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

The Economic Times - - Companies & Economy -

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.

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