Facts of the Case

The petitioner, M/s.Arun Structurals, Pudukkottai, was originally a partnership firm registered under TIN No.33604100485. One of its partners, S.Sridharan, met with an accident and died on 07.03.2017. Following his death, the legal heirs, S.Deepa and S.Naveen, were inducted as partners into the reconstituted firm, which obtained a fresh registration (new TIN No.33886477864) on 10.04.2017 and, later, GSTIN 33AAHFA8030B1Z4/17-18. The old concern's stock and its unutilised input tax credit of Rs.17,60,473/- were taken over by the new partnership. While filing the online monthly return for April 2017, the petitioner reported this amount as opening balance of input tax credit, but it did not reflect in the return. The petitioner sent a representation dated 08.05.2017 seeking permission to carry the closing credit forward, claimed the credit in Annexure-29 for the returns filed for April to June 2017, and thereafter attempted to transition the same credit under the GST regime that came into force from 01.07.2017. The respondent, State Tax Officer, Pudukkottai-III Assessment Circle, issued a pre-assessment notice, to which the petitioner replied, but ultimately passed an order dated 02.02.2021 denying the transitional credit. The petitioner filed this writ petition under Article 226 challenging the order as illegal, without jurisdiction, in violation of Section 140(1) of the TNGST Act, 2017, and passed without the personal hearing contemplated under Section 75(4) of the TNGST Act, 2017.

Issues Involved

  1. Whether input tax credit lying unutilised in the hands of the erstwhile firm under its old TIN could validly transition to the reconstituted firm's new TIN under Section 140(1) of the TNGST Act, 2017.
  2. Whether the impugned order, passed without affording a personal hearing, violated the principles of natural justice and Section 75(4) of the TNGST Act, 2017.

Petitioner's Arguments

  • The old concern's stock and input tax credit of Rs.17,60,473/- were genuinely taken over by the new partnership after the death of a partner necessitated fresh registration.
  • The credit was duly reported as opening balance in the April 2017 return, followed by a representation dated 08.05.2017 seeking permission to carry it forward.
  • The credit was claimed in Annexure-29 for the returns filed for April to June 2017 and was sought to be transitioned into the GST regime.
  • Though the petitioner replied to the pre-assessment notice, the impugned order was passed without a personal hearing, in breach of natural justice.

Respondent's Arguments

  • The amount in question was not reflected in the monthly return filed for June 2017, so it was not open to the petitioner to transition the credit into the new GST regime.
  • Under Rule 10(8)(a) of the TNVAT Rules, 2007, a transferee claiming credit under Section 19(14) must furnish a Chartered/Cost Accountant certificate of un-availed credit, an inventory of stock transferred, details of capital goods transferred, and the original tax invoices.
  • The petitioner had not filed any of these records to prove the transfer of input tax credit to the new TIN.

Court Order/Findings

  • The central question was whether the credit lying unutilised in the hands of M/s.Arun Structurals under the old TIN could be transferred to the same-named firm under the new TIN obtained after the partner's death.
  • The Court found no reason why the credit should not be allowed if it could validly transit between the two TINs of the same firm.
  • The impugned order was passed without following the principles of natural justice and was therefore liable to be quashed.
  • The Court noted that the respondent's attempt was, in effect, to deny credit that remained unutilised merely because a partner's death led to surrender of the old registration and grant of a fresh one.
  • The impugned order was quashed and the matter remitted to the respondent to examine the petitioner's records and the TNVAT Act/Rules, and to ascertain whether the credit was validly transitioned; if so found, the transition was to be allowed.
  • This exercise was directed to be completed within three months, with the petitioner to furnish all supporting documents; the writ petition was disposed of with these observations, with no order as to costs.

Important Clarification

  • Death of a partner that necessitates surrender of an old registration and grant of a fresh registration to the reconstituted firm does not, by itself, extinguish input tax credit lawfully accumulated and left unutilised under the earlier registration.
  • Such a claim must still be examined on merits with reference to Section 140(1) of the TNGST Act, 2017 and Rule 10(8)(a) of the TNVAT Rules, 2007 governing documentation for transfer of credit on business succession.
  • An order denying transitional credit without affording a personal hearing under Section 75(4) of the TNGST Act, 2017 cannot stand and is liable to be quashed on natural justice grounds alone, independent of the merits of the credit claim.

Sections Involved

  • Section 140(1), Tamil Nadu Goods and Services Tax Act, 2017 — governs transition of existing input tax credit into the GST regime.
  • Section 75(4), Tamil Nadu Goods and Services Tax Act, 2017 — mandates a personal hearing before an adverse order is passed.
  • Rule 10(8)(a), Tamil Nadu Value Added Tax Rules, 2007 — prescribes documentation (CA/Cost Accountant certificate, stock inventory, capital goods details, original tax invoices) for a transferee claiming credit under Section 19(14) on transfer of business.

Decision – In Favour of

Disposed of with directions, in part in favour of the Assessee — the impugned order denying transitional input tax credit was quashed for violation of natural justice, and the matter was remitted for a fresh, time-bound decision on the merits of the transition claim rather than a final finding in the petitioner's favour.

Related Case Laws

No related case laws are available on this site at present for cross-reference on this specific point.

Case Details

  • Court: Madras High Court, Madurai Bench
  • Case No.: W.P.(MD) No.8681 of 2021
  • Coram: Hon'ble Mr. Justice C. Saravanan
  • Date of Order: 01.04.2022

Link to Download the Order

Download the full order

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.