“No Transitional Credit on Capital Goods Received After July 1, 2017”: Patna HC Upholds ₹8.6 Lakh CENVAT Recovery, Says Inputs and Capital Goods Are ‘Distinct Classes’
Safiya Malik
The High Court of Judicature at Patna Division Bench of Justice Rajeev Ranjan Prasad and Justice Ramesh Chand Malviya dismissed a writ petition challenging the rejection of transitional credit claimed for capital goods under the Central Goods and Services Tax Act, 2017. The Court upheld the orders passed by the adjudicating and appellate authorities, holding that no provision under the CGST Act or the CENVAT Credit Rules, 2017 permits the seamless transition of credit for capital goods received after the appointed date. The Court concluded that the petitioner was not entitled to the relief sought and dismissed the writ application in its entirety.
The petitioner, a public limited company engaged in the manufacturing of MS-Bars, filed the writ petition seeking quashing of the appellate order dated 22 May 2023 and the adjudicating order dated 27 July 2022. The primary relief sought was the recognition and approval of transitional CENVAT credit amounting to ₹8,62,566 in respect of capital goods received in the factory premises after the rollout of the GST regime on 1 July 2017.
The petitioner claimed that it had purchased excisable capital goods from eleven registered suppliers in June 2017, all supported by excise invoices duly charging CENVAT duty. These goods were received in July 2017 and recorded in the petitioner’s books of account in the same month. On 20 September 2017, the petitioner filed the prescribed TRAN-1 return, declaring its eligible CENVAT credit, including credit on the capital goods in question.
The jurisdictional Superintendent, Central Goods and Services Tax (CGST), Bihta Range, later issued a communication on 2 August 2019 stating that ₹8,62,566 of the declared credit was ineligible. The petitioner was requested to reverse the amount under Table 6(a) of the TRAN-1 form, citing the ineligibility of credit for capital goods received post the appointed day.
The petitioner responded, but the authorities remained unsatisfied. A show cause notice was issued, and subsequently, the adjudicating authority confirmed the demand for reversal of credit. The authority reasoned that Section 140(5) of the CGST Act does not provide a facility for availing transitional credit on capital goods in transit.
The appellate authority upheld the adjudicating order, rejecting the petitioner’s claim that the revised definition of “input” under Rule 2(g) of the CENVAT Credit Rules, 2017, covered capital goods. It found the petitioner's interpretation inconsistent with the statutory framework, noting that transitional credit under Section 140(5) is restricted to “inputs” and “input services” and does not extend to “capital goods.”
The petitioner approached the High Court under Article 226 of the Constitution, submitting that the orders were legally flawed and the transitional framework under GST allowed seamless transition of all credit, including that of capital goods. The petitioner also informed the Court that the Appellate Tribunal was not functional, necessitating recourse to writ jurisdiction.
The Union of India opposed the petition, arguing that the revised statutory definitions under the CGST Act and CENVAT Credit Rules, 2017, excluded capital goods from the purview of inputs eligible for transitional credit under Section 140(5). The respondents relied on the judgment of the Gujarat High Court in RSPL Ltd. v. Union of India, which had upheld the same legal position, and noted that the Supreme Court had dismissed a special leave petition against that decision.
Justice Rajeev Ranjan Prasad, delivering the judgment on behalf of the Division Bench, reviewed the statutory background and applicable provisions in detail. The Court stated:
“Prior to 01.07.2017, a manufacturer was entitled to claim CENVAT credit of duty paid by him on inputs as well as on the capital goods… subject, however, to the conditions which were placed in the CENVAT Credit Rules, 2004.”
Noting the changes introduced with the GST regime, the Court recorded:
“The CGST Act contained transitional provision according to which unutilized CENVAT credit was eligible to be brought over to the GST regime… The statute made provisions to enable the assessee to avail the credit of duty paid on inputs which were in transit as on 01.07.2017… But… no facility has been provided to enable the assessee to claim credit of the excise duty paid on such capital goods.”
The Court examined definitions under Section 2(19), 2(59), 2(62), and 2(63) of the CGST Act and concluded:
“Section 140 makes a distinction between the capital goods and inputs… Section 140(5) provides that a registered person would be entitled to take credit of eligible duties and taxes in respect of inputs or input services received on or after the appointed date… This provision does not include capital goods.”
In support of its reasoning, the Bench cited the decision in RSPL Limited v. Union of India, 2018 (19) GSTL 430 (Guj), quoting extensively from paragraphs 17 to 20 of the Gujarat High Court’s ruling. The Court stated:
“There would be no possibility of availing credit on such tax under the GST regime… This demarcation itself would not be artificial, arbitrary or in any manner, discriminatory.”
Finally, concluding the matter, the Court stated: “This Court finds that the CENVAT Credit Rules, 2017 has superseded CENVAT Credit Rules, 2004… leaves no room for taking any different view from that of the Hon’ble Gujarat High Court in the case of RSPL Limited.”
Having reviewed the submissions and statutory framework, the Division Bench concluded its ruling with the following directive: “We do not find any error in the impugned orders dated 27.07.2022 (Annexure ‘6’) and 25.05.2023 (Annexure ‘7’).”
“This writ application has no merit. It is dismissed accordingly.”
Advocates Representing the Parties
For the Petitioners: Mr. Viveka Nand, Advocate
For the Respondents: Mr. K.N. Singh, Additional Solicitor General; Mr. Anshuman Singh, Senior Standing Counsel
Case Title: M/s JMD Alloys Ltd. v. Union of India & Others
Case Number: Civil Writ Jurisdiction Case No. 15940 of 2023
Bench: Justice Rajeev Ranjan Prasad, Justice Ramesh Chand Malviya
[Read/Download order]
