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Transactional credit on duty paid goods

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Sec. 140 of the Central Goods and Services Tax Act, 2017 — Transactional credit on duty paid goods —Article 14 and 19(1)(g) of the constitution of India — Whether unconstitutional & ultra vires — The petitioner's manufacturing facility/factory was registered under the erstwhile Central Excise Act and the petitioner paid central excise duty on clearance of such machines from its factory. The petitioner has a Duty Paid Depot in the State of Maharashtra at Plots A & B of the same village. The Duty Paid Depot was registered under the Maharashtra Value Added Tax Act prior to 1.7.2017, but was not registered under the Central Excise Act, 1944. Upon transitioning to GST, the petitioner's factory and depot obtained registration under GST in the State of Maharashtra. To abolish the cascading effect, the CGST Act provides for the input tax credit eligibility in terms of these transitional provisions. Section 140(1) of the CGST Act inter alia provides that a manufacturer will be entitled to carry forward the closing balance of CENVAT credit, subject to certain conditions. Further, Section 140(3) of the CGST Act inter alia allows a registered trader to avail input tax credit of goods held in stock as on 1.7.2017, subject to certain conditions. It is submitted that upon a plain reading of the provisions and particularly Clause (iv) of subsection (3) of Section 140, the input tax credit of stock of goods can be availed only when such goods are purchased after 30.6.2016. A trader or a depot of a manufacturer was not entitled to avail credit as the CENVAT Credit Rules, 2004 allows credit availment only by a manufacturer or a service provider.  It is put to a disadvantageous position as far as the closing stock on 1.7.2017 in respect of goods lying in stock prior to 30.6.2016. The result of such provision would be that the petitioner would be forced to pay entire tax under the CGST Act on supplies without availing input tax credit of taxes paid earlier. There is no reasonable rationale beyond inflicting tax cascading effect on depot/traders while extending full credit to registered manufacturers and partial credit to traders who do not have the duty paying documents available with them. It is in these circumstances that the provisions and insofar as noted above are challenged as violating the mandate of Articles 14 and 19(1)(g) of the Constitution of India. It is in these circumstances that the petition is filed and in this petition the prayer is to declare that part of the law, namely, Clause (iv) of subsection (3) of Section 140, as unconstitutional, ultra vires Articles 14 and 19(1)(g) of the Constitution of India and unenforceable qua the first stage dealer. High Court of Bombay while dismissing the appeals of the dealers held that:— In fact, we have found from the scheme of the new law that the object and purpose sought to be achieved after its introduction of the new law is of not permitting the existing law arrangement to continue endlessly. Some day or some time has been stipulated as appointed day for the new regime to come into force. For it to come into force and function effectively, the transitional arrangements have been made. They have clear nexus, therefore, with the object sought to be achieved. They cannot be struck down as having no such relation or nexus. Thus, all the arguments are dealt with. We do not see how any of the above arguments and which have been canvassed and noted in extenso by us can be accepted. Once we are of the opinion that there is nothing indefeasible or absolute in the right claimed under the existing law or in transitional arrangements set out, or in the substantive provisions permitting availing of input tax credit, then, all the more the challenge must fail. We cannot also by any comparative analysis of the Central and State Law hold that this condition, as imposed, is unreasonable. For the aforesaid reasons, each of these petitions fail. [2018] 50 TUD 120 (BOM)


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