GSTAT: GST Officers Cannot Reopen Pre-GST TRAN-1 Credit

The Goods and Services Tax Appellate Tribunal (GSTAT), Thane Bench, has held that officers under the CGST Act have no jurisdiction to re-examine the admissibility of CENVAT credit availed under the pre-GST regime, merely because that credit was carried forward into GST through Form GST TRAN-1.

The Division Bench of Shri Ramesh Nair, Member (Judicial) and Shri Prallhad S. Paranjape, Member (Technical) set aside a demand of Rs. 32.80 crore raised under Section 74 of the CGST Act against Tata Unistore Limited, the operator of the e-commerce platform TataCliQ, along with interest and 100% penalty.

The Tribunal held that where credit appearing as the closing balance in pre-GST returns was never challenged under the erstwhile law, GST officers cannot call for invoices and registers to test its eligibility in the guise of Section 140. Any such challenge lies only under the erstwhile law (Finance Act, 1994 / CENVAT Credit Rules, 2004), as preserved by Sections 142(6)(a) and 174(2)(e) of the CGST Act. The Bench also upheld the transition of Krishi Kalyan Cess (KKC) credit, following the Bombay High Court in Godrej & Boyce.

Key takeaways

• GST officers cannot invoke Section 73/74 of the CGST Act to adjudicate whether pre-GST CENVAT credit was correctly availed.
• Clause (i) of the proviso to Section 140(1) bars only credit that is inadmissible under the GST law; it does not license an audit of credits availed under the old regime.
• Transitioned closing balance cannot be tied to specific invoices, so demanding invoice-wise reconciliation is "an exercise in futility".
• KKC credit can be transitioned under Section 140(1), as Explanations 1 and 2 were never operationalised; a pending SLP without stay is no ground to hold back relief.
• Penalty under Section 74 cannot stand where the entire case arises from the taxpayer's own TRAN-1 disclosures.

Background

Tata Unistore Limited manages and operates TataCliQ.com, an online marketplace run through a website and mobile app. Under the pre-GST regime, it was registered for service tax and availed CENVAT credit on input services, besides VAT input tax credit on goods sold on its platform.

For April–June 2017, the company filed its original ST-3 return on 14.08.2017 (within the extended due date of 15.08.2017 under Notification No. 18/2017-ST) and a revised return on 26.09.2017, within the permitted 45 days. That return disclosed CENVAT credit of Rs. 31,83,93,390 (basic service tax) and Rs. 74,67,109 (KKC).

On the introduction of GST, the company carried these balances forward through Form GST TRAN-1, as follows:

Out of caution, the company reversed the KKC credit of Rs. 74,67,109 under protest in its December 2017 return.

A Show Cause Notice dated 18.01.2022 was issued under Section 74(1) of the CGST Act, alleging that the company had not produced evidence to establish its eligibility to the transitioned credit. The adjudicating authority confirmed the demand with interest and 100% penalty. The Commissioner (Appeals), Raigad upheld it vide Order-in-Appeal No. CSM/203/RGD APP/2024-25 dated 31.05.2024, leading to the present appeal before the GSTAT.

Arguments before the Tribunal

Appellant's submissions

Advocate Shri Prasad Paranjape, appearing for Tata Unistore, contended that:

• The proceedings were without jurisdiction, as they were initiated under Section 74(1) of the CGST Act instead of under the erstwhile law, as Section 142(6)(a) contemplates.
• There was no contravention of Section 140, since the credit was duly reflected in service tax returns that were never questioned by the Revenue.
• The revised ST-3 return was filed within the statutory time limit, contrary to the finding below.
• Procedural lapses cannot defeat a substantive entitlement to credit, and the law does not envisage invoice-wise verification of a closing balance.
• KKC credit could not be denied in view of Godrej & Boyce Mfg. Co. Ltd. v. UOI, 2021 (11) TMI 157 (Bom).
• Section 74 and the 100% penalty were not invocable.

Revenue's submissions

Shri G.N. Jha, Assistant Commissioner (AR), defended the impugned order and argued that:

• The appellant produced only 174 sample invoices covering Rs. 8.62 crore, about 29% of the credit, and failed to discharge the burden under Sections 59 and 155 of the CGST Act.
• KKC is not an "eligible duty" and cannot be transitioned, relying on Explanations 1 and 3 to Section 140, Notification No. 02/2019-GST and Circular No. 87/06/2019-GST.
• Credits under Sections 140(5) and 140(6), reverse-charge credit of about Rs. 3.17 crore, and credit on two Google India invoices (Rs. 15.69 lakh) were unsupported by documents.
• The proceedings were validly initiated under Section 74(1), as the credit was transitioned through TRAN-1; Section 142(6)(a) did not apply and the matter fell under Sections 142(9)(a), 160 and 174 and Rule 121.
• Failure to furnish documents despite reminders amounted to suppression, justifying extended period, interest under Section 50(3) and penalty under Section 122(2)(b).
• Usha Martin, SAIL and Kunjal Synergies were distinguishable on facts.

Tribunal's Findings

1. GST officers lack jurisdiction over pre-GST credit

The Tribunal noted that the disputed credit was the closing balance in returns filed under the Finance Act, 1994 and the Maharashtra VAT Act. The Revenue's representative admitted that no proceedings were ever initiated or pending under the erstwhile laws on the admissibility of that credit.

Reading Section 142(6)(a) with Section 174(2)(e), the Bench held that recovery of credit wrongly availed under the old law can be initiated only under the old law, for instance under Rule 14 of the CENVAT Credit Rules, 2004. These provisions do not empower officers to adjudicate pre-GST credit under the CGST Act. Section 174 merely saves and continues proceedings under the erstwhile law; it does not authorise CGST officers to examine the correctness of credit availed under that regime.

The Tribunal followed three High Court rulings on the point:

• Usha Martin Ltd. v. Additional Commissioner of CGST & CEx, (2022) 1 Centax 46 (Jhar.)
• Steel Authority of India Ltd. v. State of Jharkhand, (2025) 28 Centax 60 (Jhar.)
• Kunjal Synergies Pvt. Ltd. v. Assistant Commissioner of CGST & CEX, (2025) 28 Centax 198 (Cal.)

The Bench observed that the Revenue had simply called these judgments distinguishable, without pointing out any distinguishing feature.

2. Proviso (i) to Section 140(1) correctly read

Of the three conditions in the proviso to Section 140(1), compliance with the second (all returns for six months before 01.07.2017 filed) and third (no credit on goods cleared under notified exemptions) was undisputed. On the first, the Tribunal held that the lower authorities had misread it.

The bar on credit "not admissible as input tax credit under this Act" means that credit on goods or services for which the GST law itself denies ITC cannot be carried forward. In the Tribunal's words, it does not "by any stretch of imagination" permit GST officers to assess credits claimed under the erstwhile regime.

The Bench added that what is transitioned is a closing balance, derived from opening balance, credit availed and credit utilised. It cannot be attributed to any specific invoice, so correlating it with invoice copies was an exercise in futility.

3. Krishi Kalyan Cess credit allowed

Following the jurisdictional Bombay High Court in Godrej & Boyce, the Tribunal held that Explanation 3 to Section 140, though inserted retrospectively from 01.07.2017 by the CGST (Amendment) Act, 2018, cannot be applied without notifying the linked amendments to Explanations 1 and 2. CBIC Circular No. 87/06/2019-GST dated 02.01.2019 (para 4) itself records that those clauses will not be notified.

The Revenue pointed out that its SLP (C) No. 3226 of 2019 against Godrej & Boyce is pending before the Supreme Court. The Bench held that a pending SLP, with no stay granted, is no reason to withhold relief. It added that its view also rests on an independent reading of the provision and the Board's circular.

4. VAT credit under Section 140(6) and other objections

The Tribunal found that the appellant had furnished all details for the VAT credit of Rs. 22,14,479 on stock held on 30.06.2017. The lower authorities recorded no specific finding against it and simply rejected it along with the other credits.

Other grounds, such as incorrect address or service description on invoices, or non-production of invoices and credit registers, were held unsustainable at this stage, since no such objection was raised when the credit was availed. On the Google invoice, the correct invoice had been produced during the first appeal but was not considered.

5. Section 74 and penalty set aside

The Bench held the invocation of Section 74 and the 100% penalty wholly unjustified. The entire case arose from the appellant's own disclosures in TRAN-1 and the detailed submissions it made to the authorities from time to time.

Outcome

Holding the transitioned ITC to be in accordance with law, the Tribunal set aside the Order-in-Appeal and allowed the appeal with consequential relief. The order was pronounced in open court on 31.07.2026.

Case Details

Disclaimer: This article is for general information only and does not constitute legal advice.