is the distinction between the existence of an entitlement and the mechanism for giving effect to it. Here, it reinforces the need for a reasoned answer to the respondent’s balance and alternative refund claim.
4. Show Cause Notice.
4.1. in the light of above mentioned respective case of the Revenue and Respondent first of all we consider SCN which is basis of the entire case. Notice No. 320 dated 7 August 2018 was issued under section 73. It stated that the respondent had claimed Rs. 99,63,376 in TRAN-1, whereas the VAT return for June 2017 showed only Rs. 607 as input tax credit carried forward. The first objection was therefore a difference between the figure in the
legacy return and the transitional claim.
4.2. The second objection is regarding Forms C. The notice referred to inter-State sales of Rs. 1,62,39,233.50 for 2015–16, Rs. 1,99,94,805.25 for 2016–17 and Rs. 1,65,37,850 for 2017–18, on which concessional tax liability had been admitted. It alleged that particulars of the Forms C received in support of those sales had not been furnished in TRAN-1.
4.3. On these grounds, the notice alleged non-compliance with section 140 and Rule 117. It required the respondent to appear and furnish a written explanation on 13 August 2018 against rejection of the claim, recovery with interest under section 50, and penalty under the applicable provisions.
4.4. Hence from bare perusal of the SCN we find that The notice identified the return mismatch and the Form C objection. However, it did not separately identify an amount as TDS and formulate the distinct charge that such an amount was legally incapable of transition because it arose from deductions from outward receipts rather than tax paid on purchases. That distinction is material when the notice is compared with the final adjudication.
5. The proper officer’s order.
5.1 It would be just and fair to discuss order of the Proper officer which should have based upon above allegations discussed SCN. The relevant parts of section 73 of the CGST Act are reproduced below. The corresponding UPGST provisions govern the State component..
Section 73(1): “Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilised for any reason, other than the reason of fraud or any willful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty leviable under the provisions of this Act or the rules made thereunder.”
Section 73(9): “The proper officer shall, after considering the representation, if any, made by person chargeable with tax, determine the amount of tax, interest and a penalty equivalent to ten per cent. of tax or ten thousand rupees, whichever is higher, due from such person and issue an order.”
Section 73(11): “Notwithstanding anything contained in sub-section (6) or sub-section (8), penalty under sub-section (9) shall be payable where any amount of self-assessed tax or any amount collected as tax has not been paid within a period of thirty days from the due date of payment of such tax.”
From bare perusal of above mentioned legal provision it is very much clear that these provisions require an intelligible allegation, consideration of the answer and determination of what remains due. A return difference is evidence calling for examination. It does not dispense with the obligation to establish the demand on the correct legal and factual basis. Equally, absence of fraud does not by itself take a case outside section 73; that section specifically addresses non-fraud cases.
5.2 . in this legal and factual backdrop refer order of the proper officer . On Forms C, the proper officer recorded sales of Rs. 94,85,682 for 2016–17 and Rs. 92,07,216 for 2017–18 and accepted that complete particulars of the Forms C received against those sales . He expressly drew no adverse conclusion on that issue. The Form C objection, therefore, did not remain a ground of the demand ultimately confirmed.
5.3 The proper officer’s order records the respondent’s explanation that the entry of Rs. 607 was a clerical error and that the purchase-credit figure was Rs. 1,89,746. It separately records the respondent’s claim to Rs. 97,73,630 as refundable TDS, with a reference to Form 52 for 2016–17. These two figures total Rs. 99,63,376. The respondent stated in reply to SCN that that its VAT assessments for 2016–17 and the relevant part of 2017–18 were pending when TRAN-1 was filed. It explained that tax deducted by its contractees exceeded its VAT liability and that refunds had been allowed in earlier years. we find that proper officer reproduced above mentioned claim of the Respondent but there is no appreciation of above facts and mere their reproduction in the adjudication order did not itself amount to a final assessment of the net refundable balance. . The proper officer nevertheless rejected the transitional claim by referring to section 2(p) of the UP VAT Act and section 2(62) of the GST Act. He held that TDS was not input tax and was consequently unavailable as input tax credit under GST. This introduced a distinct basis of rejection concerning the legal character of the TDS component, although the notice had formulated the case as a return mismatch and a Form C deficiency. The defect is more specific. The notice did not frame that TDS ground, and the final order did not adequately reconcile the separately stated TDS and purchase-credit components before confirming the aggregate demand.
5.4. The supplementary reply also stated that Rs. 26,60,305 of the credit had been used before the notice. The respondent produced challans for that sum and Rs. 1,17,783 towards interest.
The officer found that both deposits remained in the electronic cash ledger under SGST head 0006, while the disputed credit remained in the electronic credit ledger. He referred to the absence of the prescribed DRC-03 discharge and the relevant reversal in GSTR-3B. Finally vide order No. 591 dated 21 January 2019, the proper officer determined tax of Rs. 99,62,769, interest of Rs. 26,39,998 and penalty of Rs. 9,96,277 under section 73(9). The tax represented Rs. 99,63,376 less Rs. 607. The consequential summary in Form GST DRC-07, No. ZA090119002860Q dated 29 January 2019, recorded these amounts for the period July 2017 to August 2018.
6 . Order-in-Appeal
Now we take up for consideration the First Appellate Authority order which allowed Appeal No. 86/19 on 15 October 2022. It recognised transitional credit of Rs. 97,74,237 and cancelled the entire demand of tax, interest and penalty. Its reasoning, as reflected in the material before us, referred to sections 15 and 34 of the UP VAT Act, section 140 of the GST law, a departmental circular and authorities, specially DMR case law favouring transition. However again we find that impugned order dealt with the respondent’s transitional claim. What is absent is a separate, reasoned determination reconciling the precise TDS component of the dispute with the purchase-credit component, the net balance available under the VAT law, and the total demand.
7. In the light of above mentioned discussion of the SCN , Proper officer order and First Appelate Authority order, still question to be answered is whether the Revenue has established a lawful basis to restore the demand set aside by the OIA? Whether it would be legally sustainable to pronounce an order on the abstract eligibility of all VAT TDS for transition in the absence of a properly framed allegation and a component-wise determination supporting this demand ? These two legal questions are taken together for consideration by us.
7.1 Defects in the notice
As mentioned above and it is well settled legal position that SCN is anchor sheet of entire Revenue Case . To make legal position more clear we would refer and rely on the following decisions of the Hon’ble Apex Court:
In Commissioner of Central Excise, Bangalore v. Brindavan Beverages (P) Ltd., (2007) 5 SCC 388, the Supreme Court treated the show cause notice as the foundation of the departmental case. Vague allegations lacking material particulars do not afford a proper opportunity of defence. The principle applies to the adequacy of notice.
In Oryx Fisheries Pvt. Ltd. v. Union of India, (2010) 13 SCC 427, the Supreme Court emphasised a fair opportunity to meet the charges and an open mind on the part of the authority.
The notice specifies the comparison between Rs. 607 and Rs. 99,63,376. It also specifies concessional inter-State sales of Rs. 1,62,39,233.50, Rs. 1,99,94,805.25 and Rs. 1,65,37,850 for 2015–16, 2016–17 and 2017–18 respectively, and complains that Form C particulars were not furnished in TRAN-1. The narrower issue is whether those stated grounds sustain the particular demand ultimately confirmed on the legal character of TDS.
7.2 . The notice invokes section 140 and Rule 117 in connection with the return mismatch. However section 140 GST Act and Rule 117 are reproduced just to show that s. 140 covers several transactions and conditions to make an transaction eligible or non eligible for transfer of balance from VAT regime to GST regime. S. 140 (1) provides that balance should fulfil condition of being treated as ITC as per GST Act . In the other provisions deals about non-VAT supply , inter state Supply etc. Hence, we find that mere reference of s. 140 GST Act does not meet the requirement of natural justice and Fair trial. In fact in absence of specific allegation, one cannot make a specific defence which is basis requirement for fair trial:
Section 140. Transitional arrangements for input tax credit.-
A registered person, other than a person opting to pay tax under section 10, shall be entitled to take, in his electronic credit ledger, the amount of CENVAT credit 1[of eligible duties] carried forward in the return relating to the period ending with the day immediately preceding the appointed day, furnished by him under the existing law 2[within such time and] in such manner as may be prescribed:
Provided that the registered person shall not be allowed to take credit in the following circumstances, namely:-
(i) where the said amount of credit is not admissible as input tax credit under this Act; or
(ii) where he has not furnished all the returns required under the existing law for the period of six months immediately preceding the appointed date; or
(iii) where the said amount of credit relates to goods manufactured and cleared under such exemption notifications as are notified by the Government.
(2) A registered person, other than a person opting to pay tax under section 10, shall be entitled to take, in his electronic credit ledger, credit of the unavailed CENVAT credit in r espect of capital goods, not carried forward in a return, furnished under the existing law by him, for the period ending with the day immediately preceding the appointed day 3[within such time and] in such manner as may be prescribed:
Provided that the registered person shall not be allowed to take credit unless the said credit was admissible as CENVAT credit under the existing law and is also admissible as input tax credit under this Act.
Explanation.- For the purposes of this sub-section, the expression “unavailed CENVAT credit” means the amount that remains after subtracting the amount of CENVAT credit already availed in respect of capital goods by the taxable person under the existing law from the aggregate amount of CENVAT credit to which the said person was entitled in respect of the said capital goods under the existing law.
(3) A registered person, who was not liable to be registered under the existing law, or who was engaged in the manufacture of exempted goods or provision of exempted services, or who was providing works contract service and was availing of the benefit of notification No. 26/2012-Service Tax, dated the 20th June, 2012 or a first stage dealer or a second stage dealer or a registered importer or a depot of a manufacturer, 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 4[goods held in stock on the appointed day, within such time and in such manner as may be prescribed, subject to] the following conditions, namely:-
(i) such inputs or goods are used or intended to be used for making taxable supplies under this Act;
(ii) the said registered person is eligible for input tax credit on such inputs under this Act;
(iii) the said registered person is in possession of invoice or other prescribed documents evidencing payment of duty under the existing law in respect of such inputs;
(iv) such invoices or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day; and
(v) the supplier of services is not eligible for any abatement under this Act:
Provided that where a registered person, other than a manufacturer or a supplier of services, is not in possession of an invoice or any other documents evidencing payment of duty in respect of inputs, then, such registered person shall, subject to such conditions, limitations and safeguards as may be prescribed, including that the said taxable person shall pass on the benefit of such credit by way of reduced prices to the recipient, be allowed to take credit at such rate and in such manner as may be prescribed.
(4) A registered person, who was engaged in the manufacture of taxable as well as exempted goods under the Central Excise Act, 1944 (1 of 1944) or provision of taxable as well as exempted services under Chapter V of the Finance Act, 1994 (32 of 1994), but which are liable to tax under this Act, shall be entitled to take, in his electronic credit ledger,-
(a) the amount of CENVAT credit carried forward in a return furnished under the existing law by him in accordance with the provisions of sub-section (1); and
(b) the amount of CENVAT 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, relating to such exempted goods or services, in accordance with the provisions of sub-section (3).
(5) A registered person shall be entitled to take, in his electronic credit ledger, credit of eligible duties and taxes in respect of inputs or input services received on or after the appointed day but the duty or tax in respect of which has been paid by the supplier under the 5[existing law, within such time and in such manner as may be prescribed,] subject to the condition that the invoice or any other duty or tax paying document of the same was recorded in the books of account of such person within a period of thirty days from the appointed day:
Provided that the period of thirty days may, on sufficient cause being shown, be extended by the Commissioner for a further period not exceeding thirty days:
Rule 117. Tax or duty credit carried forward under any existing law or on goods held in stock on the appointed day.-
(1) Every registered person entitled to take credit of input tax under section 140 shall, within ninety days of the appointed day, submit a declaration electronically in FORM GST TRAN-1 , duly signed, on the common portal specifying therein, separately, the amount of input tax credit 1[of eligible duties and taxes, as defined in Explanation 2 to section 140,] to which he is entitled under the provisions of the said section:
Provided that the Commissioner may, on the recommendations of the Council, extend the period of ninety days by a further period not exceeding ninety days.
Provided further that where the inputs have been received from an Export Oriented Unit or a unit located in Electronic Hardware Technology Park, the credit shall be allowed to the extent as provided in sub-rule (7) of rule 3 of the CENVAT Credit Rules, 2004.
2[(1A) Notwithstanding anything contained in sub-rule (1), the Commissioner may, on the recommendations of the Council, extend the date for submitting the declaration electronically in FORM GST TRAN-1 by a further period not beyond 3[31st March, 2020]], in respect of registered persons who could not submit the said declaration by the due date on account of technical difficulties on the common portal and in respect of whom the Council has made a recommendation for such extension.
Hence at the cost of repetition we reiterate that issue of TDS which subsequently became basis of adverse finding by the proper officer is not discernable from SCN . It does not expressly allege that an identified TDS balance is legally incapable of transition. The later order, however, rejects the claim by treating TDS as outside the definitions of input tax. A mere reference to the section and rule cannot, without examining the actual charge, be treated as notice of every possible disqualification. Our conclusion concerns the combined defects i.e the notice did not formulate TDS as distinct legal ground and the Form C ground was dropped. Even the final demand issued by the proper officer did not adequately reconcile the TDS figure and ITC figure, which is against Section 75(6), which requires the order to state the relevant facts and its basis. Section 75(7) confines confirmation to the grounds in the notice and the prescribed monetary limits. The adjudicating order could assess the explanation within the notice’s scope; it could not repair a missing substantive charge by introducing it for the first time.
8 . Returns and the unascertained components and its impact on the matter.
8.1. Prior to giving an adverse finding it was necessary for the adjudicating authority to distinguish the amount declared, by the respondent in the Return the amount carried forward under the legacy law, the amount claimed as TDS, the purchase-credit component and any amount already adjusted or refunded. An arithmetic difference between two entries does not answer all these questions. The adjudication order refers to the filed June return, showing Rs. 607 and records the respondent’s explanation of clerical error, its alternative figure, and its Form 52 claim. But from perusal of the documents filed by the Revenue, we find that the State produces no completed VAT assessment report /order rejecting or exhausting the stated refund balance. In absence of final assessment order by VAT officer, one would not be able to know actual status of refund / balance status. Obviously there is no denial by the Revenue that Returns were not filed by the Respondent, hence we cannot blame Respondent for above mention state of affairs . We must not forget that matter is of year 2017-18. There is a specific TDS/refund figure of Rs. 97,73,630 in the respondent’s explanation. However, we should keep in mind that TDS is not part of SCN. Hence any adverse finding beyond SCN would be legally unsustainable. Section 75(7) prevents confirmation on grounds other than those specified in the notice and confines the determination within the prescribed monetary limits.
9. Why a general ruling on TDS and TRAN-1 is unnecessary
As we know, the relevant transitional provision for State VAT is section 140(1) of the UPGST Act. The proviso and the applicable return requirements are necessary legal requirement for just determination of present issue of transition of balance from VAT regime to GST regime. However, application of those conditions requires identification of the amount and its character. There is no separate, reasoned finding in the OIA reconciling the precise TDS component with the entire disputed demand. We therefore need not decide whether TDS can, in principle, be included in TRAN-1. This appeal can and should be decided on the validity of the notice, the reasons for adjudication and the proof of the demand sought to be restored.
10 . Absence of final assessment order and the period of waiting.
The present situation at hand is very much similar to the Mangalore Chemicals. In Mangalore Chemicals & Fertilisers Ltd. v. Deputy Commissioner of Commercial Taxes, 1992 Supp (1) SCC 21, Hon’ble Supreme Court distinguished substantive conditions from procedural requirements. The taxpayer’s entitlement and eligibility for adjustment were undisputed, but the Revenue had withheld the required permission without justification. The Court did not allow that inaction to defeat relief. The analogy here is limited: departmental delay cannot, without identifying a taxpayer default, be treated as proof against the taxpayer. The proper officer recorded the respondent’s statement that the relevant VAT assessments were pending. The Revenue neither asserts their subsequent completion, nor produces a
completed assessment or refund-disposal order. We cannot presume an unproduced decision rejecting, reducing or exhausting the legacy balance. The practical question remains: why should the respondent wait, and for how long? If ascertainment of the balance depends on departmental action, the Department must explain the delay and identify any outstanding requirement attributable to the respondent. An established entitlement cannot fairly be left unresolved indefinitely because the Department has not completed its own work.
11. Interest and Penalty
11.1. Now we take up question of Interest. Interest must have a statutory basis and a verifiable computation. In a case governed by section 50(3), the inquiry concerns credit wrongly availed and utilised. Rule 88B supplies the relevant computation framework. If the claim is instead under section 50(1) for unpaid output tax, the liability and period of default must be identified. Those distinct bases cannot be interchanged without reasons.The SCN and demand expressly refer to section 50. The material before us does not supply the dates, rate, ledger-based utilisation and period supporting interest of Rs. 26,39,998. The respondent’s statement that Rs. 26,60,305 had been used before the notice is not a substitute for that working. Section 75(9) does not dispense with proof of the facts required to establish and compute interest. Hence we find that determination and demand of interest is unsustainable.
11.2. The respondent’s submission about absence of fraud must also be kept in its proper place. Section 73 concerns cases other than fraud, wilful misstatement or suppression of facts to evade tax. Absence of fraud alone does not exclude a liability or penalty otherwise arising under that section. Here, however, the tax determination supporting the penalty has not been sustained. In Union of India v. Rajasthan Spinning & Weaving Mills, (2009) 13 SCC 448, the Supreme Court explained that the statutory conditions for the penalty provision under consideration must first exist. Mandatory consequences do not dispense with those conditions. Applying that limited principle, we find no basis to restore the penalty of Rs. 9,96,277 when the Revenue has failed to sustain the demand on which it rests.
12. As matter was fixed for final order ld A. R for Revenue filed written notes of argument . Hence before recording finding it would just and fair to consider this written submission of the Revenue . As per ld A. R under section 140(1) of the CGST/UPGST Act, 2017, a registered person is permitted to transfer to the electronic credit ledger only the input tax credit (Value Added Tax Input Tax Credit) carried forward in the return under the earlier VAT law Under section 2(63) of the Act, input tax credit means the credit of input tax. Section 2(62) defines input tax in clear terms. In relation to a registered person, input tax means only the central tax, State tax, integrated tax or Union territory tax charged on inward supplies of goods or services or both made to that person. Under the GST scheme also TDS forms part of the cash ledger and not the credit ledger under section 51 read with section 49. Under the earlier U.P. VAT Act, 2008, input tax credit under section 24 and deduction of tax at source (TDS) under section 34 are two entirely distinct legal provisions. 13. 1 Ld A. R also relied on following decisions of the Hon’ble Court. Hon’ble Supreme Court in ALD Automotive Pvt. Ltd. v. Commercial Tax Officer [(2019) 13 SCC 225 held that input tax credit (ITC) is not a fundamental or vested right of a taxpayer, but a statutory concession granted by the legislature subject to specified conditions. It can be claimed only within the conditions, limits and forms expressly prescribed by the Act. Hon’ble Supreme Court five Judge Constitution Bench in Commissioner of Customs (Import), Mumbai v. Dilip Kumar & Company (2018) 9 SCC 1 established the binding principle that any exemption or credit provision in a taxing statute must receive a strict literal interpretation. Words not used by the legislature cannot be added in the name of judicial interpretation or equity. Further, the entire burden of proving eligibility for an exemption or credit rests on the taxpayer, and any ambiguity must be interpreted in favour of the Revenue (Department Hon’ble Supreme Court in Union of India v. VKC Footsteps India Pvt. Ltd. (2022) 2 SCC 603 the Hon’ble Supreme Court clarified that, where the Act restricts input tax under section 2(62) and input tax credit under section 2(63) to specified taxes, courts or appellate authorities cannot enlarge the statutory definition by interpreting another item as falling within input tax. Hon’ble Kerala High Court in fins engineers and contractors (p) ltd. v. chief commissioner the Hon’ble High Court held as follows: “Section 17(5) which has been placed reliance does not have applicability in respect of the claim of input tax transition of credit in TRAN-1. Section 17(5) is only in respect of non-availability of the input tax credit in certain transactions, it has nothing to do with the claim of input tax credit on eligible transaction. Therefore, I am of the view that the TDS which is tax deducted by the contractor on execution of the contract of the petitioner, cannot be said to be input tax credit.
12.2 We considered above mentioned authorities cited by the ld A. R of the Revenue but we find that those case law do not advance the case of the Revevue because non of the case law deals with the defective SCN and its impact on the entire adjudication process.. we find that issue of TDS which subsequently became basis of adverse finding by the proper officer is not discernable from SCN . It does not expressly allege that an identified TDS
balance is legally incapable of transition. The later order, however, rejects the claim by treating TDS as outside the definitions of input tax. A mere reference to the section and rule cannot, without examining the actual charge, be treated as notice of every possible disqualification. Our conclusion concerns the combined defects i.e the notice did not formulate TDS as distinct legal ground and the Form C ground was dropped. Even the final demand issued by the proper officer did not adequately reconcile the TDS figure and ITC figure, which is against Section 75(6), which requires the order to state the relevant facts and its basis. Section 75(7) confines confirmation to the grounds in the notice and the prescribed monetary limits. The adjudicating order could assess the explanation within the notice’s scope; it could not repair a missing substantive charge by introducing it for the first time.
12.3 Before coming to final finding on the above discussed issues we also refer following decisions which would make legal position more clear .
Oryx Fisheries (P) Ltd. v. Union of India, (2010) 13 SCC 427 ’28. Justice is rooted in confidence and justice is the goal of a quasi-judicial proceeding also. If the functioning of a quasi-judicial authority has to inspire confidence in the minds of those subjected to its jurisdiction, such authority must act with utmost fairness. Its fairness is obviously to be manifested by the language in which charges are couched and conveyed to the person proceeded against.’’
In the same way Hon;b’e Apex Court in Khem Chand [AIR 1958 SC 300] held that the concept of “reasonable opportunity” includes various safeguards and one of them, is: “(a) An opportunity to deny his guilt and establish his innocence, which he can only do if he is told what the charges levelled against him are and the allegations on which such charges are based;”
13. Findings and operative order
13.1. For above discussed reasons, we find that the Revenue has not established a lawful basis for restoration of the impugned tax, interest or penalty, or a sustainable severable portion of the demand. A remand merely to construct a fresh charge beyond the SCN would not cure the defects of these proceedings hence we find that in the facts and circumstances of the case remand would not be just and fair.
13.2. Accordingly, the appeal filed by the State Revenue is dismissed. The order dated 15 October 2022 passed by the First Appellate Authority in Appeal No. 86/19 is confirmed for the reasons recorded in this order.
13.3. Consequently, cancellation of tax of Rs. 99,62,769, interest of Rs. 26,39,998 and penalty of Rs. 9,96,277 under adjudication order No. 591 dated 21 January 2019 and the consequential DRC-07 dated 29 January 2019 shall remain undisturbed.
13.4. The respondent shall receive the consequential benefit of the appellate order through the applicable statutory mechanism.
13.5. The Registry shall communicate this order to the parties and the concerned authorities. There shall be no order as to costs.
Order pronounced in the open tribunal proceeding.
