Bombay High Court Sets Aside TRAN-1 Credit Denial — Holds MVAT Mismatch Inquiry Beyond Scope of Section 140 of MGST Act

Case Overview

Gunjan Surgical and Scientific Co. Vs State of Maharashtra & Ors.
Court: Bombay High Court
Challenge: Writ Petition under Article 226 of the Constitution of India

A significant ruling has emerged from the Bombay High Court on the jurisdictional boundaries governing transitional Input Tax Credit (ITC) claims under the GST framework. The Court examined a writ petition filed by a medical and surgical goods dealer challenging an appellate order that denied its TRAN-1 transitional credit claim by relying on a system-generated mismatch derived from VAT-era records — a move the Court found to be jurisdictionally unsustainable.

Background of the Dispute

The petitioner, engaged in the business of surgical and scientific goods, had filed a TRAN-1 form to carry forward eligible ITC from the pre-GST regime into the GST framework. This mechanism, governed by Section 140 of the Maharashtra Goods and Services Tax Act, 2017 (MGST Act) and the corresponding provisions of the Central Goods and Services Tax Act (CGST Act), was designed to ensure a smooth transition of accumulated input tax credit for registered dealers migrating to the GST regime.

The matter initially reached the stage of adjudication, culminating in an order dated 23 September 2019, which made certain tax demands against the petitioner. Aggrieved, the petitioner filed an appeal before the Joint Commissioner of State Tax.

The Appellate Order Dated 25 January 2023

During the appellate proceedings, the petitioner's advocate filed an affidavit on oath, declaring that:

• The petitioner had not claimed any refund of the disputed amount under the Maharashtra Value Added Tax Act, 2005 (MVAT Act).
• The petitioner undertook that no such refund would be claimed under the MVAT Act in future either.

Considering this affidavit, the Appellate Authority acknowledged that the transitional credit claimed through TRAN-1 "seems to be admissible." However, before granting the full credit, it proceeded to examine the system-generated match-mismatch statement pertaining to the relevant period.

Upon reviewing this statement, the Appellate Authority noted a mismatch in "J2 x J1" for the said period amounting to Rs. 6,53,341/-, which it held must be deducted from the total refund claimed by the petitioner through TRAN-1.

The resultant modification of figures by the Appellate Authority was as follows:

After accounting for part payment of Rs. 93,011/- made through DRC-03 and Credit Ledger, the Appellate Authority determined a net payable amount of Rs. 8,90,267/-.

While the petitioner received partial relief of Rs. 4,16,538/- in aggregate on account of taxes, interest, and penalty, a substantial liability was still confirmed — a liability the petitioner contended was legally untenable.