Transitional credit cannot be disallowed in absence of Show Cause Notice.

Case Details:

Issue- In the above case, the petitioner has challenged that the authority concerned would have no jurisdiction to disallow the transitional tax credit as section 140 (1) of the GST Act permits the Input Tax Credit forward from the earlier regime to be tested in accordance with the provision of the GST Act. Petitioner’s issue was that the transitional tax credit under the GST Act, had not been utilized and it is lying in the Electronic Credit Ledger, such dis-allowance is without issuance of the show cause notice and opportunity of hearing.

Held- It was held that the petitioner was engaged in the business of dyeing and printing of fabrics on job work basis. Petitioner stated that certain capital goods in the nature of machinery intended to be used in dyeing and printing fabrics from April to June, 2017 were purchased by him. The fabrics were exempted from tax under the VAT Act, they were taxable goods under the GST Act and there was no prohibition under the VAT Act to claim proportionate Input Tax Credit in relation to the capital goods, if they were partly used for manufacturing taxable goods and partly for exempt goods. It has also relied on section 18 (1)(d) of the GST Act, which allows Input Tax Credit in respect of the capital goods in cases where exempt goods became taxable goods. The fabrics manufactured by it were taxable goods under the GST Act and the petitioner claimed Input Tax Credit of tax paid on purchase of capital goods under the VAT Act. It carried forward such credit into GST Electronic Credit Ledger by filing Form GST TRAN-1 under the GST Act and such Input Tax Credit was not utilized under the VAT Act and the issue essentially raised was of non-availment of an opportunity of hearing, more particularly, while disallowing the transitional tax credit and also that the Input Tax Credit was lying unutilized in the Electronic Credit Ledger and the respondent authority has demanded the tax under the VAT Act where this aspect also has been covered. Therefore, the opportunity of hearing be made available to the petitioner for fresh consideration.