The Goods and Service Tax Appellate Tribunal (GSTAT) in Chandigarh has partially allowed an appeal filed by Deltron, a division of Continental Device India Private Limited, regarding the eligibility of transitional input tax credit claims amounting to ₹9,89,849. In a significant decision, the tribunal confirmed the taxpayer’s right to claim ₹2,90,845 as transitional credit for capital goods received after the transition to the new tax regime, while concurrently rejecting a separate claim of ₹6,99,004 related to duties paid on goods cleared for export.

The dispute emerged following the introduction of the Central Goods and Services Tax (CGST) Act, 2017, on July 1, 2017. Deltron, a manufacturer previously registered under the Central Excise regime, sought to transition its unavailed tax credits into the GST framework by filing Form TRAN-1. The company’s claims were initially disallowed by the adjudicating authority, a decision subsequently upheld by the Joint Commissioner (Appeals) in Ludhiana. The appeal before the GSTAT Bench, comprising Judicial Member Jatinder Pal Singh and Technical Member Pradeep Kumar Goel, focused on whether the appellant met the specific criteria under Section 140 of the CGST Act for these transitional benefits.

Resolving the Capital Goods Credit Controversy

The primary point of contention regarding the ₹2,90,845 credit concerned capital goods imported by the company prior to the GST rollout, which arrived at the appellant's factory on July 8, 2017. The department had initially argued against the admissibility of this credit, suggesting that the provisions did not extend to goods received after the appointed date.

However, the GSTAT Bench relied on the provisions of Section 140(2) of the CGST Act, which facilitates the carry-forward of unavailed CENVAT credit on capital goods. The tribunal clarified that the statute does not impose a restriction that only fifty percent of the total credit can be transitioned, nor does it mandate that all goods must be received before the commencement of the GST regime.

Reflecting on the legal framework, the tribunal noted, “It is thus evident that while sub-section (2) of Section 140 of the Act admittedly covers cases where capital goods were already received and CENVAT credit was availed in part under the existing law, this sub-section does not create any bar for availing unavailed CENVAT credit on capital goods which were received after the GST Act came into force.” By fulfilling the documentation requirements in Form TRAN-1, the appellant successfully demonstrated that the credit was validly accrued under the previous excise laws and qualified for transition under the current framework.

Examining the Export Duty Claim

Conversely, the tribunal found no legal basis for the appellant’s attempt to claim ₹6,99,004 in transitional credit. This amount represented central excise duty paid on goods dispatched for export on June 29, 2017, which were subsequently subject to Integrated Goods and Services Tax (IGST) at the time of their actual export in the post-GST period.

Deltron had argued that denying this credit would lead to the double taxation of goods, urging the court to invoke Section 174(2) of the CGST Act to protect rights accrued under the repealed statutes. The tribunal, however, maintained a strict interpretation of the transitional provisions. It observed that the legislature had explicitly defined the scenarios where credit could be carried forward, and the present situation regarding exported goods did not fall under any of those prescribed categories.

The Bench held that the " transitional credit is a vested right , which cannot be taken away on procedural or technical grounds" only insofar as it aligns with established law. In this instance, the tribunal concluded that no right had accrued under the existing law because the credit was not a standard input tax credit carry-forward. As the tribunal stated, “The Appellant could perhaps have claimed refund of the Central Excise duty so paid, but cannot use Section 140 as a residuary provision to avail credit in a case where it is not admissible as per law.”

Implications for Compliance and Penalty

Following the adjudication of the credit claims, the tribunal addressed the secondary issues of interest and penalty. The department’s original demand included both interest under Section 50 of the CGST Act and a penalty under Section 73(9) and Section 122(2).

The appellant attempted to challenge the imposition of any penalty, arguing that they had disclosed all relevant information in their TRAN-1 return, thereby negating any claim of suppression. The GSTAT rejected this stance, affirming that penalties under Section 73 apply to the incorrect availment or utilization of input tax credit, regardless of whether the intent was fraudulent or if there was willful misstatement.

Consequently, the tribunal ordered that the penalty amount be recalibrated to reflect the reduction in the total disallowed credit. With the rejection of the ₹6,99,004 claim, the penalty was reduced to ₹69,900, which is calculated at ten percent of the disallowed amount. The appellant is now required to discharge its liability for the interest accrued on the confirmed demand, ensuring the matter is resolved in compliance with the tribunal's order.

The order marks a critical clarification in how taxpayers must navigate the intersection of legacy excise laws and modern GST requirements. By distinguishing between admissible unavailed capital goods credit and non-admissible export-duty claims, the GSTAT has reinforced the necessity of strict statutory adherence in transitional tax filings. The case now moves toward final settlement as the tax authorities recalculate the appellant’s remaining dues based on the tribunal’s specific findings.