In a Relief to First Stage Traders, Gujarat HC Allows Transition of Excise Duty Credits Before Cut-off Date
Order strikes down provisions in law that limit period of transitional credits
Vinod Mahanta & Sachin Dave
Mumbai: Providing relief to first stage dealers, the Gujarat High Court struck down provisions of the GST law that forbid transition of excise duty credits on purchases prior to June 30, 2016. The GST law did not allow credit of invoices that were more than one year old i.e., invoices which were dated prior to June 30, 2016.
In the Filco Trade Centre versus Union of India case, Justice Akil Qureshi and Justice BN Karia, noted that they found clause (iv) of sub-section (3) of section 140 unconstitutional, and therefore, struck down the same.
Clause (iv) of sub-section (3) of section 140 imposes a condition that excise duty credits of stock in hand could be availed in relation to invoices issued not earlier than 12 months prior to July 1, 2017.
Section 140 contains provisions for the transitional arrangement for input tax credits.
The court order, therefore, allowed transition of excise duty credits on purchases prior to June 30, 2016.
“While this is quite a positive ruling for registered importer traders and excise registered dealers, for the real benefits to accrue various other aspects would as well need to be seen. To illustrate, the mechanism for transitioning this credits, final verdict by Supreme Court if this order is appealed against, verdicts by other High Courts, compli- ance with anti-profiteering provision for such additional credits, etc” said Abhishek Jain, Tax Partner, EY.
Under the old regime, the excise duty on local goods or the countervailing duty paid on imports was not to be borne by first stage dealers, who were treated just like manufacturers. A first stage dealer purchases good directly from the manufacturers or an importer.
In their ruling, the judges noted 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. And by virtue of clause (iv) of sub-section (3) of section 140 such a right has been taken away with retrospective effect in relation to goods which were purchased prior to one year from July 1, 2017. The order said that this retrospectivity given to the provision has no rational or reasonable basis for imposition of the condition.
Experts said that the objective of GST was to remove the tax cascading effect and the 12-month restriction defeated the purpose of free flow of credits.
“The decision of Gujarat High Court is very pragmatic especially after the Bombay High Court upheld the constitutional validity of restrictions imposed for transitional credits”, said Abhishek A Rastogi, partner at Khaitan & Co.