GST Provision denying credit of Excise Duty paid on Capital Goods in Transit as on 1st July 2017 is Valid: Gujarat HC [Read Judgment]

A two-judge bench of the Gujarat High Court has upheld the constitutional validity of the provisions of section 140 (5) of the Central Goods and Services Tax (CGST) Act, 2017 and clarified that the provision denying the credit of excise duty paid on capital goods which were in transit as on 01.07.2017, post GST rollout, is not violative of Article 14 and 19(1)(g) of the Constitution of India.

Justices Akil Kureshi and B N Karia were considering a writ petition filed by RSPL Ltd, a Company engaged in manufacturing and selling of various consumer goods. They had a manufacturing unit of Soda Ash in Gujarat. For the purpose of such manufacturing activities, the petitioner procures raw materials as well as capital goods. The GST department denied the credit of excise duty paid on capital goods which were in transit as on 01.07.2017.

Before the High Court, the petitioners claimed that the act of the department is violative of Article 14 and 19(1)(g) of the Constitution of India.

The department, in the affidavit, pointed out the reason for treating the capital goods in transit differently that the capital goods are typically slow-moving items.

“This term is not explained in detail in such affidavit. However, to us it appears that the suggestion of the respondents is that unlike inputs, the capital goods which can be in the nature of plant and machinery including highly sophisticated specially designed and manufactured machines, may take much longer time for delivery and installation after the orders are placed by the manufacturers and the legislature was not inclined to keep the issues of migration of tax credits and pending claims open for indefinite period of time,” the bench said.

It was, therefore, held that “Under the circumstances, we do not find that the statute in any manner violates Article 14 or 19(1)(g) of the constitution. It can also not be seen as taking away an existing right to claim CENVAT Credit of the duty paid on capital goods. Even in the earlier statute right to claim the credit of duty paid would arise or accrue only upon receipt of such capital goods at the place of manufacturer.”