No penal proceedings in case of wrongly reflected transitional credit: Patna High Court (HC)

Facts of the case

1. The Petitioner filed an application in form TRAN-1 to avail surplus credit of VAT and entry tax to carry forward in electronic ledger for two prior years which had inadvertently missed in return.
2. The department rejected the application and raised demand on which transitional credit was claimed and imposed interest and penalty on such availment.
3. The Petitioner filed a writ petition before the Patna HC. If the claim was not lawfully sustainable, it was liable for rejection but it didn’t empower department to initiate proceedings and levy interest and penalty.
4. Further, the Petitioner submitted that mere reflection of credit on application would not amount to either availing or utilising the credit.

Patna HC observation and ruling

1. The HC stated that if the department was of opinion that petitioner was not entitled to such credit, it could be simply rejected instead of levying interest and penalty.
2. Even wrongly reflected transitional credit in electronic ledger on its own is not sufficient to initiate penal proceedings until the same is put to use so as to become recoverable.
3. Accordingly, the HC set aside the demand order against Petitioner.

Conclusion

The imposition of interest on wrong availment of tax credit has always a matter of litigation. This is a welcome ruling which provides some clarity in respect of pending cases for transitional credit.

M/s Commercial Steel Engineering Corporation in Civil Writ Jurisdiction