The Gujarat High Court has struck down a provision of the goods and services tax (GST) Act which prohibited ‘first stage dealers from transitioning excise duty credit on goods procured more than a year before the rollout of the new indirect tax regime on July 1, 2017.
The Gujarat High Court has struck down a provision of the goods and services tax (GST) Act which prohibited ‘first stage dealers from transitioning excise duty credit on goods procured more than a year before the rollout of the new indirect tax regime on July 1, 2017. The court termed the sub-section concerned as unconstitutional as it violated the vested right of the petitioner.
Under the GST, businesses are allowed to claim credit of taxes paid on goods bought within 12 months of the appointed date for GST or after July 1, 2016. However, the court said under the Central Excise Act and the CENVAT credit rules, there was no such restriction on availing of credit for goods purchased prior to the one-year period.
A ‘first stage dealer’ refers to a dealer who purchases goods directly from either a manufacturer or an importer. While the judgment is limited to these dealers, it could be cited as precedent for other classes of businesses to seek credit of goods bought before July 1, 2016, experts said.
Rajat Mohan, partner at AMRG & Associates, said the ruling has come as a relief to many genuine ‘first stage dealers’, but it would be a cumbersome task for the government to verify if credit claimed for goods bought years ago had not become unusable or remained sold for commercial reasons.
As the GST Act restricts the input tax credit if underlying goods are not used for supply of output goods or services, the government might verify that the credit has not been claimed in respect of taxes paid on the dead, obsolete stock or which is otherwise not useable in output supply,” Shubham Mittal, DGM-GST of Taxmann, said.
The government had argued in the court that the provision to restrict the scope of availing of credit was to ensure that first stage dealers do not take any undue advantage of such benefit and also to accommodate administrative convenience. The order, however, said these reasons existed even in the earlier regime, and hence wasn’t a sufficient reason for the restriction in the GST.

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