Gujarat HC Strikes Down GST Provision Denying Transition Of Excise Duty Credits On Goods Purchased Before Cut-off Date [Read Judgment]

In a relief to first stage dealers, the Gujarat High Court has struck down provisions of the GST law that prohibit transition of excise duty credits on purchases prior to June 30, 2016. The law basically did not permit credit of invoices that were more than one-year-old i.e., invoices which were dated prior to June 30, 2016.

The Bench comprising Justice Akil Khureshi and BN Karia opined, “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.”

It consequently struck down as unconstitutional section 140(3)(iv) of the Central Goods and Services Tax Act, 2017, which imposed the impugned condition.

The Court was hearing a petition filed by Filco Trade Centre Pvt. Ltd., which had primarily contended that prior to the enactment of the new regime, as a first stage dealer it was not burdened with the excise duty paid on the purchases and this was without any restriction on time during which the goods must be sold. In the earlier regime, the first stage dealers were placed at par with manufacturers. A registered manufacturer could avail CENVAT credit of tax paid on purchases which could be utilized towards duty liability of goods manufactured by him.

As against this, a first stage dealer or an importer could pass on the credit of tax paid on their purchases to the customers who could utilize such credit against their duty liability on product manufactured by them. The new provision, however, imposed a condition for availing of such a benefit.

The petitioner had then pointed out that they have sizeable stock of goods purchased prior to the said period and on which, by virtue of the said condition, no CENVAT credit would be available.  This was challenged as being arbitrary and discriminatory.

Examining various judgments, the court noted that the right that the petitioner had to pass on the credit of excise duty paid on goods purchased at the time of sale of such goods was a vested right. The condition later imposed on this right, it then opined, “restricted the enjoyment of existing credit in respect of goods purchased not prior to one year of the appointed day.”

“However, in addition to these findings, we also find that no just reasonable or plausible reason is shown for making such retrospective provision taking away the vested rights. Had the statutory provision given a time limit from the appointed day for utilization of such credit, the issue would stand on an entirely different footing. Such a provision could be seen as a sunset clause permitting the dealers to manage their affairs for which reasonable time frame is provided. The present condition however without any basis limits the scope of a dealer to enjoy existing tax credits in relation to purchases made prior to one year from the appointed day. No such restriction existed in the prior regime,” it further observed.

The Court therefore ruled that even though the impugned provision does not make hostile discrimination between similarly situated persons, it does impose a burden with retrospective effect without any justification. It, however, stayed the judgment upto 31 October, at the request of the counsel for the Revenue.

Read the Judgment Here