In a recent decision, the Andhra Pradesh High Court addressed the issue of transitional CENVAT credit in the case of Pushpith Steels Private Limited versus the Union of India and others. Pushpith Steels, a steel manufacturer, had accumulated CENVAT credit prior to the implementation of GST on July 1, 2017. The company transitioned credit amounting to ₹20.12 lakh as per Section 140 of the CGST Act. However, tax authorities later disallowed ₹10.86 lakh of this credit, claiming it related to pre-GST transactions, and imposed tax, interest, and penalty.
The petitioner challenged this decision, arguing that the transitional credit should not be denied by relying solely on Section 140(5) while ignoring Section 140(1) of the CGST Act. The Court clarified that Section 140(1) explicitly allows for the transition of CENVAT credit available immediately before GST implementation, which is a substantive right for taxpayers. It noted that Section 140(5) is an additional provision for specific cases, such as invoices recorded post-GST, and should not restrict the broader benefits under Section 140(1).
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The Court found the tax authority's assumption that only post-GST transactions could transition credit to be legally incorrect, as it ignored the intended transitional provisions. Consequently, the impugned order was deemed arbitrary and unsustainable, leading the Court to set it aside and direct fresh proceedings if necessary, in accordance with the law.
Order Date - 07 April 2026
Parties: Pushpith Steels Private Limited Vs Union of India & Others
Facts -
- Pushpith Steels Private Limited, a steel manufacturer, was earlier registered under Central Excise and Service Tax laws and held accumulated CENVAT credit before GST implementation.
- After GST came into force on 01.07.2017, the company transitioned credit of ₹20.12 lakh, as permitted under Section 140 of the CGST Act.
- Later, tax authorities alleged that ₹10.86 lakh of this credit related to pre-GST transactions and wrongly disallowed it, imposing tax, interest, and penalty.
- Aggrieved by this reversal and demand order dated 22.12.2023, the petitioner approached the High Court challenging its legality.
Issue -
Order -
- The Court clarified that Section 140(1) clearly allows transition of CENVAT credit available as on the day immediately preceding GST implementation. This is a substantive right granted to taxpayers and cannot be overridden casually.
- It observed that Section 140(5) is only an additional enabling provision for specific situations (like invoices recorded after GST), and cannot be interpreted to restrict or nullify the broader benefit under Section 140(1).
- The tax authority made a fundamental error by assuming that only post-GST transactions are eligible for transition. This interpretation was legally incorrect and ignored the scheme of transitional provisions under GST.
- Since the impugned order was based on a flawed understanding of law, it was held arbitrary and unsustainable. Accordingly, the Court set aside the order and directed fresh proceedings, if required, in accordance with law.
