Goods & Services Tax (GST) in IndiaTransitional ITC – An Endless Chronicle

HIGH COURT OF GUJARAT

Willowood Chemicals Pvt. Ltd. v. Union of India

2018 SCC OnLine Guj 1884                                                                                    30^th July, 2018

FACTS

In the present case, the Petitioners had challenged the constitutionality of second proviso to Section 140(1) of the Gujarat Goods and Services Tax Act, 2017. The Petitioners had also challenged the vires of Rule 117 of the Central Goods and Services Tax Rules, 2017 and the Gujarat Goods and Service Tax Rules, 2017.

The Petitioners prayed that the Respondents be directed to allow the Petitioners to carry forward CENVAT credit in the electronic credit ledger, available as on 30^th June, 2017 in terms of Section 140(3) of the Central Goods and Services Tax Act, 2017. As per the petitioners, the prescription of time limit per se is ultra vires the provisions of the Act and the Constitution of India.

DECISION

A registered person, other than a person opting to pay tax under the Act, would be entitled to take, in his electronic credit ledger, credit of the amount of Value Added Tax and Entry Tax. The Court that the benefit of reduced tax was made available even when such forms were furnished beyond the prescribed time, during the course of assessment proceedings   or sometimes even at the Appellate stage.

Effectively the last date for filing the declaration under sub­ rule (1) of Rule 117 in general class of persons remained till 27^th December 2017. For cases falling under sub­ rule (1A) of Rule 117, the same could be extended maximum up to 31^st March, 2019.

“Time limit of 180 days (90 +90) i.e. for extension of filing Tran-1 is not ultra-virus of the Act. The time limit provision was not seen to be as merely technical issues by the Court. Doing away with the time limit for making declarations could give rise to multiple large­scale claims pending for years together.”

ANALYSIS

This judgment by the Gujarat High Court focused on the saving clause in the Gujarat Value Added Tax which provided that nothing done in the amendment of the Act shall affect any right, privilege, obligation of the parties.

HIGH COURT OF GUJARAT

Siddharth Enterprises v. Nodal Officer

2019 SCC OnLine Guj 3711                                                                      06^th September, 2019

FACTS

Herein, the applicant was a partnership firm that could not file the declaration form TRAN-1 within the time period specified due to technical glitches and difficulties on the common portal. It sought to do so in order to claim the transitional credit with respect to the inputs held in stock.

The applicant prayed for a declaration that the due date for filing the form under Rule 117 was procedural and directory in nature and not a mandatory provision. The Gujarat High Court analyzed the issue at hand from a constitutional perspective in addition to the statutory provision.

DECISION

The Court recognized that the entitlement of credit of eligible duties on purchases made in the pre-GST regime was a vested right and could not be taken away by Rule 117 with retrospective effect for failure to file TRAN-1 within the due date.

The Court relied upon the case of Filco Trade Centre Pvt. Ltd.v Union of India [2018] 57 GSTR 204 (Guj) and the Supreme Court decision in Eicher Motor Ltd. v Union of India 1999 (106) ELT 3 (SC) and held that the provision for facility of credit as a vested right is as goad as tax paid till tax is adjusted on future goods. In lieu of the same, it would be arbitrary and unreasonable to discriminate in terms of the time limit allowed to avail the input tax credit and in the absence of any rationale, it is violative of Article 14.

Thus, the Court directed the Respondents to permit the applicant to allow filing of the declaration in form TRAN-1 as well as TRAN-2 to enable them to claim the credit in respect of inputs held in stock.

The Court declared that the due date under Rule 117 for claiming transitional credit was procedural and should not be construed as a mandatory provision.

“The right to property was still a constitutional right and since the credit earned under the erstwhile law was the property of the applicant, it could not be appropriated for merely failing to file TRAN-1 not could it be taken away by virtue of the CGST Rules.”

ANALYSIS

The High Court of Gujarat analyzed the matter from a constitutional perspective. However, due note should be given to the fact that it interpreted the GST Rules before opining that the input tax credit, the vested right of the applicant was in fact constitutionally protected property.

Nonetheless, the declaration to the effect that Rule 117 is not mandatory and the order to the respondent to grant similar permission to other taxpayers to file TRAN-1 beyond the time limit prescribed so they may avail the transitional credit was in conformity with the judicial precedents delivered prior to this on the same issue.

HIGH COURT OF DELHI

Krish Automotors (P) Ltd. v. Union of India

2019 SCC OnLine Del 10090                                                          16^th September, 2019

FACTS

The Petitioner was registered under Central Goods and Services Act, 2017. It was submitted that in terms of Rule 117 of the CGST Rules, 2017, the GST TRAN-1 Form was required to be filed by 30.09.2017. Later, this time limit was extended till 30.11.2017 and then till 27.11.2017. In some cases, the tax payers faced the problem of technical glitches while filing the claim.

The Petitioner stated that in view of the maze of compliance due dates, with the time extended time for filing the form GSTR-1 ending on 31^st December, 2017, the accountant of the Petitioner is said to have missed noticing that the time for filing GST TRAN-1 was extended only till 27^th December, 2017. The Petitioner was accordingly not able to file the GST TRAN-1 declaration online within time and claim the ITC of the eligible amounts.

Thereafter, in order to be permitted to manually file the GST TRAN-1, the Petitioner made two representations to the jurisdictional GST Authorities, as well as to the Ministry of Finance, Union of India and the GST Council.

With no response having been received from any of the aforesaid authorities, the Petitioner filed the present petition for a direction to the Respondents to permit them to file the GST TRAN-1 manually and allow the credit of Input Tax Credit (“ITC”) as claimed in accordance with Section 140(3) of the CGST ACT, 2017, in its online electronic credit ledger for payment of its output liability under the GST Laws.

DECISION

The Court relied upon the decision in the case of Blue Bird Pure Pvt Ltd. v. Union of India W.P.(C) No. 3798/2019 , and held that although the failure was on the part of the Petitioner to fill up the data concerning its stock, the error was inadvertent. The Respondents ought to have provided in the system itself a facility for rectification of such errors which are clearly bona fide. It should be noted at this stage that although the system provided for revision of a return, the deadline for making the revision coincided with the last date for filing the return i.e. 27th December, 2017.

Relying on its decision in Bhargava Motors v. Union of India 2019 SCC OnLine Del 8474, the Court held that technical errors or technical glitches of various kinds in the GST system, are still in the ‘trial and error’ phase and therefore, the Petitioner was unable to fill the TRAN-1 Form on account of bonafide difficulties and that, therefore, the Petitioner should be afforded one more opportunity to do so.

“The Court issued a direction to the respondents to permit the petitioner to either submit the GST TRAN-1 Form electronically by opening the electronic portal for that purpose or allow the petitioner to tender the same manually on or before 15-10-2019, and thereafter, process the petitioner’s claimed ITC in accordance with law.”

ANALYSIS – Considering the inability of the Petitioner to submit the Tran-1 form, the Court extended the date for the same as the Petitioner made the claims in good faith and the same were justifiable. The Petitioner could not connect to its server due to technical glitch in the portal, and therefore the Court took into account the same and gave and another opportunity to the Petitioner for filing of Tran-1.

HIGH COURT OF PUNJAB AND HARYANA

Adfert Technologies Pvt. Ltd. v. Union of India & Ors.

CWP No. 30949 of 2018                                                                  04^th November, 2019

FACTS

The Punjab & Haryana High Court did not go into the detailed facts and recognized that the petitioners had been registered under the erstwhile legislations and upon enforcement of the GST regime had stock of inputs and capital goods (these had already suffered duty under previous statutes) or had unutilized CENVAT credit. The GST Act permitted these persons to carry forward such unutilized credit. However, Rule 117 of the CGST Rules prescribed a time limit. The petitioners were unable to load the prescribed forms electronically or incorrect forms were loaded and could not be corrected within the time limit.

DECISION 

The Court immediately observed that there had been several difficulties in uploading TRAN-1 such as the wrong press release, heavy load upon accountants, lack of proper knowledge of computer system, complexity in filling different columns and the most common problem of people filing the form were not well-conversant with the electronic system and unintentional mistakes occurred.

Due to this, the Court stated that the reasons for not filing TRAN-1 within the time limit were plausible and that it found itself in consonance with the argument of the petitioners that the unutilized credit arising on account of duty or tax paid under the pre-GST regime was a vested right and could not be taken away on procedural or technical grounds.

Conclusively, the Court directed the respondents to permit the petitioners to file or revise the TRAN-1 form either electronically or manually.

A SLP was filed by the Department against the decision of the High Court before the Supreme Court. However, the SLP was dismissed and the Supreme Court held that nobody shall be denied to carry forward legitimate claim of CENVAT/ITC on the ground of non-filing of TRAN-1 by 27.12.2017.

“The Court placed heavy reliance and agreed with the decisions of the Gujarat High Court in Siddharth Enterprises v. The Nodal Officer and the Delhi High Court in Krish Automotors v. Union of India that the credit was the constitutionally protected property of the petitioners and that the time limit prescribed in Rule 117 was not mandatory but purely directive. It also stated that nobody would be denied to carry forward legitimate CENVAT or input tax credit on the ground of non-filing of the form within the prescribed date.”

ANALYSIS

In contrast to the decisions above-mentioned, the Punjab & Haryana High Court provided relief to the taxpayers in an order instead of a judgment and confined itself to the arguments of the parties, specifically those regarding the numerous precedents established by other High Courts in the same matter.

The Court was in conformity with the analysis undertaken by them, both on constitutional and statutory grounds. Therefore, Rule 117 of the CGST Rules has been read down as non-mandatory even in the jurisdiction of the Punjab & Haryana High Court.

HIGH COURT OF DELHI

AB Pal Electricals Pvt. Ltd. v. Union of India & Ors.

2020 33 G.S.T.L. 8                                                                             17^th December, 2019

FACTS

The Petitioner was a registered dealer under the Delhi Value Added Tax Act, 2004, when GST was enacted in the year 2017. The Petitioner wanted to claim the transitional credit and for the same had to file for Tran-1 as mentioned under Section 140 (3),(4) and (5) of the Central GST Act.

The concerned person responsible for dealing with the compliances reported that the GST portal wasn’t working properly and the date for filing Tran-1 was extended to 31.03.19. Petitioners demanded writ of mandamus declaring that Rule 117 of GST Act was ultravires and in violation of Section 140 of the same act and a writ declaring that the Petitioner is entitled to the Input Tax Credit.

DECISION 

The court relied on the judgments of M/s Blue Bird Pure Pvt. Ltd. (supra), wherein, following the decisions of this Court in Bhargava Motors v. Union of India and Kusum Enterprises Pvt. Ltd. v. Union of India, the Court directed the Respondents to either open the online portal or to enable the Petitioner to file the rectified TRAN-1 electronically or accept the same manually.

The Court did not find any reason to deny Petitioner the relief it sought as in the cases above too there was some error on the part of the Petitioner which they were unable to rectify and could not avail the claim on ITC because of the same.

“The Court held that the GST was still developing and therefore, the Petitioner in the present case is entitled to its claim of ITC. The Court directed the respondents to either to open the portal, so as to enable the petitioner to file the TRAN-1 electronically for claiming the transitional credit or accept the manually filed TRAN-1 and to allow the input credit claimed after processing the same.”

ANALYSIS

This case did not fall under the matter of technical glitches and yet, the court took into account the claim because it was considered to be a genuine case and the Petitioner should not have been barred to avail this benefit. Instead, the Court could have relied on proofs of the same before extending the timeline. The Respondents should incorporate a digital mechanism in their servers after so many cases having taken place so that the Petitioner could electronically file the Tran-1. The Respondent did not have any cogent reason to deny the Petitioners of the right they had.

HIGH COURT OF GUJARAT

Rohan Dyes and Intermediaries Ltd. v. Union of India

Civil Application No. 19852 of 2018                                                     11^th March, 2020

FACTS

The Petitioner invoked Article 226 of the Constitution of India demanding a writ of Mandamus to consider and allow the Transaction Credit. The Petitioner was a limited company registered under the Companies Act, 1956 and also registered under the GST Act, 2017. The petitioner tried to upload form GST TRAN-1 to claim credit towards excise duty paid However, due to technical glitches in the GST portal, the petitioner could not file/upload the form GST TRAN-1. Time and again petitioner approached GST Department for redressal of its grievances. In spite of efforts made by petitioner, case of petitioner was not considered by competent authority so as to enable petitioner to claim credit of CENVAT in view of transitional provisions of Section 140.

DECISION 

The Respondent is directed to verify the claim of credit of CENVAT and service tax of the petitioner so as to enable the petitioner to carry forward by filing/uploading form GST TRAN-1 on GST portal. The court referred to M/s Siddharth Enterprises vs. The Nodal Officer for the same. The Respondent shall complete 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.

“The petitioner is entitled to claim credit of CENVAT as well as service tax as on 30th June 2017 as per the provisions under Section 140(1) of the Act, 2017 read with Rule 117 of the Rules 2017 if he was unable to upload TRAN-1 form due to technical glitches.”

ANALYSIS

Not allowing the right to carry forward the CENVAT credit for not being able to file the form GST Tran­1 within the due date (on account of technical difficulties) may severely dent the writ applicants’ working capital and may diminish their ability to continue with the business. Also, the court must have felt that there is no plausible reason to not allow the Petitioner to have his credit and there must be presumption of good faith on the part of Petitioner.

HIGH COURT OF DELHI

M/s. Brand Equity Treaties Ltd. & Ors. v. Union of India & Ors.

[2020] 116 taxmann.com 415 (Delhi)                                                 05^th May, 2020

FACTS

The Delhi High Court’s decision was in response to the 4 Writ Petitions filed by the four assesses in the matter. The Court did not go into the detailed facts of each petition and instead identified at the outset the relief sought by the Petitioners. The Petitioners pleaded before the Court to direct the Respondents to permit them to avail input tax credit of the accumulated CENVAT credit as of 30.06.2017 by filing declaration form TRAN-1 beyond the time period under Central Goods and Services Tax Rules, 2017 (“CGST Rules”).

Simultaneously, the Petitioners also contended that Rule 117 was arbitrary, unconstitutional and violative of Article 14 as it imposed a time limit to carry forward the CENVAT credit to the GST regime. The Court recognized that the petitioners were willing to not press the challenge to the vires of the Act if the Respondents would permit the filing for TRAN-1 to avail input tax credit.

DECISION 

The Delhi High Court analyzed the facts and in the process, relied on M/s. Blue Bird Pvt. Ltd. v Union of India [2019] 68 GSTR 340 (Delhi) and Kusum Enterprises Pvt. Ltd. v Union of India [2019] 68 GSTR 338 (Delhi) wherein relief had been granted to taxpayers facing similar difficulties. The Court noted that even the government had acknowledged the technical difficulties resulting in the taxpayers’ inability to file TRAN-1 within the time period.

Sub-rule (1A) had been inserted to Rule 117 to permit the Commissioner to extend the date if it could not be filed on account of technical difficulties; this substantiated the fact that the period for filing TRAN-1 was not considered mandatory by the legislature or the executive.

In light of the same, the Court observed that “technical difficulty” was a term too broad to have a narrow application that could occur on the portal and the difficulties could also be offline due to other restrictive factors either on the Petitioner’s or the Respondent’s end.

Consequentially, the Delhi High Court directed the Respondents to permit the Petitioners to file TRAN-1 form on or before 30.06.2020 and allow other taxpayers similarly situated to avail the benefit of this judgment.

“Rule 117 was read down as being directory and not mandatory in nature to achieve the purpose of its introduction i.e. protecting the rights of taxpayers and permit them to avail CENVAT credit without forfeiting their rights if it was not done within the time period.”

ANALYSIS

Significantly, the High Court of Delhi did not press on the constitutionality of the provisions of GST Act & Rules and placed its faith in the precedents that had prioritized the rights of the taxpayers.

The Court was confident that Rule 117 was capable of being read down on a reasonable analysis and statutory interpretation without the need for challenging its constitutionality as a whole.

HIGH COURT OF DELHI

S.K.H. Sheet Metals Components v. Union of India & Ors.

WP(C) 13151 of 2019                                                                                 16^th June, 2020

FACTS

The Petitioner invoked Article 226 of the Constitution of India demanding a writ of Mandamus to allow him to avail the credit of his ITC by either updating the electronic credit ledger or to allow to revise the Form GST TRAN-1, in conformity with the returns filed under the existing laws that stand repealed by the Central Goods and Service Tax Act, 2017.

DECISION 

The petitioner was permitted to revise TRAN-1 Form on or before 30.06.2020 and transition of the entire ITC, subject to verification by the Respondents. A writ of mandamus was also issued to the Respondents to either open the online portal so as to enable the Petitioner to file a revised declaration TRAN-1 electronically or to accept the same manually.

“The restriction that prevented the Petitioner from taking the entire credit by revising the return, based on the footing of a “human error” and not “technical difficulty on common portal” was held to be wholly unreasonable, being irrational and arbitrary and therefore, violative of Article 14 of the Constitution.”

ANALYSIS

The Court has taken into consideration the plight of the Petitioner and extended the date to 30.06.20. Also, the Respondent did not help the Petitioner in any way if that would have happened the matter would not have reached the court, The government cannot turn a blind eye to the unfair and unreasonable practice as found by the court violating Article 14 of the Constitution of India. 

HIGH COURT OF PUNJAB AND HARYANA

Amba Industrial Corporation v. Union of India & Anr.

And

C.P. Marble v. Union of India & Anr.

CWP No. 8213 & 8215 of 2020                                                               18^th June, 2020

FACTS 

While the Petitioner in CWP No. 8213 (“Petitioner I”) was a partnership firm engaged in the business of trading flats and had purchased particular flats and scrap on payment of excise duty, the Petitioner in CWP No. 8215 (“Petitioner II”) was a proprietary concern trading in marble stones.

Petitioner I sought to carry forward CENVAT Credit and Petitioner II sought to carry forward input tax credit as per Section 140 of CGST Act and Rule 117 of CGST Rules. Both the petitioners were unable to submit the declaration form TRAN-1 on the common portal within the due date on account of technical difficulties and therefore, the present case.

DECISION 

The Court observed that the issue involved had already been covered by its own previous judgments as well as those of the Delhi High Court. The Court placed reliance on Adfert Technologies & Ors. v. Union of India, SKH Sheet Metals Components v. Union of India and Brand Equity Treaties Ltd. v. Union of India to highlight the impossibility of a narrow interpretation of “technical difficulties” permitted under the newly inserted sub-rule (1A) to Rule 117 and the violation of Article 14 thereafter.

Agreeing with the analysis of the aforesaid decisions, the Court directed the Respondents to permit both Petitioners I & II to upload TRAN-1 on or before 30.06.2020.

“Rule 117(1A) may not be ultra vires the Constitution is to be treated as violative of Article 14, arbitrary, discriminatory and unreasonable nonetheless. Denial of unutilized credit to dealers unable to furnish evidence of attempt to upload TRAN-1 would also amount to such a violation of Article 14 as well as Article 300A.”

ANALYSIS

It is pertinent to note that the Punjab & Haryana High Court placed utmost faith in its order dated 04.11.2019 in Adfert Technologies & Ors. v. Union of India as well as the decisions of the Delhi High Court so much so that it did not seek to analyze further the status of unutilized credit as the petitioners’ property since the same had already been established.

The Court also chose to read-down Rule 117(1A) and allowed an extension of date to upload TRAN-1; with the precedents currently serving as settled law, it is difficult to estimate when the courts will stop accepting the plea of “technical difficulties” as the petitioners’ reason for delay in upload of the statutory form.

CONCLUSION 

The innumerable decisions in the earlier phase of the last two years and post the Brand Equity Traders (supra) decision in the form of orders have relied on three basic premises to reach their conclusion on the utilization of transitional credit beyond the date prescribed in the CGST Rules, 2017.

Firstly, the Courts are satisfied that the rules acted arbitrary and unreasonable since a party registered on the GST portal should not be punished for a failure to upload form TRAN-1 due on account of technical glitches. This would be violative of Article 14.

Secondly, the unutilized transitional credit is an accrued and vested right of the parties and is constitutionally protected as ‘property’ under Article 300A.

Thirdly, since such credit cannot be denied to the parties and there is no specific time limit is prescribed, the Limitation Act would apply and a period of 3 years would be given.

The Courts, having been in consonance with the aforesaid, have eventually relied on the decisions given in Brand Equity Traders and M/s Siddharth Enterprises (supra) to read down Rule 117 and sub-rule (1A) as merely directive and not mandatory or sacrosanct. It is significant to note that the analysis undertaken by the Courts in these two judgments have become settled law and recent rulings are confining themselves to establish the fact that the petitioner or the applicant was unable to upload form TRAN-1 due to ‘technical difficulties’ and proceeding to rely on the aforesaid ratios to grant relief to parties seeking to claim transitional credit.

Further, in light of the decision given by the Delhi High Court in Brand Equity Traders directing the Revenue Department to publicly display the decision, several taxpayers were able to seek relief directly and file TRAN-1, either electronically or manually beyond the prescribed date. In lieu of the same, orders (granting relief) have been passed by the Punjab & Haryana High Court in the month of June, 2020 as well.

It is challenging to estimate if further matters will be taken up before High Courts after the expiry of the date prescribed by the Delhi High Court, i.e. 30.06.2020. However, since the fundamental stance taken by the Courts is to permit claim of unutilized transitional credit, the Department may yet again face an extended time period during which taxpayers can file form TRAN-1. The claim of such unutilized transitional credit seems to be a never ending dispute and may give rise to new litigations in the near future.

ABOUT US

AMLEGALS is a multi-specialised law firm. We would love to hear your views, queries, feedback and comments on anand@amlegals.com or chaitali.sadayet@amlegals.com.