GSTAT Thane Bench Quashes Demand on Transitional ITC, Holds GST Authorities Lack Jurisdiction to Re-examine Pre-GST Credits

The Goods and Services Tax Appellate Tribunal (GSTAT), Thane Bench, has allowed the appeal of Tata Unistore Ltd. and set aside the demand, interest, and penalty imposed on transitional input tax credit (ITC) carried forward from the pre-GST regime. The Tribunal held that GST authorities do not have jurisdiction under the CGST Act to re-examine or deny credits that were undisputed under the erstwhile tax laws, providing significant clarity on the scope of transitional credit disputes.

Background and Core Issue

Tata Unistore Ltd., operator of the TataCliQ e-commerce platform, transitioned ITC from the service tax and VAT regimes into the GST regime by filing Form GST TRAN-1, as permitted under Section 140 of the CGST Act. The credits included CENVAT credit of service tax, Krishi Kalyan Cess (KKC), and VAT paid on stock-in-trade. The credits transitioned were never disputed or challenged by the revenue under the pre-GST laws.

However, a show cause notice was issued in January 2022, alleging that Tata Unistore had not substantiated the eligibility of the transitioned credit under GST law. The original and first appellate authorities confirmed the demand, imposed interest, and levied a 100% penalty, prompting the present appeal before the GSTAT.

Jurisdictional Analysis

The Tribunal examined whether GST authorities could invoke proceedings under Section 74 of the CGST Act to deny transitional credit on the ground that it was inadmissible under the erstwhile laws. The Tribunal referred to Section 142(6)(a) and Section 174 of the CGST Act, which provide that proceedings relating to CENVAT credit under the existing law must be disposed of in accordance with that law, even after the introduction of GST.

The Tribunal relied on the judgments of the Jharkhand High Court in Usha Martin Limited and Steel Authority of India Limited, as well as the Calcutta High Court in Kunjal Synergies Pvt. Ltd., which held that the eligibility or ineligibility of CENVAT credit under the erstwhile regime must be adjudicated under the old laws, not under the CGST Act. The Tribunal found that no proceedings had been initiated or were pending under the erstwhile laws regarding the credits in question.

Accordingly, the Tribunal concluded that the GST authorities lacked jurisdiction to re-examine or deny transitional credits that were not disputed under the pre-GST regime. The lower authorities’ actions in calling for invoices and other documents to reassess the eligibility of such credits were held to be beyond their powers under the CGST Act.

Krishi Kalyan Cess (KKC) and Other Credits

On the issue of KKC, the Tribunal noted that Tata Unistore had reversed the transitioned KKC credit under protest due to doubts about its eligibility. The Tribunal relied on the Bombay High Court’s decision in Godrej & Boyce, which held that the legal provisions relied upon by the revenue to deny KKC credit were not operational. The Tribunal also referred to a CBIC circular clarifying that certain amendments to Section 140 had not been notified, supporting the appellant’s position.

Regarding VAT credit on stock-in-trade and other credits, the Tribunal found no specific objections or evidence from the revenue to justify denial. The Tribunal also rejected the denial of credit based on procedural lapses, such as missing invoice details, especially when such objections were not raised at the time of claiming credit under the erstwhile regime.

Penalty and Final Relief

The Tribunal held that the imposition of a 100% penalty under Section 74 of the CGST Act was wholly unjustified, as the proceedings were based entirely on disclosures made by the appellant in the prescribed forms and returns.

In conclusion, the GSTAT Thane Bench allowed the appeal, set aside the impugned order, and held that Tata Unistore Ltd. was entitled to the transitional ITC as claimed. The Tribunal directed that all consequential reliefs be granted to the appellant.

This decision reinforces the principle that GST authorities cannot retrospectively question or deny transitional credits that were not challenged under the pre-GST regime, providing important guidance for taxpayers on the treatment of transitional ITC under the CGST Act.