Facts of the Case

The petitioner, M/s. Malabar Cements Ltd., sought quashing of two orders — Exhibit P-4, passed by the Commissioner rejecting its application for extension of the limitation period for claiming transitional input tax credit, and Exhibit P-5, the consequential order-in-original dated 13.03.2023 denying its claim for transitional credit under Section 140(5) of the CGST Act, 2017 in respect of inward supplies received before 01.07.2017. Under Section 140(5), such credit had to be claimed within thirty days of the appointed day, extendable by the Commissioner by a further thirty days on sufficient cause being shown. The petitioner had filed its TRAN-1 return claiming the credit on 27.12.2017, after the initial thirty-day period had already expired and without any prior order from the Commissioner extending the limitation. It was only after a show cause notice dated 07.04.2022 under Section 73 was issued — apparently following an irregularity flagged by the Comptroller and Auditor General (C&AG) in respect of transitional credits — that the petitioner filed an application on 24.01.2023 (more than five years after filing TRAN-1) seeking extension of the limitation period. The Commissioner rejected this application by Exhibit P-4 order dated 02.03.2023 as belated and unexplained.

Issues Involved

  1. Whether the Commissioner erred in rejecting the petitioner's application for extension of the limitation period under Section 140(5) of the CGST Act, filed more than five years after the TRAN-1 return.
  2. Whether denial of transitional credit under Exhibit P-5 could be sustained once the extension application itself was rejected.
  3. Whether the petitioner was entitled to any alternative relief, including exclusion of time for pursuing a statutory appeal.

Petitioner's Arguments

  • The petitioner argued that its claim for transitional credit on inward supplies made before 01.07.2017, when the GST Act came into force, was a legitimate accrued entitlement under Section 140(5).
  • It was contended that the Commissioner ought to have condoned the delay and extended the limitation period for claiming transitional credit, given that the credit related to genuine pre-GST inward supplies.
  • The petitioner sought quashing of both the rejection of the extension application (Exhibit P-4) and the consequential denial of credit (Exhibit P-5).

Respondent's Arguments

  • The Commissioner's order (Exhibit P-4) recorded that the TRAN-1 return had been filed on 27.12.2017, but the application for extension under the first proviso to Section 140(5) was received only on 24.01.2023 — more than five years later — without any cause being shown for the extraordinary delay.
  • It was pointed out that the application for extension was filed only after an irregularity in transitional credits was flagged by the C&AG in a special study, suggesting the application was reactive rather than a timely invocation of the proviso.
  • The respondents maintained that an application for extension under the first proviso to Section 140(5) should ordinarily have been made within a reasonable time, i.e., before filing of the TRAN-1 return itself, and that the belated application was rightly rejected.

Court Order/Findings

  • The Court examined Section 140(5) and found that beyond the initial thirty-day period, an assessee could claim transitional credit only within a further extended period sanctioned by an order of the Commissioner, and could not do so unilaterally.
  • The Court held that the Commissioner had not committed any error of law or jurisdiction in rejecting an application for extension filed more than five years after the prescribed date, and consequently upheld the denial of transitional credit.
  • The Court found no substantial ground to entertain the writ petition on this basis and declined to interfere with Exhibits P-4 and P-5.
  • However, the Court granted the petitioner liberty to pursue any statutory remedy available against the merits of the Exhibit P-5 order, and directed that the time spent in prosecuting the writ petition be excluded while computing the limitation for filing such an appeal.

Important Clarification

  • An application for extension of the limitation period under the first proviso to Section 140(5) of the CGST Act must be made within a reasonable time — ordinarily before or shortly after filing the TRAN-1 return — and not years later; courts will not fault a Commissioner for rejecting a grossly belated application absent any explanation for the delay.
  • The Commissioner's power to extend the thirty-day period under Section 140(5) is not open-ended; without a valid extension order, transitional credit claimed beyond the initial period is not sustainable, however genuine the underlying pre-GST supply may be.
  • Even where a writ petition on the substantive denial of credit is dismissed, courts may still protect an assessee's right to pursue the statutory appellate remedy by excluding the time spent in the writ proceedings from the limitation period for that appeal.

Sections Involved

  • Section 140(5), CGST Act, 2017 — entitles a registered person to transitional credit of duties/taxes on inputs or input services received on or after the appointed day, subject to a thirty-day recording period extendable by the Commissioner by a further thirty days on sufficient cause.
  • Section 73, CGST Act, 2017 — governs determination of tax not paid/short paid otherwise than by reason of fraud, under which the underlying show cause notice was issued.

Decision – In Favour of

Decided substantially in favour of the Department — the denial of transitional credit and the rejection of the belated extension application were both upheld — though the petitioner was left at liberty to pursue the statutory appellate remedy against the order-in-original, with the writ litigation period excluded from limitation.

Related Case Laws

No directly on-point case notes are currently published on this site.

Case Details

  • Court: High Court of Kerala at Ernakulam
  • Case No.: WP(C) No.12899 of 2023
  • CNR: Not available on record
  • Coram: Hon'ble Mr. Justice Dinesh Kumar Singh
  • Decision Date: 19 October 2023
  • Disposal Nature: Dismissed; denial of transitional credit upheld

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