Tax paid under erstwhile regime is permissible to carry forward under GST regime as credit in the electronic credit ledger - Madras High Court

 The Madras High Court (HC) allowed credit of service tax paid under RCM [after the introduction of the Goods and Services Tax (GST)], which could not be availed as transitional credit. The HC ruled that the chance of seeking a refund or credit cannot be denied merely because the transitional provision has come into effect and credit could not be claimed under Section 140(1). The HC observed that taxpayers should not be rendered remediless and, hence, invoked the doctrine of necessity as the HC felt it a dire necessity for the legislation to address such situations. The HC noted that if the GST regime had not come into effect, the petitioner would have been eligible to claim the Central Value Added Tax (CENVAT) credit of all the amounts paid. Thus, the HC suggested the Revenue to carry forward the credit in the electronic credit ledger of the petitioner.

 

Our comments

This is one of the important rulings pronounced by the Madras High Court w.r.t. transitional credits under the GST regime, wherein it is held that though refund of payment of taxes related to the earlier regime is not available, but credit is permitted in the electronic credit ledger.

Contrary to the present ruling, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Delhi, in the case of Flexi Caps and Polymers Pvt Ltd., held that credit eligible under the erstwhile regime is available as a refund under the GST regime and any amount eventually accruing shall be paid in cash. Similarly, in the case of Terex India Pvt. Ltd., CESTAT, Chennai had held that the claim is only for refund and not proceedings for assessment or adjudication. Thus, transitional credit of taxes paid under the erstwhile law is available under Section 142(3) of the Central Goods and Service Tax (CGST) Act. Even, in the case of Bharat Heavy Electricals Ltd., the CESTAT, Delhi allowed cash refund of the credit admissible under erstwhile laws in terms of provisions of the GST laws. 

There are various other judgments pronounced by judicial authorities, wherein transitional credit from the erstwhile regime and its refund by way of cash or credit has been dealt with.

The present ruling is of a welcoming nature and will provide relief to taxpayers who had to pay taxes under the erstwhile regime post 1 July 2017, with a bright spot to have ITC permissible under the GST r