The Hon’ble High Court of Jharkhand vide its order dated 10.11.2022 in the matter of M/s. Usha Martin Limited Vs. Additional Commissioner, Central GST and Excise, Jamshedpur, Joint Commissioner, Central GST And Excise, Jamshedpur, Commissioner of CGST & CX, Jamshedpur, Union of India in W.P. (T) No. 3055 of 2022, held that the adjudication proceedings initiated for denying and recovering the CENVAT credit pertaining to the erstwhile Central Excise Law, which has been carried forward by filing TRAN – 1, applying the provisions of CGST Act is without jurisdiction.  The Show cause notice and Order passed for recovering the said CENVAT Credit set aside.

The petitioner filed the writ petition before the Hon’ble High Court challenging the adjudication proceedings initiated under Section 73 of the CGST Act, 2017, whereby the Additional Commissioner, C.G.S.T. & Excise, Jamshedpur has disallowed the CENVAT credit amounting to Rs.10,21,05,096/- carried forward by the petitioner by filing TRAN-1, in terms of Section 140 of the C.G.S.T. Act, 2017 by impugned order in original dated 30th March, 2022.

Facts of the Case: –

• That the Petitioner company operates in two divisions, Wire Rope Division and Steel Division. Steel Division is engaged in the manufacture of iron and steel products at its factory situated at Adityapur Industrial Area, Gamharia duly registered under the erstwhile Central Excise Act, 1944 and Finance Act, 1994.
• The final products manufactured by the petitioner were dutiable under the Central Excise Act (C.E.A.) and are now taxable under Goods and Service Act. Further as per the petitioner the iron ore required for manufacture of the final products were extracted from petitioner’s captive iron ore mine situated at Bokna, Barajamda.
• The Petitioner also has a site office at Bokano, which receives the invoices issued under Rule 4A of the Service Tax Rules, 1994 towards purchase of its input services received at mines. Further for distributing credit of service tax on the said services to the Gamharia factory in accordance with Rule 7 read with Rule 2(m) of the CENVAT Credit Rules, 2004.  The petitioner under the erstwhile Service Tax Rules, 1994 duly filed an application for registration of its Bokano Mines as an Input Service Distributor, which was granted registration on 25^th April, 2008 in prescribed Form ST-2.
• Thereafter, the petitioner started issuing invoices for distribution of the credit of the service tax paid on input services attributable to iron ore dispatched to the Gamharia factory. The petitioner was also allocated a Coal Block at Brinda-Sesai by the Ministry of Coal for captive mining and for utilizing it in the Gamharia factory for manufacturing Sponge iron, which became hundred percent captive mines of the petitioner’s Gamharia factory.
• That the petitioner was regularly maintaining proper records and regularly filing the periodic ST-3 returns. Further on implementation of GST w.e.f. 1st July, 2017 petitioner was allotted GST registration for all business places under Steel Division which included the Gamharia factory, the Bokna mines, the Brinda-Sesai mines etc. Gamharia factory was disclosed as principal place of business, whereas other two mines were disclosed as additional places of business.
• That in terms of the provisions of Section 140 of CGST Act, 2017 read with Rule 117 of the CGST Rules, 2017, the petitioner filed TRAN – 1 for carrying forward the amount of CENVAT Credit amounting to Rs. 13,43,86,752/- from the return relating to the period ending with the day immediately preceding the appointed date, i.e., 1st July, 2017 under the pre-GST regime, which included CENVAT Credit amounting to Rs. 8,55,50,111/- pertaining to Bokna mines and input services amounting to Rs. 15,98,697/-, pertaining to Brinda-Sesai mines. Further, apart from the said amounts, petitioner also transferred CENVAT credit of Rs. 15,19,17, 690/- by declaring the same in Column 7A(1) of TRAN-1 Form in terms of Section 140 (5) of the CGST Act read with Rule 117 of CGST Rules, which included CENVAT credit of service tax amounting to Rs.1,49,56,288/- on account of input services received at Bokna mines on or after 1st July, 2017 but the service tax in respect of which was paid by the petitioner under the Finance Act.
• That a show cause notice dated 13^th September, 2021 was issued to the petitioner by the Joint Commissioner in FORM GST DRC – 01 proposing recovery of CENVAT credit amounting to Rs. 8,55,50,111/- pertaining to Bokna mines and Rs.15,98,697/- pertaining to Brinda Sesai mines. It was also brought to the knowledge that Prior to issuance of the notice, petitioner was served with a letter by Assistance Commissioner (Prevention) bearing No. 1720 dated 18th February, 2019 asking him to pay back the total amount of CENVAT credit of Rs. 15,19,17,690/- as per the break up indicated above pertaining to Bokna mines and Brinda Sesai mines, to which the petitioner duly replied on 2^nd March, 2019.
• Thereafter, a notice in Form GST-DRC-01A dated 23rd July, 2021 was issued to which petitioner submitted its reply in Part B vide letter dated 26th August, 2021. The petitioner duly participated in the proceedings, which were initiated under Section 73(1) and responded to the show cause notice vide its letter dated 8^th November, 2021 denying all the allegations.  However, disregarding the submissions made by the petitioner, the impugned order dated 30^th March, 2022 was passed confirming the recovery of CENVAT Credit amounting to Rs. 10,21,05,096/- along with interest and penalty.

Petitioner’s Submissions: –

• That on the behalf of the petitioner, the question of lack of jurisdiction of the adjudicating authority to decide upon the availment of CENVAT credit under the pre goods and service tax regime, was raised. Further referring to the reply/written submissions dated 8^th November, 2021 to the show cause notice, it was submitted that the proceedings for recovery of tax and penalty to the tune of Rs.5.46 crores and Rs. 3.06 crores relating to the period February, 2010 to March, 2011 and April, 2011 to September, 2011 is pending before the learned CESTAT, Kolkata.  It was informed that Service Tax Appeals in relation to other periods such as 2005-06, 2008-09, August, 2008 to January, 2010 and October, 2011 to March, 2012 are also pending before the learned CESTAT and other proceedings relating to period April, 2012 to March, 2013 and April, 2016 to June, 2017 are also pending before the Commissioner (Appeals).
• Referring to Section 73 of the Finance Act, 1994 and Rule 14 of the C.C.R., 2004, it was submitted that any such proceeding for wrongful availment of CENVAT Credit could have been initiated under the said Act only and the respondent authority has wrongly assumed jurisdiction and adjudicated upon the issue of availment of regular CENVAT Credit brought forward from the previous years.
• Referring to Section 174 of the CGST Act, 2017, it was submitted that the legal proceedings or recovery or arrears or any such tax, surcharge, penalty, interest etc. as in the instant case, could be levied or imposed under the pre-GST laws as if the repealed Acts, i.e., Finance Act, 1994 and Central Excise Act, 1944 are not being so amended or repealed.
• That under Section 2(62) of the CGST Act, input tax means Central Tax, State Tax, Integrated Tax or Union Territory Tax charged on supply of goods or services or both by registered persons. Further these expressions have been defined under Sections 2(21), 2(104) and 2(58) of the C.G.S.T. Act respectively to mean tax levied under the C.G.S.T. Act, State Goods and Service Tax Act and the Integrated Goods and Service Tax Act as the case may be.  Similarly, Section 2(63) of the C.G.S.T. Act defines input tax credit to mean the credit of input tax. Therefore, input tax credit is not CENVAT credit, i.e., the credit that had accrued under the erstwhile regime.          
• Referring to Section 16 of the C.G.S.T. Act, it was submitted that the amount taken as credit shall be credited to the Electronic Credit Ledger (E.C.L. for short). In other words, input tax shall be credited or be available to be utilized from the E.C.L by a registered person. Further a registered person is entitled to take credit of eligible duties relating to period prior to the coming into force of the G.S.T. Act under Section 140 and such credit from the erstwhile regime shall be available in the ECL of the said person.
• That the transition credit is barred only in the situations provided in proviso to Section 140 and the credit appearing in the ECL both under erstwhile regime and the present regime in terms of Section 140 and Section 16, lose their distinction or birthmark once it is transferred to ECL.
• Referring to Section 49(4) and Section 73, it was submitted unless and until there is wrongful availment of or utilization of input tax credit as defined under GST law, the Proper Officer is prevented from taking any action under Section 73. Anything to the contrary shall result in illegal assumption of jurisdiction.
• To support its contention, reliance was placed on the decisions of Carona Ltd. vs. Parvathy Swaminathan & sons reported in (2007) 8 SCC 559, Raza Textiles Ltd. vs. Income Tax Officer, Rampur reported in (1973) 1 SCC 633 and Calcutta Discount Co. Ltd. vs. Income Tax Officer, Companies District I Calcutta & another reported in AIR 1961 SC 372.
• It was submitted that the respondent authority is only vested with the power of verification of transitional credit and not determine its eligibility or availability. Referring to rule 117 & 121 of the CGST rules, it was submitted that verification, as prescribed under rule 121, is limited to the extent of the circumstances specified under proviso to Section 140 which bars transitioning of credit in specified circumstances. It is submitted that unless and until the amount specified by the applicant falls under the specified circumstances mentioned under proviso to Section 140, such amount cannot be denied to be transitioned.
• That reliance was also placed on Section 142 (6)(b), which ‘provides that the every proceeding of appeal, review or reference relating to recovery of CENVAT Credit initiated whether before, on or after the appointed date under the existing law shall be disposed of in accordance with the provisions of existing law and if any amount of credit becomes recoverable as a result of such appeal, review or reference, the same shall, unless recovered under the existing law, be recovered as an arrear of tax under this Act and the amount so recovered shall not be admissible as input tax credit under this Act i.e. the CGST Act.’ With this, it was submitted that GST Law does not prescribe for initiation of proceedings under the erstwhile law.
• Referring to Section 174 and the decision of Hon’ble Supreme Court in Neena Aneja v. Jai Prakash Associates Ltd. reported in 2021 SCC Online Supreme Court 225 and in State of Rajasthan v. Mangilal Pindwal reported in 1996 5 SCC 60, it was submitted that in the event a statute is repealed without a saving clause all rights (except for rights accruing under transaction past and closed) are extinguished along with the repeal.
• Relying on the decision of Kedar Nath Singh v. State of Bihar reported in AIR 1962 Supreme Court 955, it was submitted that any dispute arising out of the erstwhile legislation has to be dealt by the provisions of the said legislation and not under the present GST laws.
• That providing the details of eight show cause notice which had been already issued to the petitioner for the previous regime, it was submitted that the proceeding initiated under the pre-GST regime, which are pending before learned CESTAT or before the Commissioner (Appeals), are for the alleged contraventions relating to distribution of CENVAT Credit on input services received by Bokna captive iron ore mines of the petitioner and Kathotia captive coal mines of the petitioner. The present show cause notice which has led to passing of the order in original also alleges wrongful distribution of CENVAT Credit in terms of the rule 14 of the CENVAT Credit Rules, 2004. However, the impugned has been passed under Section 73 of the CGST Act instead of relevant provisions of CEA Act and Finance Act read with Rule 14 of the CCR, 2004 and is without jurisdiction.
• Relying on the judgment of Magadh Sugar & Energy Ltd. vs. State of Bihar & others reported in (2021) SCC online SC 801, it was contended that the impugned proceedings being without jurisdiction and the order in original passed by the respondent authority being contrary to scheme of the CGST Act are fit to be quashed in exercise of the powers under Article 226 of the Constitution of India by this Court as no determination on disputed questions of fact are required to be made to decide this legal issue. Petitioner has no objection if such a proceeding can be initiated under the erstwhile C.E.A and the Finance Act for alleged contraventions.

Respondents’ Submissions: –

• That opposing the submissions made on the behalf of the petitioner, it was submitted on the behalf of the respondents that the petitioner has an efficacious and alternative remedy against the order-in-original before the appellate authority under Section 107 of the CGST Act, 2017.
• Further the proper Officer has not exceeded its jurisdiction as circular dated 9th February, 2018, which permits the proper officer to adjudge disputes under Section 73/74 of the CGST Act in respect of central tax not paid or short paid or input tax credit or central tax wrongly availed or utilized.
• That the plea of the petitioner that the instant show cause notice should have been kept in call book till final decision of the appeal by the learned CESTAT is not tenable as the adjudication proceedings are to be time bound in terms of Section 73 (10) the CGST Act, 2017.
• It was submitted that the impugned proceeding has been initiated for wrongful availment of ITC through TRAN 1 for contravention of Section 140 of the CGST Act, 2017 and thus, proceedings under Section 73 of the CGST Act is legal and proper.
• That the bills were raised from Bokna mines by the transporters and Bokna mines paid the same along with service tax leviable on such transportation charge. Mining of iron ore is not subject to levy of duty of excise. The activity of Bokna mines cannot be treated as either provider of output service or a manufacturer.
• Further it was submitted that both mines as well as the petitioner are separate entities and are independent profit centers of Usha Martin Group of companies. Therefore, Bokna mines cannot be equated with the office of the manufacturer or provider of output service or an office of the petitioner.
• Referring to rule 7 of CCR, it was submitted that Bokna mines cannot distribute CENVAT Credit or service tax paid by them for such services. Relying on rule 142 (1) of CGST Rules, 2017, which provides that a proper officer shall serve, along with the notice issued under the relevant Sections indicated therein a summary thereof electronically in form GST DRC 01. Such notice was properly served on the petitioner on 22nd September, 2021 with an acknowledgement. Section 169 of the CGST Act, 2017 relating to service of notice has also been referred to.
• That in view of Rule 3(1) of CCR, 2004, a manufacturer can avail credit of input service received by the manufacturer or provider of output service. Further the invoices being issued on the name of another independent entity and also the provision of service by such entity did not qualify as a input service for the petitioner noticee. Therefore, the credit availed by them was irregular and has rightly been held so by the impugned order-in-original.
• That Section 140 provides for transition of pre-GST era credit to the Electronic credit ledger in GST era and only such credit can be transferred to Electronic Credit Ledger by filing TRAN – 1, for which strict legal authority exists in Section 140 of the CGST Act, 2017. It is to be noted that same CENVAT credit cannot be availed as transitional credit twice.  In form TRAN 1 there are only six entries which decide all CGST credit which is posted in the ECL.
• That for the aforesaid reasons, a show cause notice was issued in Form G.S.T.-D.R.C.-01 on 13th September, 2021 for irregular availment of I.T.C. to the tune of Rs. 10,21,05,096/- transitioned through table 5 (A) and table 7(a)/7A of TRAN 1 under Section 73 (1) of the C.G.S.T. Act, 2017 by the competent authority in view of circular dated 9th February, 2018. The same has been adjudicated upon after providing proper opportunity of personal hearing and considering defence reply submitted by the petitioner.
• Relying on CBEC Circular 23^rd February, 2018, bearing no. 33/07/2018-GST, wherein in para 2, ‘it is provided that where in relation to a certain CENVAT Credit pertaining to which a show cause notice was issued under Rule 14 of the CENVAT Credit rules, 2004, which has been adjudicated and where in the last adjudication order or the last order in appeal as it existed on 1st July, 2017, ‘it was submitted that such CENVAT Credit is not admissible, then such CENVAT Credit or “disputed Credit” credited to ECL in terms of Section 140 of the Act shall not be utilized by a registered taxable person to discharge his tax liability till the order in original or the order in appeal is in existence.

Held: –

• The Hon’ble Court after considering the submissions, facts of the case and the law applicable, at first observed that the CENVAT Credit sought to be transitioned under Section 140 of the CGST Act was never subjected to any adjudication order under the existing law that is the CEA or the Finance Act. Further the Guidance note or the circular dated 23rd February, 2018 does not throw light on whether a proceeding under Section 73 of the CGST Act can be initiated for transition of CENVAT Credit which is alleged to be inadmissible under the pre-existing laws.
• The Hon’ble taking note of the relevant materials, decisions relied upon by the petitioner and guidance note and circular issued by the CBEC as well as the relevant of provisions of CGST Act, provisions of CEA Act & Finance Act and CENVAT Credit rules, found that it is not in dispute that the impugned order in original dated 30th March, 2022 passed under Section 73 (9) of the CGST Act, 2017 relates to availment of CENVAT Credit which was allegedly inadmissible under the CEA and Finance Act read with CCR Further it is also not in dispute that no SCN or order in original has been passed under the existing law, i.e., the CEA and Finance Act read with CCR either at the time of filing of TRAN 1 or thereafter in respect thereof.
• It was found that the instant writ petition has been filed purely on the question of legality and jurisdiction of Respondents to initiate a proceeding under Section 73 (1) of the CGST Act for transition of CENVAT Credit which was allegedly inadmissible under C.E.A. and Finance Act read with CCR The issue raised herein does not require entering into any question of disputed facts. The primary issue relates to the jurisdiction of Respondent No.1 to initiate proceedings under the CGST. Act for alleged contravention of CEA and Finance Act, 1994 read with CCR, 2004.
• Thereafter, the Hon’ble Court taking reference of Magadh Sugar & Energy Ltd. vs. State of Bihar & others reported in 2021 SCC Online Supreme Court 801; Assistant Commissioner of State Tax v. Commercial Steel Limited. In State of HP vs. Gujarat Ambuja Cement Ltd and three-judge Bench of this Court in Executive Engineer v. Seetaram Rice Mill, found that the Apex Court has laid down that the test that is to be applied for the determination of a question of law is whether the rights of the parties before the court can be determined without reference to the factual scenario. If there is no dispute on facts whether the action of the respondent was without jurisdiction or not can be examined in exercise of Article 226 of the Constitution of India. Therefore, the presence of alternative remedy of appeal under Section 107 of the CGST Act does not operate as a restriction to delve upon and decide the question of jurisdiction of respondent no.1 raised in the writ petition. If the order or proceedings are wholly without jurisdiction, the writ court can determine the question of law raised before it.
• The Hon’ble Court taking note of law stated in Section 140 (Transitional arrangements for input tax credit) and Section 174 (Repeal and saving) of the CGST Act, found that Section 139 provides for migration of existing tax payers i.e., every person registered under any of the existing laws. Section 140 provides that a registered person other than a person opting to pay tax under Section 10, shall be entitled to take in his ECL, the amount of CENVAT Credit of eligible duties carried forward in the return relating to the period ending with the day immediately preceding the appointed date, i.e., 1st July, 2017, furnished by him under the existing law in such manner as may be prescribed. So, the transitional provisions have a purpose, when one legislative system ends and another begins it is considered necessary by the legislature to enact special provisions for the circumstance which exists when that legislation came into force.
• Further it was found that the necessity for saving and transitional provisions is a consequence of the change in law, whether the change is caused by the new statute law or by the repeal, repeal and substitution, or modification, of the existing statute law. Thus, the transitional provisions incorporation under Chapter XX enabled the registered tax payers to utilize input tax credit for the amount of CENVAT credit carried forward to GST era. The same would have remained idle or unutilized if such transitional provisions were not provided for under the GST regime.
• The Hon’ble Court on perusal of Section 16 (Eligibility and conditions for taking input tax credit), found that the conditions prescribed under which the registered person shall not be entitled to avail of the credit of input tax are not one which are applicable to the case of the present petitioner. The show cause notice under which the instant adjudication proceedings were initiated mentions of the similar contraventions under the CEA, Finance Act, 1994 and the CCR as mentioned in the previous show cause notices issued under the existing law against the petitioner relating to contravention of the CEA, Finance Act and CCR.
• Further it was found that in the present matter it was not held by the adjudicating authority that the transition of CENVAT Credit under Section 140 of the CGST Act by the petitioner and relating to the period just before the appointed date i.e., 1st July, 2017 are not one which are inadmissible to be credited in terms of section 16 (2) of the CGST Act. The Show cause notice itself alleges contravention of the CEA, Finance Act, 1994, read with CCR, 2004.  Moreover, it is neither the allegation against the petitioner that he had not furnished his returns required under the existing law for the period of six months immediately preceding the appointed date as per clause (ii) to the proviso to Section 140. 
• That the contraventions which have been alleged and the proceedings which have been initiated under Section 73 (1) of the CGST Act are in relation to violation of the CEA and Finance Act read with CCR, which is similar to the previous show cause notices issued under the existing law which are pending adjudication before the learned CESTAT or the Commissioner (Appeals) for different periods and in some of which the petitioner has already got a stay by the learned CESTAT.
• The Hon’ble Court on perusal of Section 73 of CGST Act, found that it is clear that such a proceeding can be initiated for non-payment of any tax or short payment of such tax or for erroneous refund of such tax or for wrongly availing or utilizing the input tax credit which are available under the CGST Act, and it does not speak of CENVAT Credit as CGST .Further the Act does not provide for CENVAT Credit rather the term has been subsumed in the expression input tax credit both relating to the supply of good or services. Therefore, the assumption of jurisdiction by Respondent No. 1 to determine whether the CENVAT Credit was admissible under the existing law by invoking provisions of Section 73 of the CGST Act was not proper in the eye of law.
• Thereafter while considering the next question that ‘whether a registered person could transition inadmissible CENVAT Credit of the existing regime to the GST. regime under Section 140 of the CGST. Act without any check or proceeding against him.’, the Hon’ble Court found on perusal of Section 174 that the new regime had to make provisions for the transactions which remained incomplete under the existing law. Further it is also a well settled legal position that on account of the new legislation the implementation of the GST. regime could not be left to a realm of uncertainty. For a violation under the existing law, parallel proceedings could not be conducted under the existing law at the behest of jurisdictional officer and at the same time under the new law at the instance of another jurisdictional officer of the GST Act.
• Therefore, the repeal and saving provisions under Section 174 is to be understood in the way that the existing Act, such as the Central Excise Act, 1944, the Medicinal and Toilet Preparations (Excise Duties) Act, 1955, Additional Duties of Excise (Goods of Special Importance Act, 1957), The Additional Duties of Excise (Textile and Textile Articles Act, 1978 and the Central Excise Tariff Act, 1985 were repealed under Subsection (1) of Section 174. Further on perusal of clause (e) of sub-section (2) of Section 174, it was noted that the investigations, inquiry, verification, assessment proceedings, adjudication proceedings, legal proceedings which were for recovery of arrears or remedy in respect of any such duty or tax etc., which were pending or such other legal proceedings or inchoate rights which were in existence on the appointed day, for them legal proceedings may be instituted, continued or enforced as if these Acts had not been so amended or repealed.
• It was noted that to decide whether any particular transaction is affected by the repeal of an Act, it is necessary to ascertain whether the transaction in question was completed when the Act was repealed.
• Thereafter, the Hon’ble Court referring to judgment of State of Rajasthan vs. Mangilal Pindwal reported in (1996) 5 SCC 60 para 9 to 11, found that the present repeal and saving clause expressly provides that notwithstanding the repealing Act the repeal shall not affect any right or liability acquired accrued or incurred. Therefore, the it is clear that the repeal of the existing laws upon coming of the GST law regime did not leave a vacuum as to past transactions which were not closed.  The repeal and saving clause (e) under Section 174(1) of the CGST Act allowed such legal proceedings to be instituted in respect of inchoate rights except rights under transactions which were past and closed.
• Moreover, the Petitioners also admit that proceedings for availing CENVAT Credit which were allegedly inadmissible under the CEA, Finance Act, read with CCR, 2004 could have been initiated under the existing laws. It is also not in dispute that in respect of previous proceedings for such contravention the cases have been kept in call book and in some of them the learned CESTAT has stayed the recovery of the tax.
• It was found that the duty of the constitutional courts is to interpret the law and also to ensure that there is certainty about the law not only in the minds of the law enforcement agencies but also in the common person as to where he stands in the eye of law. Further if proceedings for transition of CENVAT Credit alleged to be inadmissible is permitted to be carried under the CGST Act, it may lead to uncertainty not only in the minds of the ordinary citizen but also in the minds of the Tax authorities. In some cases, a jurisdictional proper officer under the C.G.S.T. Act may initiate proceedings under the provisions of the CGST Act for such contravention.  However, in other cases the competent jurisdictional officer may initiate proceedings under the existing law that is the CEA and Finance Act for the same contravention in view of the repeal and saving provisions under Section 174 of the CGST Act.  Such a course as in the instant matter cannot be accepted in law.
• The Hon’ble Court with aforesaid discussion, was of the view that the initiation of proceedings by respondent no. 1 under section 73 (1) of the CGST Act, 2017 for alleged contravention of the CEA and Finance Act, read with CCR against the petitioner by filing TRAN 1 in terms of Section 140 of the CGST Act for transition of CENVET Credit as being inadmissible under the existing law was beyond his jurisdiction.

With the above findings, the Hon’ble Court quashed the impugned Order in Original dated 30^th March, 2022 passed by Respondent No. 1 and the impugned adjudication proceedings being without jurisdiction.  However, liberty was given to the respondents to initiate proceedings under the provisions of the existing law, i.e. CEA, 1944, Finance Act, 1994 read with CCR, 2004 against the petitioner for the relevant tax period in accordance with law.