Godrej & Boyce Mfg. Co. Ltd. Vs Union of India and Ors. (Bombay High Court)
SCN quashed by Bombay HC for allegedly availing inadmissible transitional credit as has been issued on an erroneous legal premise
The Hon’ble Bombay High Court (Bombay HC) in the matter of Godrej & Boyce Mfg. Co. Ltd. v. Union of India and Ors. [WRIT PETITION NO. 3226 OF 2019 dated October 29, 2021], quashed the Show Cause Notice for allegedly availing inadmissible transitional credit worth Rs.3.83 Crores as it has been issued on an erroneous legal premise.
Godrej & Boyce Mfg. Co. Ltd. (the Petitioner) filed the petition dated November 14, 2019 in which the Petitioner has mounted a challenge to a show cause notice dated August 27, 2019 issued by the Joint Commissioner, CGST & C.Ex, Navi Mumbai. It has been alleged in such notice that the Petitioner availed inadmissible transitional credit amounting to Rs.3.83 crores. Further the Petitioner contended that the impugned notice proceeds on the footing that the transitional arrangement for taking Input Tax Credit in the cases of CESS such as Education Cess, Secondary & Higher Education Cess and Krishi Kalyan Cess has been taken away by a retrospective amendment in the GST Law. However, the Petitioner claims that even on the date, this writ petition was presented, the amendment(s) referred to in the impugned notice had not come into force and, therefore, the impugned notice has been issued on an untenable legal premise. Hence it is without jurisdiction.
The Petitioner while articulating this point in support of his claim that the impugned notice is non-est in the eyes of law, pointed out that Explanation 3 has been inserted in Section 140 of the Central Goods and Services Act, 2017 (“the CGST Act”) with effect from July 1, 2017 by Section 28 of the Central Goods and Services (Amendment) Act, 2018. It is further pointed out by the Petitioner that amendments have also been introduced in Explanations 1 and 2 to Section 140 of the CGST Act.
The Respondents opposed the petition by contending that the impugned show-cause notice has been issued by an officer who does have the jurisdiction to issue such notice hence, the Petitioner ought to be directed to raise all points that are available to it in defence for consideration of the said officer. It was further contended by the Respondents that the point urged by the Petitioner that the impugned show cause notice is not founded on any legal premises is a jurisdictional issue and such issue can even be urged by it for an adjudication by the Respondent.
The Hon’ble Bombay High Court relied on the case Special Director and Anr. v. Mohd. Ghulam Ghouse & Anr. [Appeal (crl.) 35 of 2004 dated January 9, 2004], and held in the present case that where the impugned show-cause notice suffers from an error going to the root of the jurisdiction of the Respondent in assuming jurisdiction and is, accordingly indefensible and liable to be set aside.
Further, the Court directed that if the Respondent has reason to believe that the action proposed in the show-cause notice could be saved even without the amendments in Explanations 1 and 2 to Section 140 of the CGST Act having been brought into force or on grounds other than the one assigned therein, it shall be at liberty to issue a fresh show- cause notice to the Petitioner and if such notice is issued, the Petitioner will be free to respond to the same and take all possible defences available to it in the law.
FULL TEXT OF THE JUDGMENT/ORDER of BOMBAY HIGH COURT
1. The petitioner is a company registered under the Companies Act, 1956 and is, inter alia, engaged in manufacture of sale of multiple products such as locks, furniture, industrial products, etc.
2. By presenting this writ petition dated November 14, 2019, the petitioner has mounted a challenge to a show cause notice dated August 27, 2019 issued by the Joint Commissioner, CGST & C.Ex, Navi Mumbai, respondent no.3. It has been alleged in such notice that the petitioner “availed inadmissible transitional credit amounting to Rs.3,83,43,693/-[Ed Cess: Rs.1,46,47,191/-, S.H. Ed Cess: Rs.71,77,464/- & PLA: Rs.1,65,19,038/-] in their Trans-1 filed on December 26, 2017”. Consequently, the petitioner was required to show cause, within 30 days of receipt of the impugned notice, as to why-
“(i) the Trans-1 credit amounting to Rs.3,83,43,753/-comprising of Ed Cess: Rs.1,46,47,191/-, S.H. Ed Cess: Rs.71,77,464/- and PLA: Rs.1,65,19,038/- availed by them should not be rejected and recovered under subsection (1) of Section 73 for the above discussed reasons.
(ii) the amount of Rs.3,83,43,753/- reversed by them in their Electronic Credit Ledger in February 2018 (shown in the GSTR-3B for the month of January 2018) should not be appropriated.
(iii) interest amounting to Rs.14,11,890/- calculated @24% per annum on Rs.3,83,43,753/- reversed by them should not be recovered under Section 50(3) of the CGST Act.
(iv) penalty under Section 122(2)(a) of the CTST Act should not be imposed.”
3. According to the petitioner, the impugned notice proceeds on the footing that the transitional arrangement for taking Input Tax Credit in the cases of CESS such as Education Cess (E Cess), Secondary & Higher Education Cess (SHE Cess) and Krishi Kalyan Cess (KK Cess) has been taken away by a retrospective amendment. However, the petitioner claims that not only on the date of its issuance but even on the date this writ petition was presented, the amendment(s) referred to in the impugned notice had not come into force and, therefore, the impugned notice has been issued on an untenable legal premise; hence, it is without jurisdiction.
4. While articulating the point in support of the petitioner’s claim that the impugned notice is non-est in the eye of law, Mr. Hidayatullah, learned senior counsel first pointed out that Explanation 3 has been inserted in Section 140 of the Central Goods and Services Act, 2017 (hereafter “the CGST Act”, for short) with effect from July 1, 2017 by Section 28 of the Central Goods and Services (Amendment) Act, 2018 (hereafter “the Amending Act”, for short). It is further pointed out that amendments have also been introduced in Explanations 1 and 2 to Section 140(1) by the said section (i.e., Section 28) with effect from the same date (July 1, 2017). However, in terms of sub-section (2) of Section 1 of the Amending Act, the provisions thereof would come into force on such date as the Central Government may, by notification in the Official Gazette, appoint. Inviting our attention to Notification No.02/2019-Central Tax dated January 29, 2019, it has been contended that the Central Government had appointed February 1, 2019 as the date on which the provisions of the Amending Act shall come into force except clause (b) of Section 8, Section 17, Section 18, clause (a) of Section 20, sub-clause (i) of clause (b) and sub-clause (i) of clause (c) of Section 28. It has, thus, been urged that without the amendments introduced in Explanations 1 and 2 to Section 140 being brought into force, the respondent no.3 merely on the basis of Explanation 3, as introduced and brought into force, could not have issued the impugned show cause notice and since the same suffers from a gross jurisdictional error, the petitioner is under no obligation to respond thereto. Referring to ground (C) of the writ petition, he has also urged that the petitioner has set up a categorical case of the amendments to Explanations 1 and 2 of Section 140 of the CGST Act not having been notified in terms of Section 1(2) and, hence, sub-clauses (i) each of clauses (b) and (c), Section 28 of the Amending Act are still inoperative in law. It has, accordingly, been prayed that the impugned show-cause notice be set aside.
5. Mr. Jetly, learned senior counsel appearing for the respondents opposed the writ petition by contending that the impugned show-cause notice has been issued by an officer who does have the jurisdiction to issue such notice; hence, the petitioner ought to be directed to raise all points that are available to it in defence for consideration of the said officer. It was further contended by him that the point urged by the petitioner that the impugned show cause notice is not founded on any legal premises, is a jurisdictional issue; and such issue can even be urged by it for an adjudication by the respondent no.3. In view of the impugned show-cause notice not suffering from absolute want of jurisdiction to even investigate facts, and the respondent no.3 having issued the notice without prejudging any issue, he contended that this is not an appropriate stage for this Court to pronounce on the merits of the petitioner’s claim and set aside the impugned notice. If at all the petitioner is successful in persuading the respondent no.3 not to proceed further, the notice would obviously have to be revoked. In such circumstances, he prayed for disposal of the writ petition without any interference.
6. We have heard learned senior counsel for the parties and perused the materials on record.
7. Since the validity of the show-cause notice dated August 27, 2019 is under challenge on the ground that it has been issued on an erroneous legal premise, it would be absolutely necessary for us to notice the ground on which such notice rests. For facility of convenience, we reproduce the ground in its entirety hereinbelow: –
“Inadmissible credit availed by the assessee in Tran-1 amounting to Rs.3,83,43,693/- [Ed Cess: Rs.1,46,47,191/-, S.H. Ed Cess: Rs.71,77,464/- & PLA: Rs.1,65,19,038/-] in contravention of provisions of Section 140 of CGST Act, 2017 read with explanation 1 & 2 of Section 140 of CGST Act, 2017 and Non Payment of Interest under the provisions of Section 50(3) of CGST Act, 2017 amounting to Rs.14,11,890/- on the reversal of Rs.3,83,43,693/- made under Protest on 20.02.2018.
The explanation 3 to Section 140 of CGST Act, 2018 mentioned under the sub-section (a) of Section 28 of The Central Goods And Services Tax (Amendment) Act, 2018 (No.31 of 2018) dated 29th August 2018 amended with retrospective effect from 1st July 2017 provides specifically that the expression ‘eligible duties and taxes’ excludes any CESS which has not been included in Explanation-1 and Explanation-2 of Section 140 of the CGST Act, 2017.
Explanation-1 and Explanation-2 of Section 140 of the CGST Act, 2017 do not include Education Cess, Higher Secondary Education Cess & Personal Account Amounts the ambit of the ‘eligible duties and taxes’.”
8. It would not be incorrect to infer that but for the introduction of Explanation 3 to Section 140 of the CGST Act by Section 28 of the Amending Act, the impugned show-cause notice may not have seen the light of the day. A pointed reference is made to Explanation 3 wherein it has been expressed that ‘eligible duties and taxes’ excludes any CESS which has not been included in Explanations 1 and 2 of Section 140 of the CGST Act; also a reference is made to Explanations 1 and 2 that the same do not include Education Cess, Higher Secondary Education Cess and Personal Account Amounts within the ambit of the ‘eligible duties and taxes’.
9. For the purpose of a decision on the petitioner’s claim as regards validity and/or legality of the impugned show-cause notice, may read Section 28 of the Amending Act. It reads as follows: –
“28. In section 140 of the principal Act, with effect from the 1st day of July, 2017,-
(a) In sub-section (1), after the letters and word “CENVAT credit”, the words “of eligible duties” shall be inserted and shall always be deemed to have been inserted;
(b) In the Explanation 1–
(i) for the word, brackets and figures “sub-sections (3), (4)”, the word, brackets and figures “sub-sections (1), (3), (4)” shall be substituted and shall always be deemed to have been substituted;
(ii) clause (iv) shall be omitted and shall always be deemed to have been omitted;
(c) in the Explanation 2–
(i) for the word, brackets and figure ‘subsection (5)”, the words, brackets and figures “sub-sections (1) and (5)” shall be substituted and shall always be deemed to have been substituted;
(ii) clause (iv) shall be omitted and shall always be deemed to have been omitted;
(d) after Explanation 2 as so amended, the following Explanation shall be inserted and shall always be deemed to have been inserted, namely:-
“Explanation 3.- For removal of doubts, it is hereby clarified that the expression “eligible duties and taxes” excludes any cess which has not been specified in Explanation 1 or Explanation 2 and any cess which is collected as additional duty of customs under sub-section (1) of section 3 of the Customs Tariff Act, 1975.”
10. It would, at this stage be profitable to contrast pre-amended and amended Section 140 of the CGST Act and Explanations 1 and 2, and read the same with newly introduced Explanation 3. We consider it appropriate to reproduce the same in a tabular form herein below: –
