Evergreen Scamless Pipes And Tubes PVT. LTD. vs. Union Of INDIA, Through The Secretary Ministry Of Finance Dept And Ors.

Held

The Court held that the challenge to Section 140(3) of the CGST Act, 2017, must fail. The Court reasoned that the right to claim input tax credit is not an indefeasible or absolute right but a statutory one, subject to the conditions prescribed by law. The transitional provisions, including Section 140(3), were designed to facilitate the smooth transition to the GST regime and had a clear nexus with the object of the new law. The Court found no arbitrariness, unreasonableness, or discrimination in the conditions imposed by Section 140(3), stating that the legislature has the power to prescribe such conditions. The Court also referred to the principle that the Government can withdraw or modify exemption notifications in the public interest, and courts would not interfere unless there is fraud or manifest injustice, as the burden of duty is often passed on to consumers. The Court concluded that the petitioners had not established any grounds for striking down the impugned provision, and therefore, their challenges failed.

Facts

Several companies, including JCB India Limited, Suyaan Infrastructure Pvt. Ltd., Siddharth Auto Engineers Pvt. Ltd., Ratnapprabbha Motors, Evergreen Seamless Pipes and Tubes Pvt. Ltd., and Avantor Performance Materials India Limited, filed writ petitions challenging provisions of the Central Goods and Services Tax Act, 2017 (CGST Act). Specifically, the challenge was directed at Section 140(3) of the CGST Act, which deals with transitional arrangements for input tax credit. The petitioners were registered under the erstwhile Central Excise Act and/or Maharashtra Value Added Tax Act and sought to carry forward their unutilised input tax credit to the GST regime. The core of their grievance stemmed from the conditions and limitations imposed by Section 140(3) on the transfer of such credit.

Key Issues

1. Whether Clause (a) of Section 140(3) of the CGST Act, 2017, which allows for the transfer of input tax credit in case of a change of constitution of business, is ultra vires the Constitution of India and the CGST Act, 2017, for being arbitrary, unreasonable, and discriminatory, particularly concerning the requirement of the credit being available in the last return filed under the existing law? (Petitioner's contention). The Revenue argued that Section 140 provides for a scheme of transition and that the conditions stipulated are reasonable and necessary for its effective implementation. They contended that the right to claim input tax credit is statutory and not an indefeasible right, and the legislature has the power to prescribe conditions for its transfer during a transition. The Revenue also relied on the principle that fiscal legislation should be given a wide interpretation and that the court should not interfere unless there is a clear violation of constitutional provisions or manifest injustice. The judgment also discusses the power of the government to withdraw or modify exemption notifications, citing precedents like Malhotra & Sons v. Union of India and Excise Commissioner v. Ram Kumar, emphasizing that such actions are permissible in public interest and that courts would only intervene to prevent manifest injustice or fraud.