Facts of the Case

The petitioner, M/s S V Halavagali and Sons, a partnership firm registered under the Goods and Services Tax Act, 2017 and engaged in supply of goods falling under Chapter headings 8432, 31010010 and 10091090, received a show-cause notice dated 09.12.2022 from the Superintendent of Central Excise, Gadag, questioning its claim of CENVAT credit of Rs.6,18,796/- on stock held as of 30.06.2017, filed as a TRAN-1 claim. The petitioner had inadvertently claimed this credit under Table 7(d) instead of Table 7(b) of the TRAN-1 form under Rule 117(4) of the CGST Rules, 2017. A further notice dated 06.02.2023 was issued taking the view that the petitioner was not entitled to credit under the head claimed, and the petitioner's reply was rejected by order dated 20.02.2023 (Annexure-K).

Issues Involved

  1. Whether a bona fide, inadvertent claim of transitional CENVAT credit under the wrong column (7(d) instead of 7(b)) of Form TRAN-1 could be rejected outright, or whether the authority was required to verify and consider the claim under the correct head.
  2. Whether the impugned order rejecting the claim, and the consequential notice, deserved to be set aside and the matter remitted for verification.

Petitioner's Arguments

  • The petitioner argued that the claim under column 7(d) was made inadvertently instead of column 7(b), and that it possessed invoices and documents to support the claim for necessary credit under the correct head.
  • Reliance was placed on a Madurai Bench of the Madras High Court decision (W.P.(MD) No.15531/2020) where, on a similar inadvertent mis-classification, the Court directed the authority to verify the claim and grant relief if supported by material.

Respondent's Arguments

  • The respondents contended that the impugned order was appealable under Section 107 of the CGST Act, implying the writ petition was not the appropriate remedy.

Court Order / Findings

  • The Court examined the Madurai Bench precedent, where an identical mis-classification (7(d) instead of the correct head) led to a direction for verification rather than outright rejection.
  • The Court held that since the petitioner claimed to possess invoices and supporting documents for the credit under the correct column, the impugned order rejecting the claim on a technical mis-classification was liable to be set aside and the matter remitted for verification.
  • Respondent No.1 was directed to consider the petitioner's claim under Column 7(b) of the CGST Rules, 2017 if supported by documents, and to grant consequential relief if the claim was established, within three months.
  • The Court expressly clarified that it had not expressed any opinion on the merits of the claim, leaving that to the authority.

Important Clarification

  • A bona fide, inadvertent mis-classification of a transitional credit claim under the wrong column of Form TRAN-1 (e.g., 7(d) instead of 7(b)) is not necessarily fatal; where supporting documents exist, courts have directed the authority to verify and consider the claim under the correct head rather than reject it outright on a technicality.
  • This principle draws on a consistent line of authority (including from the Madras High Court) recognising that transitional credit provisions should not be defeated by clerical/classification errors made in good faith.

Sections Involved

  • Rule 117(4) of the CGST Rules, 2017 - governs the manner of claiming transitional credit through Form TRAN-1, including credit on stock held as of the appointed date.
  • Section 107 of the CGST Act, 2017 - provides the statutory appellate remedy against orders such as the impugned rejection.

Decision – In Favour of

The writ petition was allowed in favour of the Assessee to the extent of setting aside the impugned order and remitting the matter for verification of the claim under the correct column, without any finding on the ultimate merits of the credit claim itself.

Case Details

High Court of Karnataka, Dharwad Bench, Writ Petition No. 102048 of 2023 (T-RES), Neutral Citation 2023:KHC-D:12831; Coram: Hon'ble Mr Justice Anant Ramanath Hegde; decided on 3 November 2023.

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