In Absence of TRAN-1 Filing Evidence, Proceedings to Reverse ITC under VAT not Bad in Law: Allahabad HC [Read Order]

The Allahabad High Court held that in the absence of evidence confirming the filing of the TRAN-1 form, the proceedings to reverse Input Tax Credit ( ITC ) under the Goods and Services Tax ( GST ) regime are legally valid and not flawed.

Justice Piyush Agarwal observed that the opposite party had failed to produce any evidence before the Tribunal to establish that they had filed the TRANS–1 form. In the absence of such filing, the proceedings initiated by the Assessing Authority could not be considered bad in law.

The revision was filed by the department addressing two substantial questions of law. Firstly, whether the Commercial Tax Tribunal was justified in allowing the dealer to claim ITC under the VAT Act and its corresponding provisions in Section 16 of the Act and Section 140(1) of the Goods and Services Tax Act, 2017 , read with Rule 21(1)(y) of the VAT Rules. Secondly, whether such ITC could be allowed when the business of the dealer stood discontinued on 30.06.2017.

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The Additional Chief Standing Counsel (ACSC), representing the State, submitted that the opposite party, engaged in the trade of food-grains, pulses, oilseeds, and related commodities, had declared its closing stock as of 30.06.2017 and claimed  ITC of ₹4,65,822 for the Assessment Year 2017–18.

The Assessing Authority, via order dated 11.02.2021, disallowed the ITC on the ground that the dealer had ceased business under the VAT Act from the said date, which was later upheld by the first appellate authority on 12.09.2022. However, the Commercial Tax Tribunal, on second appeal, set aside the orders of both lower authorities and allowed the dealer's claim, prompting the State to challenge the Tribunal’s decision by filing the present revision petition.

Suyash Agarwal, counsel for the opposite party, argued that the opposite party was a duly registered dealer under the VAT Act and had been granted a valid registration, which entitles them to claim ITC as per Section 13 of the VAT Act. He stated that the opposite party had never discontinued its business operations. With the implementation of the GST Act, the registration of dealers under the VAT Act was allowed to migrate to the GST Act.

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The counsel further submitted that Section 140 of the GST Act provides for transitional arrangements, permitting the carryover of ITC. Given this, he contended that the proceedings under the VAT Act to reverse the ITC were legally unsound, as the GST Act allows for a seamless migration and transitional ITC adjustment.

He further contended that the Assessing Authority lacked the jurisdiction to reverse the balance ITC, as there was no allegation of fraud or misappropriation, an aspect not disputed by the Revenue. In support of this argument, reliance was placed on the judgment of the Madras High Court in Tractor & Farm Equipment’s Limited v. CCE, Madurai.

It was further submitted that unutilized ITC available under the VAT regime could be legally transitioned and utilized under the GST regime through the filing of Form GST TRAN-1, and such benefit cannot be denied. In support of this submission, the counsel cited Shree Navneet Cotton Co. v. State of Gujarat, Magma Fincorp Limited v. State of Telangana and Easwaran Brothers India Private Limited v. Assistant Commissioner (ST) (FAC).

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He further submitted that this Court, in Ratek Pheon Friction Technologies Private Limited v. Principal Commissioner had the occasion to consider the issue of Input Tax Credit (ITC) earned under the pre-GST regime. In this case, the Court held that such credit could be legitimately carried forward by submitting Form TRAN-1, even in cases where the form could not be uploaded due to technical glitches. The decision was rendered in favour of the registered dealers. He also contended that the Tribunal, being the final fact-finding and appellate authority on both law and facts, rightly allowed the appeal in the present matter.

However, Court noted that the case laws cited by the opposite counsel were related to situations where the TRAN–1 form could not be uploaded due to technical glitches, and the relief granted in those cases was based on specific facts and observations that cannot be treated as binding precedent.

While set asiding the order of the Commercial Tax Tribunal,  the high court observed that “Further, the opposite party has not brought on record any evidence up to the Tribunal that they have filled TRANS – 1. Once TRANS – 1 form was not filled, the proceedings initiated by the Assessing Authority cannot be said to be bad in law. Once the business under the VAT Act was discontinued on 30.06.2017 by operation of law, it becomes the dealer's duty to reverse/debit the ITC as per section 13 (6) of the VAT Act.”

To Read the full text of the Order CLICK HERE

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