Appellate Authority Cannot Use MVAT Mismatch To Deny TRAN-1 Credit: Bombay HC

Gunjan Surgical and Scientific Co. Vs State of Maharashtra & Ors. (Bombay High Court)

The Bombay High Court considered a writ petition filed under Article 226 of the Constitution challenging an appellate order dated 25 January 2023 passed by the Joint Commissioner of State Tax regarding denial of Transitional Input Tax Credit (ITC). The petitioner also sought quashing of the adjudication order dated 23 September 2019 and refund of the amount deposited while filing the appeal.

The dispute arose from the petitioner’s TRAN-1 transitional credit claim. The Appellate Authority had partly allowed the appeal after considering an affidavit filed by the petitioner stating that no refund of the disputed amount had been claimed under VAT and that no such refund would be claimed in future.

While observing that the transitional credit claimed by the petitioner “seems to be admissible,” the Appellate Authority examined the system-generated match-mismatch statement and found a mismatch in “J2 x J1” amounting to Rs. 6,53,341/-. On that basis, the authority held that the mismatch amount was liable to be deducted from the total refund claimed through TRAN-1. Consequently, the tax, interest, and penalty figures were modified, reducing the relief granted to the petitioner and determining a net payable amount of Rs. 8,90,267/- after considering part payment already made.

The petitioner challenged these findings on two primary grounds. First, it was argued that the Appellate Authority exceeded its jurisdiction because the proceedings before it were confined to adjudication under the Maharashtra Goods and Services Tax Act, 2017 (MGST Act). According to the petitioner, the authority effectively undertook an inquiry relating to the Maharashtra Value Added Tax Act, 2005 (MVAT Act), which fell outside the permissible scope of Section 140 of the MGST Act dealing with transitional credit.

Second, the petitioner contended that the deduction based on system-generated mismatch figures could not have been made without applying the specific parameters prescribed under Section 140(1)(i), (ii), and (iii) read with Section 140(2) of the CGST Act. The petitioner relied upon the decisions in Usha Martin Ltd. vs. Additional Commissioner, CGST & CEX, Jamshedpur and Tripati Ispat Udyog vs. State of Jharkhand in support of its case.

The respondents opposed the petition and supported the impugned appellate order.

After hearing the parties and examining the record, the Bombay High Court held that the observations made by the Appellate Authority lacked clarity and were vague. The Court found merit in the petitioner’s contention that the findings relating to mismatch under the MVAT framework may not fall within the scope of Section 140 of the MGST Act, which specifically governs transitional credit.

The Court observed that the jurisdiction under Section 140 in relation to transitional credit is “quite compartmentalized” and does not permit issues falling within the jurisdiction of authorities under the MVAT Act to be considered while deciding transitional credit claims under the GST regime. The Court held that the Appellate Authority was required to independently examine the matter while keeping in view the limited scope and ambit of jurisdiction available under Section 140 of the MGST Act.

Accordingly, the High Court partly allowed the writ petition on the limited issue concerning the appellate findings. The impugned order dated 25 January 2023 passed by the Joint Commissioner was quashed and set aside. The matter was restored to the file of the Appellate Authority with directions to reconsider the issue relating to transitional credit and pass a fresh order in accordance with law after granting an opportunity of hearing to the parties.

The Court further directed that a fresh order should be passed within eight weeks from the date the High Court’s order is made available to the authority. All contentions of the parties were expressly kept open, and the writ petition was disposed of without any order as to costs.

FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT

This Petition under Article 226 of the Constitution of India is filed praying for the following substantive reliefs:-

“a) that this Hon’ble Court be pleased to issue a writ of Mandamus or a Writ in the nature of Mandamus or any other appropriate Writ or order or direction under Article 226 of the Constitution of India ordering the deletion of liability retained in the appeal order dated 25.01.2023 (Ex.G) and directing to refund the amount paid for filing appeal.

b) that this Hon’ble Court be pleased to issue a writ of Mandamus or a Writ in the nature of Mandamus or any other appropriate Writ or order or direction under Article 226 of the Constitution of India and to set aside appeal order for fresh decision after following principles of natural justice.

c) that this Hon’ble Court be pleased to issue a writ of Mandamus or a Writ in the nature of Mandamus or any other appropriate Writ or order or direction under Article 226 of the Constitution of India and set aside and quash adjudication order dated 23.9.2019 (Ex.C).

d) that pending the hearing and final disposal of this Writ Petition, stay against recovery be granted till the disposal of this Writ Petition.”

2. We have heard learned Counsel for the parties.

3. The Petitioner is primarily aggrieved by the order dated 25 January 2023 passed by the Joint Commissioner of State Tax, whereby the Petitioner’s claim for Transitional Input Tax Credit has been denied, while the appeal has been partly allowed based on the observations recorded therein, which are as under:-

“By aggrieved to this dues appellant has filed an appeal, In this regard C.B. Thakar advocate attended and filed affidavit where in it is stated that the firm states on oath that it has not claimed any refund of above amount under VAT. The firm further declares that it will not claim said amount in future also as refund under VAT.

Considering the above fact of case and affidavit filed by the appellant trans1 credit claimed by the appellant seems to be admissible but before granting the whole credit it needs to see match mismatch statement on which appellant has claimed the ITC cum refund for the said period. After going through the match mismatch statement through system, it is noticed that there is mismatch in j2xj1 for the said period at Rs. 6,53,341/- (List Enclosed) which needs to be deducted from total refund claimed by appellant in trans 1. Hence figures are modified as under.

After modifying the order figures appellant gets the relief in tax, interest and penalty at Rs. 4,16,538/-. Now appellant has to pay Rs. 8,90,267/- after considering the Part Payment at Rs. 93,011/- as per provisions of law.”

4. Learned Counsel for the Petitioner submitted that the Petitioner’s grievance in respect of the aforesaid finding is twofold. Firstly, it is contended that such finding could not have been recorded by the Appellate Authority, as its jurisdiction was confined to adjudication under the provisions of the MGST Act, 2017. It is submitted that such finding, in fact, travels beyond its jurisdiction and pertains to an inquiry or assessment under the Maharashtra Value Added Tax Act, 2005. It is further submitted that it was incumbent upon the authority to confine its consideration strictly to the provisions of Section 140(1)(i), (ii), and (iii), read with sub-section (2). The learned Counsel for the Petitioner submits that the finding recorded by the Appellate Authority, to the effect that there was a system-generated mismatch indicating that an amount of Rs. 6,53,343/- was liable to be deducted from the Petitioner’s total claim in TRAN-1, could not have been arrived, without applying the parameters laid down under Section 140 of the CGST Act.

5. Learned Counsel for he Petitioner has placed reliance on the decisions of the Usha Martin Ltd. Vs. Additional Commissioner, CGST & Cex, Jamshedpur and Others¹ and Tripati Ispat Udyog Vs. State of Jharkhand² which accordingly to the Petitioner, are squarely applicable to the facts of the present case.

6. Learned counsel for the Respondent has opposed this Petition and has supported the impugned orders.

7. Having heard learned counsel for the parties and having perused the record, we are of the clear opinion that the observations as made by the Appellate Authority, as noted by us hereinabove, lack clarity and are vague. We find substance in the contentions as urged on behalf of the petitioner as to whether such findings could have at all been recorded, whereby, as rightly contended on behalf of the petitioner could at all within the scope of Section 140 of the MGST Act, which pertains to the availability of transitional credit. The Appellate Authority would be required to consider that the jurisdiction under Section 140 of the MGST Act, in relation to the transitional credit, is quite compartmentalized, and that there is no scope for any issues which fall within the realm of the jurisdiction of the authority under the MVAT Act which could be taken into consideration, accordingly, an appropriate view of the matter would be required to be taken. Thus, in our opinion, the appeal filed by the petitioner requires an independent and appropriate consideration, keeping in view the scope and ambit of the jurisdiction which would be vested in the proper officer under Section 140 of the MGST Act.

8. In this view of the matter, and on this limited issue, we are inclined to partly allow this petition in terms of the following orders:-

ORDER

a. The impugned order dated 25^th January 2023 passed by the Joint Commissioner is quashed and set aside.

b. The proceedings are restored to the file of the Appellate Authority, to the aforesaid limited extent with a direction that the Appellate Authority shall consider the issue pertaining to the transitional credit and pass a fresh order in accordance with law, after affording an opportunity of hearing to the parties.

c. Let a fresh order be passed within a period of eight weeks from the date this order is made available to it.

d. All contentions of the parties are expressly kept open.

e. The Writ Petition stands disposed of in the aforesaid terms. No costs.

Notes:

¹ 2022-VIL-779-JHR

² 2025-VIL-102-JHR