2018 (4) TMI 585 - HC - GST

Transitional credit - Transferring CENVAT credit u/s 174(1) and 174(3) of CGST Act, 2007 - validity of conditions imposed - transitional credit - right to aval the credit has already accrued under Rule 4(7) of the CENVAT Credit Rules, 2004 - argument is that the right to avail CENVAT credit is a matter of right accrued under the repealed Act, namely, the Central Excise Act, 1944. Once the right is accrued, the new enactment or repeal of the old Act cannot debar or disentitle the petitioner of the accrued right - Section 174 of the CGST Act, 2017. Held that - The repeal of the Acts mentioned in subsection (1) of Section 174 would not affect any right, privilege, obligation, or liability acquired, accrued or incurred under the amended Act or repealed Acts or orders made under such repealed or amended Acts. That is saved and except the proviso below subsection (2) of Section 174 - It is too well settled that right to take advantage of a statutory provision cannot be said to be an accrued right and similarly a right which would, if allowed to be asserted, will affect adversely the larger public interest that cannot be permitted to be enforced. Whether rights are flowing from the Cenvat Credit Rules, 2004 - Held that - the learned Additional Solicitor General is right in his contention that a CENVAT credit is a mere concession and it cannot be claimed as a matter of right. If the CENVAT Credit Rules under the existing legislation themselves stipulate and provide for conditions for availment of that credit, then, that credit on inputs under the existing law itself is not a absolute but a restricted or conditional right. It is subject to fulfilment or satisfaction of certain requirements and conditions that the right can be availed of. The scheme of the new law that the object and purpose sought to be achieved after its introduction of the new law is of not permitting the existing law arrangement to continue endlessly. Some day or some time has been stipulated as appointed day for the new regime to come into force. For it to come into force and function effectively, the transitional arrangements have been made. They have clear nexus, therefore, with the object sought to be achieved. They cannot be struck down as having no such relation or nexus. We cannot also by any comparative analysis of the Central and State Law hold that this condition, as imposed, is unreasonable. Petition dismissed.

Issues Involved:

1. Challenge to Clause (iv) of Section 140(3) of the Central Goods and Services Tax Act, 2017 (CGST Act).
2. Discrimination and inequality in availing input tax credit under the GST regime.
3. Violation of Articles 14 and 19(1)(g) of the Constitution of India.
4. Doctrine of promissory estoppel.
5. Retrospective application of fiscal statutes and vested rights.

Detailed Analysis:

1. Challenge to Clause (iv) of Section 140(3) of the CGST Act:
The petitioners challenged Clause (iv) of Section 140(3) of the CGST Act, which stipulates that input tax credit can only be availed if the invoices or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day. The petitioners argued that this clause is arbitrary and discriminatory as it prohibits the availment of CENVAT credit for stock lying in the warehouse with invoices dated earlier than twelve months preceding the appointed day.

2. Discrimination and Inequality in Availing Input Tax Credit:
The petitioners contended that the CGST Act causes discrimination between manufacturers and depot/traders regarding the stock on the appointed day, putting the latter at a disadvantageous position. They argued that the transitional provisions of the CGST Act should ensure a seamless flow of credit to eliminate the cascading effect of taxes. The petitioners emphasized that the arbitrary cutoff date of goods lying in stock for less than one year is unreasonable and causes double taxation.

3. Violation of Articles 14 and 19(1)(g) of the Constitution of India:
The petitioners claimed that the impugned provisions violate Articles 14 (right to equality) and 19(1)(g) (right to practice any profession) of the Constitution of India. They argued that the arbitrary barrier of stock of goods being less than a year old for claiming credit fails to achieve the object of eliminating the cascading effect of taxes, thereby inflicting tax cascading effect on depot/traders while extending full credit to registered manufacturers.

4. Doctrine of Promissory Estoppel:
The petitioners argued that the impugned provisions are hit by the doctrine of promissory estoppel. They claimed that there was an entitlement to transfer the credit of all goods purchased by the petitioner from time to time once registered under the Central Excise Law. If this right is taken away only on the strength of the transitional provision, the principle of promissory estoppel would come into play.

5. Retrospective Application of Fiscal Statutes and Vested Rights:
The petitioners contended that the right to avail CENVAT credit is a vested right accrued under the repealed Central Excise Act, 1944. They argued that the new enactment or repeal of the old Act cannot debar or disentitle the petitioner of the accrued right, which would be violative of Article 300A of the Constitution of India.

Judgment:

The court held that the CENVAT credit is a mere concession and cannot be claimed as a matter of right. The court observed that the CENVAT Credit Rules under the existing legislation themselves stipulate and provide for conditions for availment of that credit, making it a restricted or conditional right. The court found that the impugned condition in Clause (iv) of Section 140(3) is consistent with the conditions imposed under the existing law and does not defeat any accrued or vested right. The court also held that the transitional provisions have a clear nexus with the object sought to be achieved by the CGST Act and cannot be termed as arbitrary or unreasonable.

Regarding the doctrine of promissory estoppel, the court noted that there cannot be an estoppel against a statute. The court found no absolute and unconditional promise from inception that has been breached or resiled by the Executive or the State. The court emphasized that the concession or right was extended with conditions, and the new regime has taken over with transitional arrangements that are consistent with the conditions under the existing law.

The court also addressed the argument of retrospective application of fiscal statutes, stating that the right to avail input tax credit under the GST is not unconditional or without any restriction. The court concluded that the challenge to the impugned condition must fail as there is nothing indefeasible or absolute in the right claimed under the existing law or in the transitional arrangements set out in the CGST Act.

Conclusion:

The court dismissed the petitions, holding that the challenge to Clause (iv) of Section 140(3) of the CGST Act is devoid of merits. The court found that the transitional provisions have a clear nexus with the object sought to be achieved and are not arbitrary or unreasonable. The court also held that the doctrine of promissory estoppel and the argument of retrospective application of fiscal statutes do not apply in this case. The petitions were dismissed without any order as to costs.

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