• Dated 29^th August, 2025

SC: Dismisses Revenue’s SLP challenging refund of transitioned credit to Ford India

Background of the Case:

The Supreme Court of India has recently dismissed the Special Leave Petitions (SLPs) filed by the Union of India challenging the refund of transitional credit to the Assesse, thereby affirming the decision of the Gujarat High Court in favour of the Assessee. The ruling has significant implications for the treatment of transitional CENVAT credit under the GST regime and brings finality to a series of legal disputes rooted in procedural technicalities around the migration of pre-GST credits. The dispute arose from the transition of accumulated CENVAT credit by Assesse into the GST regime through the filing of Form GST TRAN-1, processed on August 28, 2017. The tax authorities, however, objected to the refund, contending that such transitional credit could not be utilised for refund purposes until it was formally credited to the Electronic Credit Ledger (ECL) following TRAN-1 verification. The Gujarat High Court, in a categorical ruling, held that transitional credit, though reflected in the ECL on August 28, 2017, must be deemed effective from July 1, 2017, the appointed date for GST implementation. Aggrieved, the Revenue approached the Supreme Court by way of Special Leave Petitions.

Assessee's Contention:

Assesse argued that it was lawfully entitled to a refund of unutilised ITC for July, August, and September 2017, as the credit transitioned via TRAN-1 was substantively available from the inception of the GST regime. The assessee maintained that denying refund claims on the mere ground that the credit had not formally appeared in the ECL by July end was a hypertechnical interpretation devoid of statutory backing. To support its position, the assessee relied on binding precedents in Intas Pharmaceuticals Ltd. v. Union of India and Torrent Pharmaceuticals Ltd. v. Union of India, where the Gujarat High Court had previously held that transitional credit must be construed as available from July 1, 2017, regardless of processing delays.

Department's Contention:

The Union of India initially sanctioned the refund but later contested its validity. It asserted that for any refund under Section 54(3), the relevant input tax credit must be available in the Electronic Credit Ledger as on the last day of the tax period in question. The Commissioner (Appeals) sided with the department, holding that in the absence of ledger reflection, the credit was not "available" for refund purposes. Consequently, the refund orders were reversed, and recovery proceedings were initiated along with interest.

Decision:

The Supreme Court summarily dismissed the Revenue's SLPs, noting that it had already declined to entertain similar challenges in the cases of Intas Pharmaceuticals and Torrent Pharmaceuticals. Relying on the same rationale, the Court upheld the Gujarat High Court's judgment in favour of Assesse., reaffirming that transitional credit, once validly claimed through TRAN-1, is deemed effective from July 1, 2017. The Court unequivocally rejected the department's narrow procedural reading of Section 54, holding that substantive rights cannot be denied on procedural grounds, especially where the credit had already accrued and was duly transitioned. Further, the apex court reproached the authorities for adopting an excessively technical approach, emphasizing that procedural delays in the processing of TRAN-1 could not override the Assessee's substantive entitlement to refund under the law.

BTA Comment:

This ruling is a watershed moment in transitional credit jurisprudence under GST. It provides much-needed legal clarity and finality on the treatment of CENVAT credit migrated from the pre-GST era, holding that once such credit is duly transitioned through TRAN-1, its availability relates back to July 1, 2017, irrespective of subsequent ledger entries. By rejecting the department's "hypertechnical" objections, the Supreme Court has firmly reinforced the principle that transitional provisions under GST must be interpreted liberally, in a manner that facilitates seamless migration and protects vested rights. The decision carries substantial precedential weight, ensuring that legitimate refund claims are not defeated by procedural anomalies and that taxpayers engaged in zero-rated supplies such as exports are not unjustly penalised. It also discourages arbitrary denial of refund claims based on timing discrepancies in ledger reflection an issue that had led to significant litigation and uncertainty in the initial years of GST implementation. In essence, the judgment upholds legal certainty, procedural fairness, and taxpayer rights, aligning with the broader legislative intent behind GST a smooth, non-adversarial tax regime aimed at facilitating ease of doing business and preserving liquidity for exporters and manufacturers alike.

Case ref- Union of India and Ors Vs M/sFord India SLP Civil Diary Number 28563 of 2025

Author: Aindrila Ghosh

Edited by: Shaily Gupta