Imperial Dyeing LTD. vs. State Of Gujarat

Held

The Court allowed the petition, quashing and setting aside the impugned order dated 12.01.2021 passed by the Assistant Commissioner of State Tax. The decision was based solely on the ground of non-availment of an opportunity of hearing to the petitioner regarding the disallowance of transitional tax credit. The Court noted that the ITC was lying unutilized in the Electronic Credit Ledger and that the demand was raised under the VAT Act. The Court directed that the matter be heard afresh by the very officer or a higher official, allowing the petitioner to adduce further documentary evidence within one week and completing the hearing within four weeks thereafter. The Court explicitly stated that it was not entering into the merits of the case and that its observations would not prejudice the rights of either party in deciding the matter on merits.

Facts

The petitioner, Imperial Dyeing Ltd., engaged in dyeing and printing of fabrics, purchased capital goods (machinery) between April and June 2017 for use in manufacturing fabrics. These fabrics were exempt under the Gujarat Value Added Tax Act, 2003 (VAT Act) but became taxable under the Goods and Services Tax Act, 2017 (GST Act). The petitioner claimed Input Tax Credit (ITC) under the VAT Act for these capital goods, which was not utilized and carried forward to the GST Electronic Credit Ledger via Form GST TRAN-1. The VAT authority, during an assessment for the period 01.04.2017 to 30.06.2017, issued a notice for VAT assessment and subsequently passed an order on 12.01.2021, disallowing the transitional tax credit claimed under the GST Act, leading to a demand for tax, interest, and penalty.

Key Issues

1. Whether the assessing authority under the VAT Act has the jurisdiction to disallow transitional tax credit claimed under the GST Act, particularly when such credit remains unutilized in the electronic credit ledger? (Question of law). The petitioner argued that the VAT authority lacks jurisdiction to disallow transitional ITC under the GST Act, as Section 140(1) of the GST Act permits such credit to be tested under the GST Act's provisions. They also contended that the disallowance was made without issuing a show cause notice and providing an opportunity of hearing. The revenue's argument was not explicitly recorded, but their representative submitted that the matter could be remanded to the officer or a higher official for a decision in accordance with the law after hearing the parties. They also stated that no separate notice under Section 140 of the GST Act is issued when considering transitional tax credit.