Gujarat High Court Upholds Transitional ITC Refund for Initial GST Months: Torrent Pharmaceuticals Ltd. vs Union of India & Ors.
Overview of the Dispute
The Gujarat High Court, in the matter of Torrent Pharmaceuticals Ltd. Vs Union of India & Ors., delivered a significant ruling concerning the eligibility of transitional Input Tax Credit (ITC) for GST refund claims pertaining to the months of July 2017 and August 2017 — the very first two months of the GST regime. The decision addresses a fundamental transitional challenge faced by registered persons who had legitimately carried forward CENVAT credit from the pre-GST era but encountered procedural timing gaps when filing early refund claims.
The case arose from four writ petitions — Special Civil Application Nos. 17988 and 17989 of 2019, and Special Civil Application Nos. 18874 of 2021 and 6600 of 2022 — filed before the Gujarat High Court. The first two challenged the order dated 07.03.2019 passed by the Commissioner (Appeals) in Appeal Nos. 207 and 208/2018-19, while the latter two challenged the consequential recovery proceedings initiated on the basis of that appellate order.
Factual Background
Torrent Pharmaceuticals Ltd. had operated under the erstwhile indirect tax regime prior to the introduction of the Goods and Services Tax with effect from 01.07.2017. To carry forward eligible credit accumulated under that regime, the petitioner filed FORM GST TRAN-1 on 27.10.2017, pursuant to which transitional credit of Rs. 14,30,19,855/- was sanctioned by the GST authorities.
Refund Claims Filed
Following the transition, the petitioner filed refund claims for the initial two months of the GST regime:
- On 20.12.2017 — Refund claim for July 2017 in FORM GST RFD-01A for Rs. 2,58,59,476/- under
Section 54of the CGST Act, 2017, on account of accumulated ITC arising from exports without payment of duty. - On 03.01.2018 — Refund claim for August 2017 in FORM GST RFD-01A for Rs. 7,80,46,724/- under
Section 54of the CGST Act, 2017, on the same ground.
Original Sanction of Refund
On 07.03.2018, the Deputy Commissioner, CGST & Central Excise, Ahmedabad, passed an order in FORM GST RFD-06 sanctioning the refund of Rs. 2,58,59,476/- for July 2017, recognising the accumulated ITC on exports without payment of duty.
Departmental Appeal and Reversal
However, the matter did not rest there. On 24.10.2018, a review order was passed by the Commissioner of CGST & Central Excise, Ahmedabad North, directing that an appeal be filed against the refund order. Accordingly, on 25.10.2018, the Assistant Commissioner filed an appeal against the original sanctioning order.
The Commissioner (Appeals) thereafter, by way of order dated 07.03.2019, allowed the departmental appeal and set aside the refund orders for both July 2017 and August 2017. The basis for this reversal was that when the petitioner had filed refund claims for these two months, the transitional credit from FORM GST TRAN-1 had not yet been verified and reflected in the electronic credit ledger — and therefore, no balance of unutilised ITC was available in the ledger at the relevant point in time.
High Court Interim Relief and Recovery Proceedings
The petitioner approached the Gujarat High Court, which on 16.10.2019 granted interim relief restraining the department from initiating any recovery proceedings against the petitioner concerning the ITC refund already granted.
Despite this, a demand notice dated 02.12.2020 was issued by the department proposing recovery of:
- Rs. 2,58,59,476/- (for July 2017), and
- Rs. 2,78,40,210/- (for August 2017)
under Section 73 of the CGST Act, 2017.
After the petitioner submitted a reply on 25.01.2021, the Order-in-Original dated 16.02.2021 confirmed the recovery of the aforesaid amounts along with applicable interest, and also imposed penalties of:
- Rs. 25,85,948/- for July 2017, and
- Rs. 2,78,40,210/- for August 2017