The transition from the Value Added Tax (VAT) regime to the Goods and Services Tax (GST) regime in India brought forth various challenges and legal intricacies. One such issue pertains to the transition of unutilized VAT credits under the new GST framework. In a recent judgment, the Hon’ble Madras High Court addressed this contentious issue in the case of M/s. Radhikka Ceramic World v. State Tax Officer [Writ Petition (MD) No. 1098 of 2021 dated April 04, 2024]. Hon’ble Madras High Court in this case held that the amount of advance tax that was un-utilized under the Value Added Tax (“VAT”) or the Tamil Nadu Value Added Tax Act, 2006 (“the TNVAT Act”), has to be allowed to be transitioned under Section 140 of the Tamil Nadu Goods and Services Tax Act, 2017 (“the TNGST Act”).
Facts:
M/s. Radhikka Ceramic World (“the Petitioner”) was engaged in selling ceramic tiles and similar articles. These tiles were imported from various states. There was an apprehension that in the Tile Industry, there was large-scale tax evasion. Further, tax in advance was calculated from the Petitioner at the Tuticorin port at 20% of the invoice value in advance.
The VAT Returns filed under VAT Form-I dated August 08, 2017 an amount of INR 3,71,331/- remained unutilized in the VAT returns of the Petitioner for the month of July, 2017. Therefore, the Petitioner transited the aforesaid amount of advance tax paid to the Commercial Tax Department at the time of import in the state from the other State in terms of Section 140 of the TNGST Act.
The State Tax Officer (“the Respondent”) passed an Order dated December 23, 2019 (“the Impugned Order”) denying the transitional tax that remained unutilized in the VAT returns filed by the Petitioner for the month of July, 2017 on August 08, 2017.
Hence, the Petitioner aggrieved by the Impugned Order filed the present writ petition.
Issue:
Whether the unutilized VAT Credit is allowed to be transitioned under the GST regime?
Held:
The Hon’ble Madras High Court in Writ Petition (MD) No. 1098 of 2021 held as under:
- Relied on, Avatar Petro Chemicals (P.) Ltd. GST Council [Writ Petition (MD) No. 7093 of 2020 dated March 4, 2022] Madras High Court held that substantial benefit of such un-utilized credit cannot be denied as these credits were earned legitimately under the Tax Enactments which were in force prior to July 01, 2017. The Court relied on the case of Commissioner of GST and Central Excise, Assistant Commissioner of GST, etc v. Bharat Electronics Limited vide order [W.A.No.2203 of 2021 dated 18 November 2021] where the Division Bench allowed the respondent to file a revised Form TRAN-1.
- Relied on, Magma Fincorp Limited v. State of Telangana [Writ Petition No. 46792 of 2018 dated April 15, 2019] where it was held that once it is admitted that credit was available to the petitioner on the date of switch over from the VAT regime to GST regime and once it is admitted that the petitioner may be entitled to make a claim for this credit in other modes, the second respondent ought to have given a purposive interpretation to Section 140 of the TNGST Act read with Sections 16 to 21 of the Telangana Goods and Service Tax Act, 2017. As he has failed to do the same, the matter required reconsideration.
- Held that, if the amount of advance tax had remained un-utilized under the VAT or the TNVAT Act, it has to be allowed to be transitioned under Section 140 of the TNGST Act which clearly states that any amount of VAT and Entry Tax remaining un-utilized in the return shall be allowed to be transitioned and such a registered person is entitled to take credit of such amount in his electronic credit ledger. Hence, there was no reason to sustain the Impugned Order and therefore, it was quashed.
Conclusion
The judgment in M/s. Radhikka Ceramic World v. State Tax Officer marks a significant milestone in GST jurisprudence, clarifying the treatment of unutilized VAT credits during the transition period. Businesses can take solace in the court’s affirmation of their rights to transition such credits under the GST regime. This decision provides clarity and assurance to taxpayers navigating the complexities of GST compliance.
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