Kerala High Court Denies AVT McCormick's ₹49.54 Lakh Refund Claim Over Transitional ITC

The Kerala High Court on 20 August held that a claim for refund of transitional input tax credit can be allowed only if the taxpayer establishes that the disputed credit stood in its Electronic Credit Ledger as on 1 July 2017.

Justice Johnson John dismissed AVT McCormick Ingredients Pvt. Ltd.'s writ petition challenging the assessment order passed by the Assistant Commissioner of Central Tax and Central Excise, which had rejected its claim for refund of Rs. 49.54 lakh. He observed:

"...As per the above said provisions, the transitional credit, closing balance of credit of taxes lying and shown in last return filed by the assessee prior to introduction of CGST i.e., as on 30.06.2017 will be carried forward as credit in Electronic Credit ledger as on 01.07.2017. Therefore, the credit balance of the unutilised input tax in erstwhile regime as on 30.06.2017 shall be available as opening balance of unutilised input tax credit as on 01.07.2017...."

AVT McCormick, which is engaged in exporting spice extracts and oleoresins, had transitioned unutilised input tax credit from the erstwhile Kerala Value Added Tax regime into its GST Electronic Credit Ledger through Form GST TRAN-1. It subsequently sought a refund of input tax credit for November 2017.

The department rejected the refund claim after finding that AVT McCormick had included Rs. 49,54,739 as transitional State Goods and Services Tax (SGST) credit in its refund application, even though the amount was credited to its Electronic Credit Ledger only on 27 December 2017. The department relied on Rule 89(4) of the Central Goods and Services Tax Rules, 2017 and Circular No. 37/11/2018-GST.

AVT McCormick argued that the transitional credit represented unutilised input tax from the pre-GST regime and had to be treated as the opening balance of its Electronic Credit Ledger. It also contended that the assessment order had been passed on the basis of a departmental circular and, therefore, pursuing the statutory appellate remedy would have been futile.

The Court noted that Section 140 of the Central Goods and Services Tax Act, 2017, read with Rule 117 of the Central Goods and Services Tax Rules, provides for the transition of eligible credit from the erstwhile tax regime. It observed that unutilised input tax credit as on 30 June 2017 would become the opening balance of the Electronic Credit Ledger on 1 July 2017.

However, the Bench found that AVT McCormick had not produced a copy of its TRAN-1 declaration or other satisfactory material establishing that the disputed credit stood in its Electronic Credit Ledger as on 1 July 2017. It held:

"...The adjudicating authority can allow the refund only if it is proved that the amount claimed was credited into the Electronic Credit Ledger as on 01.07.2017 and in the absence of satisfactory material to prove the same, I find no reason to interfere with the impugned order of the adjudicating authority"

It also declined to exercise its writ jurisdiction on the ground that AVT McCormick had approached the Court after expiry of the prescribed period for challenging the assessment order through the statutory appellate remedy under the Central Goods and Services Tax Act.

Further, the Bench held that Article 226 of the Constitution cannot be invoked to revive a cause of action that has become unenforceable due to limitation, particularly when the petitioner failed to pursue the statutory remedy within the prescribed period. It stated:

"..I find that the discretionary jurisdiction under Article 226 of the Constitution of India cannot be exercised to resurrect a cause of action which has become unenforceable on account of law of limitation. I have no doubt that entertaining such a belated writ petition would be contrary to public policy that it is for the public good that there be an end to litigation..."

Accordingly, the High Court dismissed the writ petition, finding no ground to interfere with the assessment order.

For Petitioner: Senior Advocate A. Kumar, along with P.J. Anilkumar, Mini, P.S. Sree Prasad and Ajay V. Anand, Advocates

For Respondent: P.Vijayakumar, Additional Solicitor General of India, and P.R. Sreejith, Standing Counsel