Transitional ITC Under GST Cannot Be Reopened To Re‑examine Pre‑GST Credits: GSTAT Thane Bench in Tata Unistore Limited

Overview of the Decision

The Thane Bench of the GST Appellate Tribunal (GSTAT) in Tata Unistore Limited Vs Commissioner CGST & Ex. (GSTAT Thane Bench) has categorically held that GST authorities cannot invoke Section 74(1) of the CGST Act to re‑scrutinize and deny CENVAT/VAT credit that was duly availed under the pre‑GST regime and never disputed there.

The Tribunal set aside the impugned order which had denied transitional input tax credit (ITC) of:

  • CENVAT credit of Rs. 31,83,93,390
  • Krishi Kalyan Cess (KKC) credit of Rs. 74,67,109
  • VAT credit of Rs. 22,14,479

transitioned through Form GST TRAN‑1 under Section 140 of the CGST Act read with Rule 117 of the CGST Rules.

The appeal of Tata Unistore Limited was allowed with consequential reliefs.

Question of Law Considered

The Tribunal examined the following central question:

Whether the 1st Appellate Authority was justified in affirming the demand of alleged ineligible ITC transitioned from the pre‑GST regime under Section 140 of the CGST Act and CGST Rules, even though such credit was never put in dispute under the erstwhile indirect tax laws?

The answer of the Tribunal was a clear “No”: where CENVAT/VAT credit was validly reflected in returns under the earlier laws and never challenged there, GST authorities lack jurisdiction to reopen and deny such credit by resorting to Section 74(1) of the CGST Act.

Factual Matrix

Business Activity and Pre‑GST Registration

  1. The assessee, Tata Unistore Limited, operates and manages an e‑commerce platform (TataCliQ.com) through a website and mobile application.
  2. Under the pre‑GST regime, it:
    • Was registered under the service tax law.
    • Availed CENVAT credit on eligible input services.
    • Availed VAT ITC on goods sold via the online platform.

Pre‑GST Returns and Credit Position

  1. For April 2017 to June 2017, the assessee filed ST‑3 returns under Section 70 of the Finance Act, 1994 read with Rule 7 of the Service Tax Rules, 1994.
  2. Pursuant to Notification No. 18/2017-Service Tax dated 22.06.2017, the assessee:
    • Filed the original ST‑3 return on 14.08.2017.
    • Filed a revised return on 26.09.2017 within the permissible revision period.
  3. In the revised service tax return, the assessee disclosed:
    • Rs. 31,83,93,390 as CENVAT credit of basic service tax.
    • Rs. 74,67,109 as CENVAT credit of Krishi Kalyan Cess.
  4. Separately, VAT ITC of Rs. 22,14,479 on stock‑in‑trade as on 30.06.2017 was available under the State VAT law.

Transition to GST via TRAN‑1

Upon introduction of GST w.e.f. 01.07.2017, the assessee transitioned its accumulated credits into the GST regime in line with Section 140 and Rule 117. The breakup as declared in Form GST TRAN‑1 was:

  1. Under Section 140(1) – Input Services
    • Basic tax credit: Rs. 29,93,34,297
    • KKC credit: Rs. 67,86,516
  2. Under Section 140(5) – Input Services In Transit
    • Basic tax credit: Rs. 1,90,59,093
    • KKC credit: Rs. 6,80,681
  3. Total CENVAT credit (Service Tax + KKC)
    • Basic: Rs. 31,83,93,390
    • KKC: Rs. 74,67,109
  4. Under Section 140(6) – VAT on Stock‑in‑Trade
    • VAT ITC: Rs. 22,14,479

Thus, the total ITC transitioned came to Rs. 32,80,74,878 (the Show Cause Notice quoted Rs. 32,80,75,063, a difference of Rs. 85).

Due to doubts then prevailing regarding transition of KKC, the assessee reversed Rs. 74,67,109 (KKC) under protest in its December 2017 GST return.

Initiation of Proceedings Under GST

Show Cause Notice Under Section 74(1)

A Show Cause Notice (SCN) dated 18.01.2022 was issued under Section 74(1) of the CGST Act for the period July 2017 to March 2018, primarily alleging:

  • The assessee failed to substantiate the eligibility of the transitioned ITC under GST.
  • Documentation like invoices, registers, and proof of receipt of services was not adequately furnished.
  • The transitional claim was allegedly in contravention of Section 140 read with Rule 117.

The Original Adjudicating Authority and subsequently the 1st Appellate Authority:

  • Confirmed demand of the entire disputed ITC.
  • Levied interest.
  • Imposed 100% penalty by invoking Section 74.

Grounds Urged by the Assessee

The assessee challenged the orders on multiple grounds, including:

  1. Lack of Jurisdiction under CGST Act
    • Any action concerning inadmissible CENVAT credit under the erstwhile laws must be taken under those very laws, in terms of Section 142(6)(a) and Section 174 of the CGST Act.
    • Initiating proceedings under Section 74(1) of the CGST regime for alleged flaws in pre‑GST credits is ultra vires.