| Nov-24-2021

SCN quashed by Bombay HC for allegedly availing inadmissible transitional credit as has been issued on an erroneous legal premise

The Hon’ble Bombay High Court (“Bombay HC”) in the matter of Godrej & Boyce Mfg. Co. Ltd. v. Union of India and Ors. [WRIT PETITION NO. 3226 OF 2019 dated October 29, 2021], quashed the Show Cause Notice for allegedly availing inadmissible transitional credit worth Rs.3.83 Crores as it has been issued on an erroneous legal premise.

Godrej & Boyce Mfg. Co. Ltd. (“the Petitioner”) filed the petition dated November 14, 2019 in which the Petitioner has mounted a challenge to a show cause notice dated August 27, 2019 issued by the Joint Commissioner, CGST & C.Ex, Navi Mumbai. It has been alleged in such notice that the Petitioner availed inadmissible transitional credit amounting to Rs.3.83 crores. Further the Petitioner contended that the impugned notice proceeds on the footing that the transitional arrangement for taking Input Tax Credit in the cases of CESS such as Education Cess, Secondary & Higher Education Cess and Krishi Kalyan Cess has been taken away by a retrospective amendment in the GST Law. However, the Petitioner claims that even on the date, this writ petition was presented, the amendment(s) referred to in the impugned notice had not come into force and, therefore, the impugned notice has been issued on an untenable legal premise. Hence it is without jurisdiction.

The Petitioner while articulating this point in support of his claim that the impugned notice is non-est in the eyes of law, pointed out that Explanation 3 has been inserted in Section 140 of the Central Goods and Services Act, 2017 (“the CGST Act”) with effect from July 1, 2017 by Section 28 of the Central Goods and Services (Amendment) Act, 2018. It is further pointed out by the Petitioner that amendments have also been introduced in Explanations 1 and 2 to Section 140 of the CGST Act.

The Respondents opposed the petition by contending that the impugned show-cause notice has been issued by an officer who does have the jurisdiction to issue such notice hence, the Petitioner ought to be directed to raise all points that are available to it in defence for consideration of the said officer. It was further contended by the Respondents that the point urged by the Petitioner that the impugned show cause notice is not founded on any legal premises is a jurisdictional issue and such issue can even be urged by it for an adjudication by the Respondent.

The Hon’ble Bombay High Court relied on the case Special Director and Anr. v. Mohd. Ghulam Ghouse & Anr. [Appeal (crl.) 35 of 2004 dated January 9, 2004], and held in the present case that where the impugned show-cause notice suffers from an error going to the root of the jurisdiction of the Respondent in assuming jurisdiction and is, accordingly indefensible and liable to be set aside.

Further, the Court directed that if the Respondent has reason to believe that the action proposed in the show-cause notice could be saved even without the amendments in Explanations 1 and 2 to Section 140 of the CGST Act having been brought into force or on grounds other than the one assigned therein, it shall be at liberty to issue a fresh show- cause notice to the Petitioner and if such notice is issued, the Petitioner will be free to respond to the same and take all possible defences available to it in the law.

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