Gujarat HC Strikes down GST Provision denying Cenvat Credit on Stock of Goods purchased prior to One Year to First Dealers [Read Judgment]

In a landmark ruling, a two-judge bench of the Gujarat High Court has struck down the provision relating to Transitional Credit providing for 1 year time limit of purchases for claiming excise duty credit inter alia in the cases of first stage dealers and importers struck down as unconstitutional by Hon.

Justices Akil Khureshi and Biren Vaishnav of the Gujarat High Court were allowing a petition filed by Filco Trade Centre Pvt. Ltd.

The petitioners, in last October, had challenged the provision. The petitioners were the first dealers and importers of manufactured goods under the earlier regime. They claimed that with the introduction of GST they could avail their CENVAT credit of the stock of goods lying with the petitioners, on which, the purchases were made not earlier than one year under section 140(3)(iv) of the Central Goods and Services Tax (CGST) Act.

Before the bench, they contended that they have the sizable stock of goods purchased prior to the said period and on which, by virtue of the said condition, no cenvat credit would be available. Admitting the petition, the division bench issued notice to the Central Government considering the fact that the legislation itself is under challenge.

Condition no (iv) of Section 140(3) of the Central Goods and Services Tax Act, 2017 in transitional credit provisions providing for 1 year time limit of purchases for claiming excise duty credit inter alia in the cases of first stage dealers and importers.

The division bench, while annulling the provision, held that the duty paid on inputs is as good as tax paid and creates a vested right and the credit cannot effectively be taken away with retrospective effect by introducing a condition that no credit will be available for goods purchased prior to one year.

The division bench also observed that “the benefit of credit of eligible duties on the purchases made by the first stage dealer as per the then existing CENVAT credit rules was a vested right. By virtue of clause (iv) of sub-section (3) of section 140A such right has been taken away with retrospective effect in relation to goods which were purchased prior to one year from the appointed day. This retrospectivity given to the provision has no rational or reasonable basis for imposition of the condition. The reasons cited in limiting the exercise of rights have no co-relation with the advent of GST regime. Same factors, parameters and considerations of “in order to co-relate the goods or administrative convenience” prevailed even under the Central Excise Act and the CENVAT Credit Rules when no such restriction was imposed on enjoyment of CENVAT credit in relation to goods purchased prior to one year”.

“Though the impugned provision does not make hostile discrimination between similarly situated persons, the same does impose a burden with retrospective effect without any justification”, the bench also added.