Form No. J.

(2)
Item No.10

IN THE HIGH COURT OF JUDICATURE AT CALCUTTA

CIVIL APPELLATE JURISDICTION
APPELLATE SIDE
HEARD ON: 11.03.2025
DELIVERED ON: 11.03.2025
CORAM:
THE HON’BLE CHIEF JUSTICE T.S. SIVAGNANAM
AND
THE HON’BLE JUSTICE CHAITALI CHATTERJEE (DAS)
M.A.T. 2333 of 2023
With
IA No. CAN 1 of 2023
Kunjal Synergies Private Limited & Anr.
Versus
The Assistant Commissioner of CGST & CX, Park Street Division & Ors.
Appearance:-
Mr. Ankit Kanodia
Ms. Megha Agarwal
Mr. Jitesh Shaw
…….For the Appellants
Mr. Vipul Kundalia
Mr. Soumen Bhattacharjee
Mr. Anindya Kanan
Mr. D. Chaudhuri
……..For the Union of India
Mr. Kaushik Dey
Mr. Abhradip Maity
…..For the Respondent
(Judgment of the Court was delivered by T.S. SIVAGNANAM, C.J.)

1. This intra-Court appeal by the writ petitioners is directed against the order dated

28th November, 2023 in W.P.A. 23893 of 2023. The appellants had filed writ

petition praying for issuance of a Writ of Mandamus to quash/set aside the show-

cause notice dated 18th September, 2023 issued by the Assistant Commissioner of

CGST & CX, Park Street Division, Kolkata South Commissionerate. Further, the

petitioners sought for a direction upon the respondent no.1 to ascertain as to why

the proceedings, which had been initiated since 2018 has resulted in issuance of

the impugned show-cause notice dated 18th September, 2023 without considering

any of the submissions of the appellants/writ petitioners from time to time.

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2. The learned Writ Court by the impugned order opined that the appellants/writ

petitioners should file a reply to the show-cause notice and thereafter, the

authority should adjudicate the show-cause notice and pass a reasoned order.

Being aggrieved by such order, the appellants have filed the present appeal.

3. We have elaborately heard the learned advocates for the parties.

4. The facts of the case in a nutshell are as hereunder:-

The appellants are engaged in the business of trading and import of Ethers, Ether

Alcohols, Ether Phenols falling under CTH-2909 of the Customs Tariff of India as

made applicable to GST and is registered with the GST department. The

appellants were registered as an assessee under the earlier service tax regime as

well as the Central Excise regime and they migrated to the GST regime with effect

from 1st July, 2017 and were allowed to file TRAN 1 Form for carrying forward of

closing balance of CENVAT credit of the erstwhile regime to the new GST regime

and the same was filed by the appellants on 9th November, 2017. Even prior to

filing of the Form TRAN 1 on 9th November, 2017, the appellants had informed the

Superintendent of Service Tax by letter dated 31st October, 2016 stating that

during the audit for the financial year 2015-16, it was observed that the

appellants have a balance of Rs.41,55,632.00/- on account of unavailed CENVAT

credit. It was explained that the same has accrued and has not been utilised as

Input Service Tax in the financial year 2015-16 and therefore, the appellants have

claimed the said amount as a part of Opening Balance of CENVAT Credit in the

Service Tax Return filed for April - September, 2016. The appellants requested the

Department to allow the same as CENVAT Credit in the current year 2016-17.

Much thereafter, a letter was issued to the appellants calling for various

documents for the verification of the transitional credit. This was furnished by the

appellants to the authority on 5th January, 2018 followed by another

communication addressed to the Assistant Commissioner dated 9th January,

2018. After about more than eight months, another communication was sent by

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the Superintendent dated 11th September, 2018 referring to their earlier reply and

pointing out certain issues and requested further reply from the appellants. This

was complied with by the appellants by reply dated 18th September, 2018

enclosing the statement of the CENVAT Credit claimed. Subsequently, several

such communications have been sent to the writ petitioners and promptly, the

appellants/writ petitioners have also submitted replies. However, the fact remains

that the authority concerned, who started the verification process ever since 2018,

did nothing in the matter to take the issue to the subsequent stage by issuance of

show-cause notice or adjudicating the matter and all it remained was that

intimation was given to the writ petitioners calling for certain documents under

the guise of verification and the petitioners had been reiterating the same stand

and enclosing which were submitted earlier or certain other new documents,

which were called for. This process did not abate and continued till October,

2022 when the CGST authority issued a similar letter with regard to verification of

payments/reversal and clarification.

5. Subsequently, a notice was issued in GST DRC 01A dated 2nd March, 2023 for

which the appellants had filed a reply on 9th March, 2023.

6. Apart from other things in the reply, the appellants contended that the jurisdiction

of the authority to conduct TRAN 1 investigation is challenged by the appellants as

there has been TRAN 1 verification conducted by the Department since 2018 and

there was no demand raised in any of the verification and the details were given in

a tabulated format. Therefore, the appellants contended that the notice in GST

DRC 01A dated 2nd March, 2023 has been issued without considering any of the

objections, which have been filed by the appellants at the stage of verification of

TRAN 1 and raising a demand after four years of continuous communication with

the Department cannot be held to be a valid exercise and the notice was liable to

be withdrawn as being without jurisdiction.

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7. Further, the appellants pointed out that when it has been admitted by the

Department that input tax credit availed in Table 7 was eligible for input tax credit

to the appellants and further, reference of sub-table of table 7 was incorrectly

filed, the question of availment of ineligible Input Tax Credit by the appellants

does not arise and the DRC proceedings are liable to be dropped.

8. Thus, the legal question to be answered in the instant case is whether the show-

cause notice dated 18th September, 2023 issued under Section 73 of the CGST Act

was within the jurisdiction of the authority alleging that there is an irregularity in

the transitional credit of CGST availed under TRAN 1.

9. We need not labour much to find an answer to the above mentioned query as

identical issue was decided by the Hon’ble Division Bench of the High Court of

Jharkhand in the case of Usha Martin Limited vs. Additional Commissioner,

Central GST and Excise, Jamshedpur and Ors. reported in [2024] 124GSTR

396 (Jha.) : MANU/JH/1261/2022. In paragraph 9 of the said judgment, the

contention raised by the Department has been noted and in fact, the learned

Senior Standing Counsel appearing for the respondents/Department has made

identical submission before us to sustain the impugned show-cause notice.

10. The Hon’ble Court firstly considered as to the scope of entertaining a writ petition

under Article 226 of the Constitution challenging a show-cause notice when the

normal course to be adopted is to submit a reply and face the adjudication

proceedings. The Court, after taking note of the several decisions of the Hon’ble

Supreme Court held that there is always an exception to the rule of alternate

remedy but when the orders of proceedings are wholly without jurisdiction, there

is an exception drawn and writ petitions were held to be maintainable.

11. Thus, when a jurisdictional issue is being canvassed before us, the alternate

remedy provided under the CGST Act would not operate as a restriction for this

Court to decide upon the jurisdiction of the respondents to issue the show-cause

notice invoking the provisions of the CGST Act.

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12. The Court then proceeded to take note of Sections 140 and 174 of the CGST Act,

where section 140 deals with the transitional arrangements for input tax credit

and noted the purpose for introducing a transitional provision. The relevant

portion of the judgment is quoted hereinbelow:

“17.************* It is in this light that the transitional provisions

incorporated under Chapter-XX have to be understood. The C.E.A., 1944
and the Finance Act, 1994 ceased to exist with effect from 1st July, 2017
upon coming into force of the C.G.S.T. Act and the G.S.T. regime. Under the
existing law, CENVAT Credit admissible to any registered Tax payer could
have been utilized as input tax credit for discharge of tax liability. The same
would have remained idle or unutilized if such transitional provisions were
not provided for under the G.S.T. regime. Therefore, the legislature provided
for transitional arrangement for input tax credit under the C.G.S.T. Act i.e.
CENVAT Credit or under the State G.S.T. Act i.e. input tax credit as are
admissible at the time of transition under the existing Vat laws or Entry Tax
Act etc. The circumstances under which it is permissible to transition such
credit are provided under Section 140 proviso itself which have been quoted
herein above. Clause (i) to the Proviso indicates that the said amount of
credit if it is not admissible as input tax credit under this Act meaning
thereby the C.G.S.T. Act, the registered person shall not be allowed to take
credit of those CENVAT Credit. The circumstances in which no registered
person shall be entitled to take credit of any input tax in respect of any
supply of good or services or both are provided under Section 16(2) of the
C.G.S.T. Act under Chapter V “Input Tax Credit”, which is quoted
hereunder.”

13. After discussing about the transitional provisions, the Court proceeded to examine

the next question i.e. whether a registered person could transition inadmissible

CENVAT Credit of the existing regime to the G.S.T. regime under section 140 of

the C.G.S.T. Act without any check or proceeding against him. In this regard, the

Court noted section 174 of the C.G.S.T Act and other Constitutional provisions

and held: “it is obvious the new regime had to make provisions for the transactions

which remained incohate under the existing law. It is also a well-settled legal

position that on account of the new legislation the implementation of the G.S.T.

regime could not be left to a realm of uncertainty. For a violation under the existing

law, parallel proceedings could not be conducted under the existing law at the

behest of jurisdictional officer and at the same time under the new law at the

instance of another jurisdictional officer of the G.S.T. Act.”

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14. Ultimately, the Court held: “that in respect of previous proceedings for such

contravention, the cases have been kept in call book and in some of them the

learned CESTAT has stayed the recovery of the tax…...” “If proceedings for

transition of CENVAT Credit alleged to be inadmissible is permitted to be carried

under the C.G.S.T. Act, it may lead to uncertainty not only in the minds of the

ordinary citizen but also in the minds of the Tax authorities. In some cases a

jurisdictional proper officer under the C.G.S.T. Act may initiate proceedings under

the provisions of the C.G.S.T. Act for such contravention. In other cases, the

competent jurisdictional officer may initiate proceedings under the existing law i.e.

the C.E.A. and Finance Act for the same contravention in view of the repeal and

saving provisions under Section 174 of the C.G.S.T. Act and such a course cannot be

countenanced in law.”

15. Thus, while answering the question, it has to be considered whether the initiation

of proceedings by the respondent no.1 therein under Section 73 of the CGST Act

for alleged contravention of the Central Excise Act and Finance Act read with

CENVAT Credit Rules against the petitioners therein by filing TRAN 1 in terms of

Section 140 of the CGST Act for transition of CENVAT credit as being inadmissible

under the existing law or beyond his jurisdiction. Accordingly, the adjudication

proceeding, which was impugned in the said writ petition, was quashed. However,

the respondent authorities were granted liberty to initiate proceedings under the

provisions of the existing law i.e. Central Excise Act, 1944, Finance Act, 1944 read

with CENVAT Credit Rules, 2004 against the petitioner therein for the relevant tax

period in accordance with law.

16. The expression “in accordance with law” is added with the purpose because the

liberty should not be construed to be a liberty de hors the provisions of law.

17. The learned advocate appearing for the appellants submitted that information was

sought for under the provisions of the Right to Information Act, 2005 as to

whether any appeal has been filed against the judgment passed in the case of

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Usha Martin Limited (supra) and a reply was received on 6th February, 2024

stating that the department has not filed any appeal against the said judgment.

However, we note that the Hon’ble Division Bench of the High Court of Jharkhand

in the case of Steel Authority of India Limited Vs. The State of Jharkhand

reported in [TS-49-HC (JHAR)-2025-GST] had occasion to consider more or less an

identical fact as the case on hand and followed the decision in Usha Martin

Limited (supra) and quashed the adjudication order, which was impugned

therein and also issued consequential directions. However, the liberty for the

authority was preserved as per the observations made in Usha Martin Limited

(supra).

18. In the light of the above discussions, we have no hesitation to hold that the

impugned show-cause notice is without jurisdiction. In the result, the appeal is

allowed along with the connected application (IA No. CAN 1 of 2023). The order

passed by the learned Single Bench is set aside. Consequently, the writ petition is

allowed and the impugned show-cause notice is quashed.

19. However, the respondent authorities are at liberty to initiate proceeding under the

provisions of the then existing law i.e. the Finance Act, 1944 as amended from

time to time read with CENVAT Credit Rules, 2004 against the appellants for the

relevant tax period. However, such proceedings should be in accordance with law.

20. No costs.

21. Urgent photostat certified copy of this order, if applied for, be furnished to the

parties expeditiously upon compliance of all legal formalities.

(T.S. SIVAGNANAM)
CHIEF JUSTICE

I agree.

(CHAITALI CHATTERJEE (DAS), J.)

Pallab/KS AR(Ct.)