Constitutional validity of Section 140(5) of the CGST Act to the extent that it denies ITC on capital goods in transit challenged before Hon’ble Calcutta High Court
Maa Durga Plastic has filed a writ petition vide W.P.A. No. 10340 of 2021 before the Hon’ble Calcutta High Court challenging the constitutional validity of Section 140(5) of the Central GST Act and West Bengal GST Act to the extent that it does not allow input tax credit on capital goods in transit, which were purchased in pre-GST regime. Section 140(5) of the CGST and WBGST Act allows a taxpayer to claim credit of inputs and input services purchased in the pre-GST regime which were received by the recipient in the GST regime. However, the said section does not allow credit of capital goods in transit as on 01.07.2017.
It was submitted that the there is no distinction between “Input”, “Input Services” or “Capital Goods” under the GST regime while allowing input tax credit. Credit with respect to capital goods is an accrued/acquired right vested under the scheme of Cenvat Credit Rules and it cannot be taken away by distinguishing between inputs in transit and capital goods in transit.
It was also submitted that once all conditions mentioned in CENVAT Credit Rules are satisfied, it is legitimate for a going concern to expect that they will be allowed to avail CENVAT in respect of capital goods. It was further submitted that denial of credit of capital goods in transit frustrates the objective of removal of cascading effect of taxation as stated in the Statement of object and reasons of the Constitution (One Hundred And Twenty-Second Amendment) Bill, 2014.
It was emphasized that that Section 174(2)(c) of the CGST Act/WBGST Act provides that the omission of Chapter V of the Finance Act, 1994 shall not affect any right, privilege, obligation, or liability acquired, accrued or incurred under the repealed Act. However, Section 140(5) is taking away the right guaranteed under Section 174(2)(c). It was also submitted that the provision contained in Section 140(5) is violative of Article 279A to the extent that contrary to the powers given in the Article, the section extinguishes an accrued/acquired right acquired under the erstwhile Central Excise Law. The said section also violates Article 265, 14 and 19(1)(g) of the Constitution of India.
Hon’ble Calcutta High Court vide its order dated 02.07.2021 directed the respondents to file affidavit-in-opposition within four weeks. The petitioners to file reply thereto, if any, within two weeks thereafter.
This matter was represented on behalf of the petitioners by Advocate Vinay Shraff and Advocate Himangshu Kumar Ray. The respondents were represented by Advocate A. Roy, Ld. GP, Advocate T.M. Siddiqui and Advocate Debasish Ghosh.
FULL TEXT OF THE JUDGMENT/ORDER OF CULCATTA HIGH COURT
Heard learned Advocates appearing for the parties.
The petitioners in this writ petition have challenged the Constitutional validity of Section 140(5) of the CGST/WBGST Act.
I find there is no scope of interim order in the matter.
The petitioners to serve copy of the writ petition and notice upon the Ld. Attorney General of India and Ld. Advocate General of the State.
The respondents to file affidavit-in-opposition within four weeks. The petitioners to file reply thereto, if any, within two weeks thereafter.
Matter to appear in the list for final hearing after eight weeks.
Liberty to mention.