2025 (6) TMI 1840 - HC - GST

Refund of the unadjusted excess amount of input tax credit which remained unutilised under the VAT Act - requirement for the petitioner to file Form GST-TRAN-1 under the provisions of the GST Act to carry forward the unadjusted unutilised input tax credit under the VAT regime - entitlement to the refund of the amount which was shown as amount of tax credit carried forward to the next tax period in VAT Form No. 201 after the mandatory period of assessment is over under Section 34(2) of the VAT Act. HELD THAT - The provisions of Section 140 of the GST Act provides for transitional arrangements for input tax credit. On perusal of the Sub-section (1) of Section 140 of the GST Act it clearly provides that the assessee shall be entitled to take credit in his electronic credit ledger the amount of CENVAT credit or eligible duties carried forward in return relating to the period ending on 30th June 2017. However on perusal of the provision it appears that it is not mandatory for the assessee to carry forward the CENVAT credit or eligible duties in the return filed under the various Acts - Section 174 of the GST Act provides for repeal and savings. Sub-section (2) of the said Act provides for savings under the various Acts which were repealed by Sub-section (1) of the GST Act. Clause (c) of the Sub-section (2) provides that the repeal of the said Acts shall not affect any right privilege obligation or liability acquired or accrued or incurred under the amended Acts or the repealed Acts or orders under such repealed or amended Acts. Therefore it is required to be considered as to whether the petitioner who has admittedly not carried forward the unadjusted unutilised tax credit under the GST regime is entitled to refund of such tax credit or not under the VAT Act in view of the provisions of Section 174(2)(c) of the GST Act. In the facts of the case no audit assessment under Section 34(2) of the VAT Act after expiry of four years from the Financial Year 2017-18 can be carried out. The petitioner therefore in absence of any assessment is entitled to refund of the unutilised tax credit as per the provisions of Section 36 of the VAT Act read with Rule 15(6) of the VAT Rules which provides that where the tax credit (other than credit on capital goods) admissible in the year remains unadjusted against the output tax as per Section 11 of the VAT Act such amount shall be refunded not later than expiry of two years from the end of the year in which such tax credit had become admissible. The proviso to Rule 15(6) provides that the dealer claiming such refund shall have to prove to the satisfaction of the Assessing Authority that the purchases of the goods on which such tax credit has been calculated have been disposed of in the manner referred to in Sub-section (3) of Section 11 of the VAT Act within the period of which the refund under Sub-rule becomes admissible. The petitioner has been able to prove that the goods upon which such credit was shown to be carried forward to next tax period have been disposed of as per the provision of Sub-section (3) of Section 11 of the VAT Act and therefore there is a compliance of the proviso to Rule 15(6) of the VAT Rules. It is therefore incumbent upon the respondent No. 2 to sanction the refund of Rs. 3, 90, 762/- which has remained unadjusted unutilised tax credit as on 30th June 2017 in the VAT return of the petitioner. Conclusion - The respondent No. 2 therefore could not have rejected the applications filed by the petitioner on 29.03.2023 and 05.01.2024 on the ground that the time to claim the refund has expired through the respondent No. 2 was liable to pay the refund of the said amount within period of two years as per the Rule 15(6) of the VAT Rules. However in the facts of the case the period of more than four years have expired and even the time to make audit assessment under section 34 of the VAT Act has also expired and therefore the respondent-Authority cannot carry out any further inquiry under the provisions of the VAT Act the petitioner would be entitled to the refund of the amount which has admittedly remained without being carried forward under the GST regime in view of the provision of Section 174(2)(c) of the GST Act. The respondent authority is directed to process the refund claim of the petitioner for Rs. 3, 90, 762/- in accordance with provisions of VAT Act read with section 174(2) (c) of the GST Act within twelve(12) weeks from the date of receipt of copy this order - petition allowed.

Summary

1. The core legal questions considered in this judgment include:

(i) Whether it was mandatory for the petitioner to file Form GST-TRAN-1 under the GST Act to carry forward the unadjusted unutilised input tax credit (ITC) from the VAT regime to the GST regime;

(ii) Whether the petitioner is entitled to refund of the unutilised ITC shown as "amount of tax credit carried forward to the next tax period" in the VAT return after the expiry of the time limit for assessment under Section 34(2) of the Gujarat VAT Act;

(iii) Whether the respondent authority is liable to grant refund under Rule 15(6) of the Gujarat VAT Rules for the unadjusted tax credit;

(iv) The interplay between the transitional provisions under the GST Act and the repealed VAT Act, particularly the effect of Section 174(2)(c) of the GST Act on the rights accrued under the VAT Act;

(v) Whether the non-filing of refund claims or assessment proceedings under the VAT Act precludes the petitioner from claiming refund of unutilised input tax credit;

(vi) The applicability and interpretation of various provisions of the VAT Act, VAT Rules, GST Act, and GST Rules in the context of input tax credit migration and refund claims.

2. Issue-wise detailed analysis:

(i) Mandatory filing of Form GST-TRAN-1 for carrying forward VAT input tax credit:

The relevant legal framework comprises Section 139 and Section 140 of the GST Act and Rule 117 of the GST Rules. Section 139 provides for migration of existing taxpayers from VAT to GST on the appointed day, while Section 140 deals with transitional arrangements for input tax credit, entitling registered persons to carry forward eligible credits by filing Form GST-TRAN-1 within the prescribed time.

The respondent argued that the petitioner was obliged to file Form GST-TRAN-1 to carry forward the unutilised VAT credit to the GST regime and that failure to do so precluded any claim for refund or carry forward of such credit. Reliance was placed on judicial precedents and a circular by the CBIC emphasizing mandatory compliance with transitional provisions.

However, the Court examined the language of Section 140(1) and found that while the provision entitles a registered person to carry forward credit by filing the prescribed form, it does not explicitly mandate filing as a precondition for entitlement. The Court further noted that the petitioner had not carried forward the credit in the GST electronic ledger due to non-filing of Form GST-TRAN-1 but had discharged output tax liability under GST from July 2017 onwards.

The Court concluded that filing of Form GST-TRAN-1, though necessary for carry forward under GST, is not a mandatory condition to claim refund of unutilised VAT credit under the repealed VAT Act, especially where no subsequent tax period exists under VAT due to the repeal.

(ii) Entitlement to refund after expiry of assessment period under Section 34 of the VAT Act:

Section 34(2) of the VAT Act allows the Commissioner to serve notice for audit assessment within four years from the end of the relevant tax year. The petitioner's claim arose for the period April to June 2017, and no assessment or audit notice was issued within the prescribed period. The respondent rejected the refund claim on the ground of expiry of the limitation period for assessment.

The Court relied on the deeming provision under Section 33(3)(c) of the VAT Act, which states that if no audit notice is served within the prescribed period, the dealer shall be deemed to have been assessed. The Court found that since no assessment or reassessment was conducted, the petitioner's return stood as final and the tax credit shown as carried forward should be considered as admitted.

Precedents were cited emphasizing that money collected without authority of law is refundable under Article 265 of the Constitution. The Court held that since the credit remained unadjusted and no assessment was made, the petitioner was entitled to refund of the unutilised credit after expiry of the limitation period.

(iii) Applicability of Rule 15(6) of the VAT Rules for refund of unadjusted tax credit:

Rule 15(6) provides that where tax credit (other than on capital goods) admissible in a year remains unadjusted against output tax, such amount shall be refunded not later than two years from the end of the year in which the credit became admissible, subject to the dealer proving that the goods on which credit was calculated were disposed of as per Section 11(3) of the VAT Act.

The petitioner submitted a Chartered Accountant's certificate and evidence that goods were disposed of accordingly, fulfilling the proviso to Rule 15(6). The respondent contended that the petitioner failed to satisfy the proviso and that Rule 15(6) is inapplicable without a refund claim filed in the return.

The Court found that the petitioner had shown the credit as carried forward to the next tax period and had not carried forward under GST, effectively making the credit unadjusted. Since the next tax period under VAT did not exist post-GST implementation, the petitioner was entitled to refund under Rule 15(6). The Court emphasized that the respondent's rejection based on limitation expired under Section 34 was not sustainable as no assessment could be made after limitation, and refund was due.

(iv) Effect of repeal and saving provisions under Section 174(2)(c) of the GST Act:

Section 174(2)(c) preserves rights, privileges, obligations, or liabilities acquired under repealed laws. The respondent argued that ITC is not a vested right and that repeal extinguished the petitioner's claim due to non-compliance with GST transitional provisions.

The Court held that the petitioner had a vested right to refund of unutilised VAT credit as the VAT Act was not completely repealed for certain goods, and the transitional provisions preserved rights accrued under VAT. Since the petitioner did not deal in goods continuing under VAT post-GST, the VAT Act was effectively repealed for petitioner's goods, and the unadjusted credit could not be carried forward, entitling refund under the repealed law.

(v) Requirement of filing refund claim and assessment proceedings:

The respondent contended that refund claims must be made explicitly and that the petitioner's self-assessment return showing "carried forward" and zero refund amount negated any refund claim. The respondent also highlighted the absence of any assessment or audit proceedings initiated by them.

The Court observed that the petitioner had made written requests for assessment and refund, which were ignored. The absence of assessment notice within limitation led to deemed assessment. The Court held that refund claims can be made by writ petition under Article 226 where statutory machinery fails to act and that the petitioner's claim was valid and enforceable despite absence of formal refund application in the VAT return.

(vi) Interpretation of VAT and GST provisions in context of ITC migration and refund:

The Court analyzed the definitions of "tax period" and "year" under VAT Act and noted that these ceased to exist post-GST implementation for petitioner's goods. The Court distinguished carry forward of ITC under GST from refund of unutilised VAT credit under the repealed VAT Act.

The Court relied on prior judgments holding that tax or money collected without authority is refundable and that assessment limitation bars further scrutiny, entitling refund. The Court rejected the respondent's reliance on cases emphasizing mandatory filing of Form GST-TRAN-1 for carry forward as not applicable to refund claims under the repealed VAT Act.

3. Significant holdings:

The Court held:

"Section 140(1) of the GST Act entitles a registered person to carry forward input tax credit by filing Form GST-TRAN-1 but does not make such filing mandatory to claim refund under the repealed VAT Act."

"Where no audit assessment notice under Section 34(2) of the VAT Act is served within the prescribed limitation period, the dealer is deemed to have been assessed under Section 33(3)(c), and the tax credit shown as carried forward in the VAT return stands admitted."

"Rule 15(6) of the VAT Rules mandates refund of admissible tax credit unadjusted against output tax within two years from the end of the year in which credit became admissible, subject to proof of disposal of goods as per Section 11(3) of the VAT Act."

"Section 174(2)(c) of the GST Act preserves rights accrued under repealed laws, entitling the petitioner to refund of unutilised VAT credit despite repeal of VAT Act for petitioner's goods."

"In absence of assessment or audit proceedings within limitation and non-filing of Form GST-TRAN-1, the petitioner is entitled to refund of unutilised VAT credit shown as carried forward to next tax period, as no subsequent tax period exists post-GST implementation."

"Retention of unutilised input tax credit without authority of law violates Article 265 of the Constitution, and refund claims can be enforced by writ petition where statutory machinery fails to act."

Accordingly, the Court directed the respondent authority to process and sanction the refund of Rs. 3,90,762/- along with applicable interest within twelve weeks, holding that the petitioner's claim is valid and the rejection based on limitation and non-filing of GST Form TRAN-1 is unsustainable.