1. The petitioner is engaged in the business of dyeing and printing of fabrics on job work basis. It is duly registered under the Gujarat Value Added Tax Act, 2003 (‘the VAT Act’ hereinafter) and with the implementation of the GST regime from 01.07.2017, it has also registered under the Goods and Service Tax Act, 2017 (‘the GST Act’ hereinafter).

2. It is the say of the petitioner that certain capital goods in the nature of machinery intended to be used in dyeing and printing fabrics from April to June, 2017 were purchased by him. The fabrics were exempted from tax under the VAT Act, they were taxable goods under the GST Act.

2.1 According to the petitioner, there was no prohibition under the VAT Act to claim proportionate Input Tax Credit in relation to the capital goods, if they were partly used for manufacturing taxable goods and partly for exempt goods. It has also relied on Section 18 (1)(d) of the GST Act, which allows Input Tax Credit in respect of the capital goods in cases where exempt goods became taxable goods.

2.2 According to the petitioner, the fabrics manufactured by it were taxable goods under the GST Act and the petitioner claimed Input Tax Credit of tax paid on purchase of capital goods under the VAT Act. It carried forward such credit into GST Electronic Credit Ledger by filing Form GST TRAN-1 under the GST Act and such Input Tax Credit was not utilized under the VAT Act.

3. The assessment undertaken under the VAT Act for the period 01.04.2017 to 30.06.2017. The grievance of the petitioner is that the notice had been issued only for the assessment under the VAT Act and the order came to be passed on 12.01.2021 under the VAT Act where the authority examined and disallowed the transitional tax credit claimed under the GST Act, raising the huge demand of tax along with interest and penalty.

3.1 According to the petitioner, the transitional tax credit under the GST Act, had not been utilized and it is lying in the Electronic Credit Ledger, such disallowance is without issuance of the show cause notice and opportunity of hearing.

4. The emphasis on the part of the petitioner is that the authority concerned would have no jurisdiction to disallow the transitional tax credit as Section 140 (1) of the GST Act permits the Input Tax Credit forward from the earlier regime to be tested in accordance with the provision of the GST Act. It has seriously questioned the dis-allowance of the transitional tax credit by the authority in wake of the various provisions of the law and also because of non-availment of any opportunity of hearing in this regard.

5. Prayers sought for are as follow:

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A. This Hon’ble Court may be pleased to issue a writ of certiorari or writ in the nature of certiorari or any other appropriate writ or order quashing and setting aside impugned order dated 12.1.2021 (annexed at Annexure A) passed under the Vat Act;

B. This Hon’ble Court may be pleased to declare that the assessing authority under the Vat Act does not have jurisdiction to demand tax with interest and penalty under the Vat Act on the ground of disallowance of transitional tax credit claimed under the GST Act particularly when such tax credit is lying unutilized in the electronic credit ledger under the GST Act;

C. This Hon’ble Court may be pleased to declare that transitional tax credit claimed by the Petitioners in respect of capital goods to be used in manufacture of taxable goods is admissible on pro-rata basis under the Vat Act as well as the GST Act;

D. Pending notice, admission and final hearing of this petition, this Hon’ble Court may be pleased to restrain the learned Respondents from making coercive recovery pursuant to impugned order dated 12.1.2021 (annexed at Annexure A);

E. Ex parte ad interim relief in terms of prayer D may kindly be granted;

F. Such further relief(s) as deemed fit in the facts and circumstances of the case may kindly be granted in the interest of justice for which act of kindness your petitioners shall forever pray.”

6. We have taken up the matter for hearing for the first time after about more than eight months, for the reasons not to be gone into however, the fact remains that the matter could not be taken up for hearing.

7. We have heard the learned advocate, Mr.Uchit Sheth appearing for the petitioner and learned AGP, Ms.Mehta, who, on instructions, has submitted that the matter can go back to the very officer or to the higher official, who after hearing the parties will decide in accordance with law. She has also, on instructions, submitted that there is no separate notice which is being issued under Section 140 of the GST Act while considering the aspect of transitional tax credit.

8. Noticing that the issue essentially raised is of non-availment of an opportunity of hearing, more particularly, while disallowing the transitional tax credit and also noticing that the Input Tax Credit was lying unutilized in the Electronic Credit Ledger and the respondent authority has demanded the tax under the VAT Act where this aspect also has been covered, let the opportunity of hearing be made available to the petitioner. Learned APP for the respondent has no objection to the very officer hearing the matter afresh in accordance with law. Any documentary evidences if are needed to be further adduced, the same be done within a period of one week from the date of receipt of a copy of this order and the hearing shall be completed within a period of four weeks thereafter.

9. Resultantly, present petition is allowed. The impugned order dated 12.01.2021 passed by the Assistant Commissioner of State Tax (2), Unit-68 (12), Surat is quashed and set aside without entering into the merits of the case and only on the nonavailment of an opportunity of hearing on the aspect of disallowance of the transitional tax credit. Directions contained in the earlier para shall follow. This will in no manner prejudice the right of either side in deciding the matter on merits nor would any of the observation made shall affect the rights of the parties.

10. Petition is disposed of accordingly.