Facts of the Case

The petitioner, M/s. Bharat Heavy Electricals Limited (BHEL), challenged an Order-in-Original dated 15.12.2018 rejecting its claim to migrate Rs.2,39,61,824/- of unadjusted Tax Deducted at Source (TDS) as Input Tax Credit under Section 140(1) of the Jharkhand GST Act, 2017, and the subsequent appellate order dated 07.12.2022 (Appeal Case No.HZ/JGST-A-49/2021-22) confirming a consolidated demand of Rs.3,10,32,926.72. Counsel for the petitioner submitted, and the department's counsel eventually confirmed on instructions, that the issue was squarely covered by this Court's own earlier decision dated 09.01.2023 in W.P.(T) No.2404 of 2020.

Issues Involved

  1. Whether unadjusted TDS collected under the erstwhile Jharkhand VAT Act, treated as input tax credit under the JVAT return format, is eligible for migration into the GST electronic credit ledger under Section 140(1) of the JGST Act.
  2. Whether Rule 117 of the JGST Rules, which on a literal reading restricts migration to 'input tax credit' alone, can be read to override the wider term 'credit of amount of value added tax and entry tax' used in Section 140(1) itself.

Petitioner's Arguments

  • The petitioner relied entirely on the binding precedent of the same High Court in W.P.(T) No.2404 of 2020, holding that unadjusted TDS, like unadjusted entry tax, was intended by the legislature to be migrated under Section 140(1) rather than left to a cumbersome refund process, and that Rule 117, being subordinate legislation, cannot cut down the wider scope of Section 140(1).

Respondent's Arguments

  • The department's counsel, after seeking and obtaining instructions on the last occasion, admitted that the petitioner's case was squarely covered by the precedent in W.P.(T) No.2404 of 2020.

Court Order / Findings

  • Applying its own binding precedent verbatim, the Court reiterated that the proviso to Section 140(1) restricting migration only bars credit that is expressly inadmissible as input tax credit under Section 17(5) of the JGST Act, and does not extend to unadjusted TDS or entry tax, since a contrary reading would render those words in Section 140(1) nugatory and defeat the transitional provision's purpose.
  • The Court held that Rule 117, being subordinate legislation restricting the wider scope of Section 140(1), must be ignored by a Constitutional Court to the extent of the inconsistency, even without a specific prayer to strike it down.
  • Since the department's own counsel conceded the issue was squarely covered, the Court quashed and set aside the adjudication order dated 15.12.2018 and the appellate order dated 07.12.2022, and directed the respondents to allow the petitioner to avail credit of Rs.2,39,61,824/- under Section 140(1) of the JGST Act.

Important Clarification

  • Unadjusted TDS collected under the erstwhile State VAT law (and similarly unadjusted entry tax) qualifies for migration as transitional credit under Section 140(1) of the GST Act, because the legislative intent behind that provision was to spare assessees the cumbersome process of separately claiming a cash refund of such amounts after the VAT law's repeal.
  • Rule 117 of the GST Rules, to the extent it purports to restrict transitional migration to "input tax credit" alone (narrower than the "credit of value added tax and entry tax" language of Section 140(1) itself), is subordinate legislation that cannot cut down the parent provision, and a Constitutional Court will decline to enforce it to that extent even without an express prayer for striking it down.

Sections Involved

  • Section 140(1) of the Jharkhand GST Act, 2017 - governs migration of unutilised credit of VAT/entry tax (including unadjusted TDS) into the GST electronic credit ledger.
  • Rule 117 of the JGST Rules, 2017 - the subordinate provision prescribing the manner of claiming transitional credit, held in this case to be inconsistent with the wider scope of Section 140(1) as regards TDS.
  • Section 17(5) of the JGST Act, 2017 - lists transactions for which input tax credit is expressly barred, the only real limitation on transitional migration under the proviso to Section 140(1).

Decision – In Favour of

The writ petition was allowed in favour of the Assessee; both impugned orders were quashed and BHEL was permitted to avail the disputed transitional credit of over Rs.2.39 crore.

Case Details

High Court of Jharkhand at Ranchi, W.P.(T) No. 2857 of 2023; Coram: Hon'ble Mr. Justice Rongon Mukhopadhyay and Hon'ble Mr. Justice Deepak Roshan; decided on 27 July 2023.

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