No refund of ITC on capital goods under old VAT law in GST Regime: HC

The case had been filed by a company named M/S Madhukesh G Associates in the Allahabad High Court, challenging an order passed by the Commercial Tax Tribunal, Meerut, in Second Appeal No. 21 of 2022. The case is related to the assessment year 2017-18 and was decided on November 26, 2025.

The company argued that it had claimed Input Tax Credit (ITC) on capital goods under the old UP VAT Act for the year 2017-18; however, the tax department denied the claim vide assessment order passed on June 28, 2021. After that company filed an application under Section 31 of the UP VAT Act; however, the department partially allowed it vide order passed on March 05, 2022.

The key question asked in this case is “whether the taxpayer could get a refund of Input Tax Credit (ITC) on capital goods under the old UP VAT law after GST started on 1 July 2017.”

The company aggrieved with the order of the tax department filed an appeal before the first appellate authority claiming a refund amounting to Rs. 489,260 on the ground that no ITC can be carried forward in the next financial year for payment of equal instalments, as per Rule 24(1) of the UP VAT Rule.

The company filed a Revision before the High Court. The high court had to decide on two legal queries: one is whether the ITC refund on capital goods should be allowed even though UP VAT ended on 01.07.2017 due to GST coming into effect, and the second is whether the Tribunal should have followed a Madras HC judgement (Easwaran Brothers case).

They purchased capital goods and earned ITC. Rule 24 of UP VAT allowed ITC on capital goods to be taken in 3 equal yearly instalments after the year of purchase. However, GST came into effect from July 01, 2017, so they could not carry forward ITC into the next financial year.

Hence, the company argued that the refund should be allowed since the VAT regime ended. To support its argument, the company also cited an earlier case of FILCO Trade Centre Pvt. Ltd.

However, the tax department argued that ITC on capital goods is not refundable under the UP VAT law; instead, it can only be carried forward and used. After GST came into effect, transition credit could be claimed only by filing TRAN-1. The company did NOT file TRAN-1; thus, it is not allowed for refund.

The court noted that, as per the ITC rules, only carrying forward of ITC to future years is allowed and not taking a refund. Transition to GST required filing TRAN-1, but the company did not do this. The VAT Act does not allow a refund of ITC on capital goods. Because the company neither used ITC nor filed TRAN-1, they cannot demand a refund.

In the final decision, the High Court dismissed the Revision, and the Tribunal’s order was upheld. Meaning the decision has been announced in favour of the tax department.