In what could give relief to several companies the Bombay High Court recently quashed tax notice that disallowed transitional tax credit for educational cess.

The court was ruling in the matter of Godrej & Boyce case where a transitional credit of Rs 3.84 crore was availed. The tax department had issued notices to the company claiming that the tax credits were availed erroneously.

When a company pays indirect tax it collects what is known as tax credit. Tax credit can be used to set off part of future tax liabilities. When India moved to Goods and Services Tax (GST) several companies were left with a situation where they had crores sitting on their books in the form of tax credit.

There was always a question as to whether tax credits availed under the erstwhile tax regime can be set off against GST liability.

“Transition of pre-GST credits had been under immense dispute and one such issue was pre-GST cess credits. The High Court correctly allowed transition of such credits. This judgment will benefit many taxpayers facing such litigation though matters will get finally settled at the Supreme Court,” said Punit Bansal, managing partner, Nitya Tax Associates.

Earlier too, about 25 companies that had not been able to claim transitional tax credit had dragged the government to court over a retrospective amendment in the GST framework. The government had prescribed a time limit of 90 days for taking transitional credit.