HC relief to 1st dealers seeking CENVAT credit

Gujarat high court has struck down provisions in the Goods and Service Tax Act under which first stage dealers were denied credit of CENVAT on stock of goods purchased a year before GST regime came into effect. The HC observed that the government can’t deny the right of credit to first stage dealers with retrospective effect. 

Gujarat HC on Friday struck down provisions in the Goods and Services Tax (GST) Act under which first stage dealers were denied central value-added tax (Cenvat) credit on the stock of goods purchased a year before GST regime came into effect. The HC has observed that the government cannot deny the right of credit to first stage dealers with retrospective effect andtheCentrehas not given any justification for limiting the rights. Acting on a petition filed by an industrial goods dealer, Filco Trade Centre Pvt Ltd, a bench of Justice Akil Kureshi and Justice B N Karia has held Clause (iv) of Sub-section 3 of Section 140 of GST Act as unconstitutional and junked it. The court said: “...no just reasonable or plausible reason is shown for making such a retrospective provision taking away the vested rights.” The petitioner firm had submitted before the HC that it has stock of industrial goods which are normally sold over a long period of time. The stock was purchased long ago, but the introduction of GST made it impossible for the company to claim input credit, which was earlier available under central value-added tax (VAT). This was mainly due to the one-year time limit put under the transitional law. Accordingly, a first stage dealer cannot claim input credit on excise on any goods with invoice before July 1, 2016 as GST came into effect on July 1, 2017. The Centre defended the time limit for claiming Cenvat credit by stating that it is a concession granted to the assessee and is always made subject to conditions imposed by the legislature. The parliament is competent to impose conditions and the company had no vested right to claim the benefit, it added. The HC rejectedtheCentre’s argument and said the provision of credit exists in the new law also, just like it existed in old legislation. But if the goods were purchased prior to a year of introduction to GST, the credit would be lost to the first stage dealer. This condition has the retrospective operation and takes away an existing right. The court further said: “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.”