No Recovery Proceedings Under Section 73 of The BGST Act Can Be Initiated Against ITC Availed But Not Utilised

No Recovery Proceedings Under Section 73 of The BGST Act Can Be Initiated Against ITC Availed But Not Utilised

M/S Commercial Steel Engineering Corporation vs. Assistant Commissioner of State Taxes: Patna HC 2019


The assessee inadvertently failed to carry forward input tax credit (ITC) for the financial years (FYs) 2007-08 and 2011-12 in the value added tax returns for the said period. The assessee opted to take the benefit of section 140 of the Bihar Goods and Services Tax Act, 2017 (BGST Act), and include the transitional ITC pertaining to FYs 2007-08 and 2011-12 in its electronic credit ledger through TRAN-1. The transitional credit for the FYs 2007-08 and 2011-12, as carried forward into GST, has not been utilised against payment of output liability until date.

The TO rejected the carry forward of credit under section 140 of the BGST Act, and initiated recovery of taxes with interest and penalty under section 73 of the BGST Act. The assessee challenged this action before the Patna High Court (HC) via a writ.


The HC categorically stated that it expressed no opinion on the rejection of transitional credit carried forward, as the assessee had not sought any relief in that respect. The HC restricted its examination to the legality of proceedings initiated under section 73 read with section 50 of the BGST Act. Upon examination, the HC set aside the recovery proceedings and put forth as follows:

1. Mere reflection of credit in the electronic credit ledger cannot be termed as equivalent to availment of credit or utilisation of credit, unless it is actually utilised for payment of tax liability at the time of filing returns.

2. A claim for transitional credit can at best, only be rejected. No statutory jurisdiction is bestowed upon the assessing authority to create a tax liability, in the absence of an existing/ outstanding liability or on actual utilisation of transitional credit.


This is welcome relief granted by the Patna HC, which addresses the dilemma in the industry regarding the applicability of interest on transitional and other credit availed but not yet utilised on account of prevailing uncertainty in creditable duties. This is in line with judgements issued by the HCs of Madras and Kerala under service tax regulations.

Warm Regards,
CA Hitesh Bansal


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