Procedure for transition of CENVAT Credit due to change in tax regime.

Case Title: Colgate Palmolive (India) Ltd. v. Union of India

Court: High Court of Bombay

Petition Number: Writ Petition No. 2168 of 2021

Category of Dispute: Transitional Credit – ISD Distribution

Date of Judgement: 29 August 2022

Relevant Sections: Section 140(1) & 140(7) of the CGST Act

CGST Rules: Not specifically mentioned

Facts of the Case

[Para 1–4]

1. The petitioner, Colgate Palmolive (India) Ltd., filed a declaration in Form GST TRAN-1 to transition CENVAT credit of ₹13.69 crores from its Input Service Distributor (ISD) registration as of 30th June 2017 into the GST regime.
2. The credit was successfully reflected in the Electronic Credit Ledger (ECL) of the ISD.
3. The ISD issued invoices to distribute this transitional credit to other units, who then reported and availed the credit in their respective GSTR-3B returns.

[Para 5]
4. A show cause notice was issued alleging that ISD was not eligible to transition credit under Section 140(1), ISD migration under GST was prohibited, and that invoices were received after the cutoff date of 30th June 2017.

[Para 6]
5. The petitioner contended there was no dispute regarding eligibility; the department’s objection was only procedural. No revenue loss was alleged by the department.

Questions in Consideration

[Para 5–6]

1. Whether the ISD registration holder could validly transition credit under Section 140(1) of the CGST Act?
2. Whether procedural defects in transitioning credit by ISD could be regularized in light of judicial precedents and the SC ruling in Filco Trade Centre?

Observations of the Court

[Para 7–8]

1. The Court acknowledged that many procedural irregularities during GST transition arose due to its nascent implementation and systemic ambiguities.
2. The Apex Court in Union of India v. Filco Trade Centre (P.) Ltd. directed the reopening of GSTN portal for transitional forms and provided guidelines to regularize genuine credit claims.

[Para 9–13]
3. Adopting the Supreme Court’s approach, the Bombay High Court directed reopening of the TRAN-1/2 portal for two months (1st Sept – 31st Oct 2022) to allow revised declarations.
4. Credit already taken by recipient units would be treated as valid from the original date of availment.
5. Petitioner’s ISD credit balance in ECL would lapse after regularization, and any duplicated credit, if reflected again, must be reversed by recipient units.

Judgement of the Court

[Para 14–16]

1. The Court restrained the department from adjudicating the impugned show cause notice.
2. Petition was disposed of, granting liberty to the petitioner to raise remaining issues in appropriate forums.
3. The Court’s order was purely for regularizing the earlier ISD credit transition and distribution, without allowing any additional credit claims.

Between Fine Lines

The Bombay High Court ruled in favour of procedural fairness by allowing Colgate to revise TRAN-1 declarations for ISD credit transition. It noted that there was no substantive tax loss to the revenue, and relied on the Supreme Court’s precedent in Filco Trade. This judgement clarifies that genuine credit, if procedurally flawed, can still be regularized without penalty. It also held that once credit is correctly re-declared, it won’t be claimed twice. The Show Cause Notice was effectively quashed.

Summary of Referred Cases

Takeaway

“Procedure Shouldn’t Defeat Substance: ISD Credit Validated Despite Transitional Lapses”