“availment of a credit is a positive act and unless carried out for reducing any tax liability by its reflection in the return filed for any financial year, it cannot be a case of either availment or utilization”
The above quote is from the judgement pronounced on 18.07.2019 by The Hon’ble High Court of Patna in the case of M/s Commercial Steel Engineering Vs The State of Bihar; wherein it was held that wrongly availed input tax credit, reflecting in an electronic credit ledger under GST shall not draw penal proceedings until the same, fully or partially is utilized against the tax liability, so as to make it recoverable by the authorities.
Below table details important enabling provisions under the GST law which has been referred to in the judgement:
|Section / Rules under GST Law
||Transitional arrangements for input tax credit
||Mechanism for tax or duty to be credit carried forward under any existing law or on goods held in stock on the appointed day
||Interest on delayed payment of tax
||Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or any willful misstatement or suppression of facts with levy of interest and penalty.
||Recovery of transitional credit wrongly availed
Brief context of the writ petition filed by the petitioner:
- The petitioner had filed an application in terms of Sec. 140 of BGST Act 2017 to carry forward the excess credit of the pre-GST regime to the GST regime in the electronic credit ledger vide Form GST TRAN-1.
- As on the date of the writ petition, the petitioner had not utilized the transitional credit (except for a small amount which was later paid in cash) to discharge the tax liability.
- The petitioner claimed that if the availed transitional credit was not found lawfully sustainable, it should have been rejected by the authorities. However, such rejection should not have empowered the authorities to convert the said proceedings into a proceeding under Sec. 73 of BGST Act 2017 for assessment of tax liability as well levy of interest and penalty.
Background of the order passed by the Asst. Commissioner of State Taxes:
- The transitional credit claimed by the petitioner vide Form GST TRAN-1 got reflected in the electronic credit ledger and the same would amount as a credit availed under GST.
- Since the transitional credit was not allowed to the petitioner, it resulted into wrong availment of credit in view of the provisions under Rule 117 read with Rule 121.
- Hence, penal proceeding under Sec. 73 against a dealer who has wrongly availed or utilised input tax credit holds good.
- The moment the transitional credit is reflected in the electronic credit ledger even if it has not been utilised, it shall amount to availment and the period for which such availment has been made by the petitioner, he is liable to pay interest as well as penalty.
Summary of the judgement pronounced by The Hon’ble High Court of Patna:
- The issue was identified by the Hon’ble High Court as to whether at all the credit was availed by the petitioner, for which the proceeding under Sec. 73 was initiated by the GST Authorities.
- It was noted that the petitioner had not utilised the transitional credit reflecting in the electronic credit ledger for discharging the tax liability in the tax returns filed. Thereby, there was no change in the position of transitional credit in the electronic credit ledger except for the minor changes.
- A plain reading of Sec. 73 would confirm that the penal proceedings under this Section is applicable only when availment or utilization of wrong credit is towards reducing the tax liability, thereby permitting such tax liability recoverable from the dealer.
- Jury clarified that the availment of credit is a positive act and unless it has been carried out for reducing the tax liability in the tax return filed for any financial year, it cannot be treated as either availment or utilization for that matter.
- Further, if the petitioner was not entitled for the transitional credit, “the claim could have been rejected but 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 Hon’ble High Court outlined that the legislative intent of the provisions of Sec. 140, Sec. 73 and Rules 117 and 121 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”
- The order passed by the Assistant Commissioner of State Taxes against the petitioner initiating penal proceedings under Sec. 73 was accordingly quashed and set aside by the Hon’ble High Court in the said judgement.
Well, this judgement would have certainly brought relief to the petitioner. The intent of the penal provision under Sec. 73, in line with the very essence of the GST law, has been nicely explained by the jury. Wrong availment of input tax credit in the electronic credit ledger, be it on account of misinterpretation of the transactions credit eligibility or under any bona fide circumstances, should not be utilised to set-off the tax liability. Such credit should be reversed in the tax return to be filed next, soon it is identified.
Link to access the case law M/s Commercial Steel Engineering Vs The State of Bihar:
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