In July 2017, our nation saw a reform in the Indirect Tax regime. Several Union and State indirect taxes were subsumed into the new indirect tax regime called the Goods and Services Tax (‘GST’). The transition provisions under the GST Law allowed the taxpayers to carry forward the un-utilized input credit available under the erstwhile regime.
Carry Forward – Section 140 of the CGST Act, 2017 read with Rule 117 of the CGST Rules, 2017 provides the form and the manner in which transitional credit can be availed under the GST regime.
Basis – The input credit was allowed to be carried forward on the basis of last return filed under the erstwhile regime and fresh credit could be availed on the basis of goods held in stock and availability of tax/duty paying document.
Time Period – The taxpayers were initially given a period of 90 days from the date of implementation of GST to carry forward the un-utilized credit from the erstwhile regime to the GST regime by making a declaration under Form GST TRAN-1.
Initial Extension -The due date was subsequently extended till 27th December, 2017.
Technical Glitch and GST TRAN-1
There were many taxpayers who could not file the declaration under GST TRAN-1 within the stipulated time period and were left with no mechanism to carry forward the un-utilized input credit of the erstwhile regime.
Categories of Tax Payers – There were two categories of taxpayers,
First, who didn’t even attempt to file GST TRAN-1 and
Second, who attempted to file GST TRAN-1, but failed due to technical glitches.
Writs – The High Courts were flooded with writ petitions praying to direct the Government to allow the taxpayers to file GST TRAN-1 after the due date and allow them to carry forward the un-utilized input credit from erstwhile regime to the GST regime.
Majority of Cases – In majority of the cases, where the taxpayers made an attempt to file GST TRAN-1, but failed due to technical glitches on the GSTN portal, the High Courts directed the Government to allow such taxpayers to file declaration under GST TRAN-1.
Relevant Judgements – The relevant judgments are as under:
Padmavati Enterprise vs. Union of India – 2018 (16) G.S.T.L. 596 (Bom.)
Consolidated Premium Retailers vs. Pr. Commr., GST & C. Ex., Coimbatore – 2018 (16) G.S.T.L. 179 (Mad.)
Cee Pee Marble & Granite GST Council, New Delhi – 2018 (15) G.S.T.L. 648 (Ker.)
Insertion of Rule 117(1A) – Considering the difficulty faced by the taxpayers due to the technical glitch faced at the time of filing GST TRAN-1, the Central Government, vide Notification No. 48/2018 dated 10.09.2018, inserted Rule 117(1A) to the CGST Rule, 2017. This rule empowered the Commissioner to allow the registered person, who could not file GST TRAN-1 due to technical glitches on the common portal,to file their TRAN-1.
Time Limit – Initially, such tax payers were allowed to file GST TRAN-1 latest by 31st March 2019.
Last Extension – The due date was extended from time to time, with the last extension ending on 30th June 2020 by virtue of Notification No. 35/2020-CT dated 03.04.2020.
Thus, the registered persons who have failed to file GST TRAN-1 due to the technical glitches were given another opportunity to file declaration under GST TRAN-1.
But there were cases, wherein the registered person had no evidence to prove that they had made an attempt to file GST TRAN-1, but failed due the technical glitches on the common portal. In such cases, the department was harsh on the registered person and rejected their application to file GST TRAN-1.
Judicial Interpretations on Rule 117
The other registered persons who didn’t made an attempt to file GST TRAN-1 within the stipulated time period and those who didn’t have the evidence to show that they attempted but failed to file GST TRAN-1 due to technical glitches, filed numerous writ petitions all over the Country, with the prayer to direct the Government to allow the registered person to file GST TRAN-1 even after the stipulated time period, as Rule 117 is directory and procedural in nature.
The various High Courts of the country share contrary views / opinion on this issue. Some decided in favour of the Government whereas the others decided in favour of the taxpayers. Let us analyse the rationale behind few landmark judgments of various High Courts.
In favour of the Taxpayers
High Court of Gujarat
The Hon’ble High of Gujarat in the case of M/s. Siddharth Enterprises vs. The Nodal Officer – 2019 (29) G.S.T.L. 664 (Guj.) and the Hon’ble High Court of Punjab in the case of Adfert Technologies Pvt. Ltd. vs. Union of India & Ors. – 2019-TIOL-2519-HC-P&H-GST, have allowed taxpayers to file GST TRAN-1 even after the prescribed due date for the reason that the vested rights of the taxpayers cannot be taken away by Rule 117 of the CGST Rules, 2017.
Recently, the Hon’ble High Court of Gujarat in its order dated 11th March, 2020, in the case of Rohan Dyes and Intermediates Ltd. vs. Union of India & Ors. (SCA No. 19852 of 2018), wherein the petitioner was represented by AMLEGALS, held that the petitioner is entitled to claim Cenvat Credit in terms of Section 140 of the CGST Act, 2017 read with Rule 117 of the CGST Rules, 2017 and allowed the petitioner to file GST TRAN-1.
It further went onto give a time bound direction as below:
The respondent shall complete the exercise of verification and permit the petitioner to upload the form GST TRAN-1 within a period of two weeks from the date of receipt of the writ of this order so that the petitioner can upload the form GST TRAN-1 on or before 31st March,2020.
High Court of Delhi
The Hon’ble High Court of Delhi in its judgment, in the case of Brand Equity Treaties Ltd. Vs. Union of India and Ors. – 2020-TIOL-900-HC-DEL-GST, went a step further and held that the time limit prescribed under Rule 117of the CGST Rules, 2017 is directory and cannot affect the substantive rights of the taxpayers. The rationale behind the above judgments is as under:
1.Input Credit is a vested right
The Courts observed that in terms of Section 140 of the CGST Act, 2017, the input credit existed under the erstwhile regime was required to be carried forward to the GST regime. Under the GST regime, there is no mechanism for refund of credit that existed under erstwhile regime as on 30th June, 2017. The only mechanism for utilization of such credit was by migrating the same to the GST regime by way of filing declaration under Form GST TRAN-1. The Courts took reference of the judgment of Supreme Court in the case of:
Eicher Motors Ltd. v. Union of India, reported in 1999 (106) E.L.T. 3 (S.C.), wherein the Hon’ble Supreme Court has recognized the provision for facility of credit as a vested right and has held that the facility of credit is as good as tax paid till the tax is adjusted on future goods.
Collector of Central Excise, Pune v. Dai Ichi Karkaria Ltd.- 1999 (112) E.L.T. 353 (S.C.), wherein it was held that the credit taken is indefeasible.
In view of the above settled law of the land , the Delhi High Court held that entitlement of credit of taxes/ duties paid on purchases made under the erstwhile regime is a vested right and cannot be taken away by virtue of Rule 117 of the CGST Rules, 2017.
2.Rule 117 is directory and cannot take away substantive right
The Hon’ble High Court of Delhi, referring to the judgment of the Hon’ble Supreme Court in the case of Commissioner of Central Excise, Madras v Home Ashok Leyland – 2007-TIOL-42-SC-CX, observed that the procedure could not run contrary to the substantive right vested under sub Section (1) of Section 140 of the CGST Act, 2017.
The Court held that in absence of any consequence being provided under Section 140 of the CGST Act, 2017, to the delayed filing of GST TRAN-1, Rule 117 has to be read and understood as directory and not mandatory.
3.Right to Property
The Courts observed that input credit earned by the taxpayer under the erstwhile regime is his property and therefore, such input credit is a constitutional right of the taxpayer under Article 300A of the Constitution of India.
Accordingly, the Courts held that the property cannot be taken away merely for non-filing of a declaration in the absence of Law in this respect. It could have been appropriated by the government by providing for the same in the CGST Act but it cannot be taken away by virtue of merely framing Rules in this regard.
The Courts considered Rule 117 of the CGST Rules, 2017 as arbitrary on two grounds, first, Section 16 of the CGST Act, 2017 allowed the taxpayers to avail input tax credit of purchases made post GST implementation till the month of October following the end of Financial Year whereas Rule 117 of the CGST Rules, 2017 restricted the availment of Input Tax Credit for purchases made prior to GST implementation till 27th December, 2017.
Second, Rule 117(1A) of the CGST Rules, 2017 allowed only those taxpayers to file GST TRAN-1, beyond the prescribed date, who have faced technical glitches at the time of filing GST TRAN-1 on the common portal but failed to serve the other taxpayers, who had faced other technical difficulties.
The Courts held that the approach of the Government should be fair and reasonable and cannot be arbitrary or discriminatory.
In favour of the Government
The Hon’ble High Court of Gujarat, in Willowood Chemicals Pvt. Ltd. vs. Union of India — 2018 (19) G.S.T.L. 228 (Guj), and the Hon’ble High Court of Bombay, in NELCO Ltd. vs Union of India & Ors. – 2020-TIOL-641-HC-MUM-GST, have held that Rule 117 of the CGST Rules, 2017 is not contrary to any provisions of the CGST Act, 2017 nor does it take away any substantive right of the taxpayers. The rationale behind the above judgments is as under:
1.Input tax Credit is not a right but Concession
The Courts, relying upon the judgment of the Supreme Court in the case of Jayam & Company vs. Assistant Commissioner & Anr. – (2016) 15 SCC 125 and on the judgment of Hon’ble High Court of Bombay in the case of JCB India Limited v. Union of India – 2018 (15) G.S.T.L. 145, held that the Input Tax Credit is a concession and not a right. Further, the High Court of Bombay held that:
If, before and after the GST regime, the availment of input credit is conditional, it cannot be that it is without any limit in the transitional period. With the advent of an entirely new tax regime, the earlier credit could have lapsed, but as and by way of concession it is permitted to be carried forward for a limited time. Thus, going by the scheme of the Act, under Section 140(1), the reference to Input Tax Credit is not by way of a right, but as a concession.”
2.Rule 117 is not ultra-vires to the CGST Act, 2017
The Court, considering the powers of the Central Government under Section 164 of the CGST Act, 2017, held that the rule making powers existed with the Government to prescribe time limit for availing transitional credit and therefore, Rule 117 of the CGST Rules, 2017 is not ultra-vires to the CGST Act, 2017.
3.Rule 117 not arbitrary and not violative of Article 14
The Courts observed that when there is a reform in the tax structure of the country and there is a shift from old regime to new regime, there has to be a degree of finality on claims, credits, transfers of such credits and all issues related thereto.
If transitional credit is allowed to be taken without any time limit, it will hamper the effective implementation of the new tax structure and would also lead to endless disputes and litigations. In view of the above observations, it was held that Rule 117 of the CGST Rules, 2017 is neither arbitrary nor violative of Article 14 of the constitution of India.
4.Evidence of Error
Recently, the Hon’ble High Court of Rajasthan, in its judgment dated 18th March 2020, in the case of Shree Motors vs. Union of India (S.B.Civil W.P. No. 440/2020), held that without evidence of error in filing GST TRAN-1, the registered person cannot be allowed to file GST TRAN-1 under Rule 117(1A) of the CGST Rules, 2017.