In a recent ruling, the Madras High Court has ruled that the Advance tax unutilised under the Value Added Tax ( VAT ) or Tamil Nadu VAT ( TNVAT ) has allowed to be transitioned under Section 140 of the Tamil Nadu Goods and Services Tax Act, 2017 ( TNGST ).
A Single bench of Justice C. Saravanan clarified that “The language of Section 140 (1) of the TNGST Act, 2017 makes it clear that any amount of Value Added Tax and Entry Tax remaining un-utilized in the return shall be allowed to be transitioned and such a registered person is entitled to take credit of such amount in his electronic credit ledger.”
The Petitioner, Radhikka Ceramic World filed the writ petition challenging the order passed by the Respondent- The State Tax Officer denying the transitional tax that was remaining unutilized in the VAT returns filed by the petitioner for the month of July, 2017 on 08.08.2017.
The petitioner, engaged in selling ceramic tiles, imported tiles from various states. Due to concerns about tax evasion in the tile industry, the petitioner was required to pay tax in advance at Tuticorin port, amounting to 20% of the invoice value.
However, this advance tax remained unused in the petitioner’s VAT returns for June 2017. Consequently, the petitioner sought to transfer this advance tax payment to the Commercial Tax Department in the state where the import occurred, in accordance with Section 140 of the TNGST Act, 2017.
It is further submitted that there is no scope for denying transitioning of such advance tax paid that had remained unutilized in the Return filed by the petitioner for the month of June, 2017. Hence, the impugned order is liable to be quashed.
The counsel appearing for the petitioner has drawn the attention to the decision of the Madras High Court rendered in Avatar Petro Chemicals Private Limited Vs. Goods and Service Tax Council. Further reference was also made to the decision of the Division Bench of the Telangana High Court rendered in Magma Fincorp Limited Vs. State of Telangana.
On the contrary, the Additional Government Pleader for the respondent argued that only the input tax credit remaining unused as of June 30, 2017, is eligible for transition under Section 140 of the TNGST Act, 2017. They asserted that the petitioner may, at best, seek a refund for the advance tax paid but not utilised by the specified date. Transitioning of unutilized advance tax is deemed ineligible, as advance tax does not equate to input tax credit.
Additionally, it’s argued that Section 141 (1) of the Tamil Nadu Goods and Service Tax Act, 2017, does not allow for the transition of advance tax payments. Therefore, the Writ Petition lacks merit, and the petitioner may pursue remedies through the Appellate Authority under Section 107 of the TNGST Act, 2017.
The bench examining the Section 140 of the GST Act stated that there is no scope for denying such amount which was transited under Section 140 of the TNGST Act, 2017.
Further noted the the decision of the Madras High Court in Avatar Petro Chemicals Private Limited Vs. Goods and Service Tax Council, where it was observed that ITC and/or capital goods credit that was legitimately claimed under the previous tax laws, which have now been merged into the GST regime, cannot be refused. Such credits must be permitted to be carried forward and utilized against tax liabilities under GST if they were legitimately claimed but remained unutilized in either the CENVAT account or VAT returns before GST implementation. The purpose of the system is to facilitate the industry. Merely because the architecture of the Web Portal of GST has inherent limitation or does not allow a person to rectify a mistake in the TRAN-1 ipso facto would not mean that such indefeasible rights which were earned can be denied.
In Magma Fincorp Limited’s case, it was held that “Once it is admitted that credit was available to the petitioner on the date of switch over from VAT regime to GST regime and once it is admitted that the petitioner may be entitled to make a claim for this credit in other modes, we think that the second respondent ought to have given a purposive interpretation to Section 140 of the Act read with Sections 16 to 21 of the Telangana GST Act 2017. As he has failed to do the same, the matter requires reconsideration.”
Accordingly, the writ petition was allowed by setting aside the impugned order.
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