Benefit of Cenvat credit is available under post GST regime.

Case Title: Filco Trade Centre (P.) Ltd. v. Union of India

Court: High Court of Gujarat

Petition No.: Special Civil Application Nos. 18433 and 20185 of 2017

Category of Dispute: Transitional Credit under GST

Date of Judgement: 5 September 2018

Relevant Sections: Section 140(3)(iv) of the CGST Act, 2017

Relevant Rules: CENVAT Credit Rules, 2004

Facts of the Case [¶2–4, ¶25–27]

• The petitioner, a trader and importer of specialized industrial bearings, functioned as a first stage dealer under the erstwhile indirect tax regime, availing and passing on CENVAT credit to its buyers without time restrictions.
• With the introduction of the CGST Act, 2017, transitional provisions allowed dealers to carry forward such credits; however, Section 140(3)(iv) imposed a condition that only credits based on invoices issued within the 12 months before 1 July 2017 would be allowed.
• The petitioner challenged this time limitation as arbitrary, claiming it retroactively removed a vested right, affecting their ability to claim input tax credit on unsold stock purchased before the 12-month cut-off.

Questions in Consideration [¶9]

1. Does Section 140(3)(iv) create an impermissible distinction between similarly situated persons?
2. Does it retrospectively take away vested rights without justification?
3. Should this clause be declared unconstitutional on these grounds?

Observations of the Court [¶16–30]

• The Court reaffirmed that CENVAT credit under the old regime was a vested right and not a concession, especially supported by precedents like Eicher Motors Ltd. and Dai Ichi Karkaria Ltd. [¶25–27].
• Imposing a one-year cut-off retrospectively with no corresponding provision in the prior regime was found to be arbitrary and unreasonable. The Court held that legislative reasons like administrative convenience or preventing misuse were insufficient justification for such retrospective restriction [¶27].
• The Court noted that transitional provisions in tax law can be retrospective but must meet fairness and rationality. In this case, the retrospectivity lacked justification and infringed vested rights [¶27–28].
• While referring to judgments on legislative competence and reasonable classification (e.g., R.K. Garg, Vatika Township), the Court held that though economic legislations are given latitude, the impugned clause failed the test of reasonableness and manifest arbitrariness [¶20–24].

Judgement of the Court [¶31–32]

• The Court declared clause (iv) of Section 140(3) of the CGST Act unconstitutional as it imposed an unjustified retrospective burden by taking away vested credit rights for purchases older than one year before GST implementation.
• The judgment was stayed till 31.10.2018 to allow the revenue department time to appeal or adjust administratively.

Between Fine Lines (Simplified Summary)

• The Gujarat High Court ruled that the time limit of 12 months for availing transitional CENVAT credit under GST is unconstitutional.
• The credit available to first stage dealers under the previous regime was a vested right.
• Imposing a time-bar retrospectively, without any similar past restriction, was held unreasonable.
• Administrative convenience was not sufficient justification to curtail vested rights.
• The court’s decision protected taxpayers holding older inventory from losing their legitimate transitional credits.

Summary of Referred Cases

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