Section 140 of the CGST Act, 2017— Transitional Credit – ITC of TDS deducted u/s 44 of VAT Act- The sole issue in the Petitions is that as to whether the amount deducted towards TDS u/s 44 of the VAT is a credit of the amount of VAT which a registered person is entitled to migrate in its electronic credit ledger. The Petitioners were issued SCNs as to why entire claim of migration be not disallowed and interest and penalty be not imposed for wrongful availment of ITC. The court observed that the provisions of Section 140(1) provides for migration of credit i.e. tax paid under the erstwhile tax regime. Under the VAT Act even entry tax was available as input tax credit, TDS amount was also available for adjustment against output tax liability. The intention of the legislature while enacting the transitional provision was to ensure that migration of unadjusted tax paid under repealed enactments are allowed to be carried forward. Proviso to Section 140(1) provides that a registered person shall not be allowed to tax credit where the said amount of credit is not admissible as input take credit. It was contended by the Respondents that since TDS was in the nature of output tax, it was not admissible as input tax credit. The court observed that the aforesaid restrictive interpretation sought to be given to the proviso is beyond the scheme of transitional provision. The term used in the proviso, namely, ‘not admissible as input tax credit’ could only mean that if there is an express prohibition under the Act for claiming ITC, then the benefit of transitional would not be available. Section 17(5) contains provisions prohibiting availment of ITC. The court relied upon decision of the Hon’ble Apex Court in the case of S. Sundaram Pillai & Ors. v. P. Lakshminarayana Charya & Ors. Further, observed that unadjusted TDS amount would have been otherwise refundable to the Petitioners if the same were not allowed to be carried forward.

Held that:- The Hon’ble High Court set aside Demand Notices and directed that the Petitioners are entitled for migration of the TDS amount in terms of Section 140(1) of the Act.