Tata Unistore Limited vs. Commissioner CGST & Ex., Navi Mumbai

Facts

Tata Unistore Limited, an e-commerce business, transitioned CENVAT credit of ₹32,06,07,869/- and VAT credit of ₹22,14,479/- by filing Form GST TRAN-1. These credits were reflected in their Service Tax returns for April-June 2017 and VAT returns. The Revenue issued a Show Cause Notice under Section 74(1) of the CGST Act, alleging inadmissible credit. The appellant contended that the GST authorities lacked jurisdiction to examine pre-GST credit admissibility and that transitional credit could not be denied based on alleged non-substantiation of invoices, Krishi Kalyan Cess (KKC) credit, or procedural lapses. The Revenue sought to deny the transitional credit and impose penalties.

Held

The Court held that proceedings under Section 74(1) of the CGST Act cannot be initiated to examine the admissibility of CENVAT credit under erstwhile laws. Such proceedings can only be initiated under the provisions of the erstwhile laws as per Section 142(6)(a) and Section 174(2)(e) of the CGST Act. The GST authorities lack jurisdiction to adjudicate the correctness of credit availed under the Finance Act, 1994, and CENVAT Credit Rules, 2004. Section 140(1) permits the transition of the closing balance reflected in returns, and authorities cannot undertake a de novo verification of invoices. The Court found that the denial of Krishi Kalyan Cess (KKC) credit was unsustainable in light of the Bombay High Court judgment in Godrej & Boyce and CBIC Circular No. 87/06/2019-GST, which clarified that Explanation 3 to Section 140 is not applicable to Section 140(1). The VAT credit could not be denied without specific objections or contrary findings, and the Revenue had not provided sufficient evidence. The imposition of a 100% penalty under Section 74 was deemed unjustified as the proceedings originated from voluntary disclosures. The impugned order was set aside, and the appeal was allowed with consequential relief.

Key Issues

1. Whether the proceedings initiated by the Revenue under Section 74(1) of the CGST Act for examining the admissibility of CENVAT credit under the erstwhile laws are without jurisdiction? The Appellant argued that Section 142(6)(a) and Section 174(2)(e) of the CGST Act mandate that recovery proceedings for inadmissible credit under erstwhile laws must be initiated under those erstwhile laws, and the CGST Act does not empower GST authorities to adjudicate pre-GST credit correctness. The Revenue did not record any specific arguments on this point. 2. Whether the GST authorities were justified in undertaking a de novo examination of the correctness of CENVAT credit availed under the erstwhile law for the purpose of transitional credit under Section 140(1) of the CGST Act? The Appellant contended that Section 140(1) permits transition of the closing balance reflected in returns and does not allow for a fresh verification of invoices by GST officers. The Revenue did not record any specific arguments on this point. 3. Whether the transitioned credit of Krishi Kalyan Cess (KKC) can be denied to the Appellant? The Appellant relied on the Bombay High Court judgment in Godrej & Boyce and CBIC Circular No. 87/06/2019-GST, arguing that Explanation 3 to Section 140 is not applicable to Section 140(1) and KKC credit is eligible for transition. The Revenue argued that amendments to Section 140, including Explanation 3, made the credit inadmissible, and that they had filed an SLP against the Godrej & Boyce judgment. 4. Whether the VAT credit transitioned into the GST regime can be denied in the absence of specific objections or contrary findings? The Appellant argued that the Revenue had not provided specific objections for denial and had not brought any material evidence to justify the denial. The Revenue did not record any specific arguments on this point. 5. Whether the imposition of 100% penalty under Section 74 of the CGST Act is justified? The Appellant argued that the penalty was unjustified as the proceedings arose from voluntary disclosures made by filing Form GST TRAN-1 and furnishing detailed submissions. The Revenue did not record any specific arguments on this point.