2019 (7) TMI 678 - HC - GST

Constitutional validity of the amendment brought about in Section 140 of the Central Goods and Services Tax Act, 2017 - Transitional Arrangements for Input Tax Credit - Credit of Education Cess, and the Secondary and Higher Secondary Education Cess - challenge is substantially on the ground that the amendment seeks to retrospectively disallow the transition and carry forward of the EC and SHEC in the GST regime, which was levied on the inputs, capital goods and inputs services used in the manufacture of excisable products, which were cleared on the payment of the Central Excise duty under the CGST Act. HELD THAT - Let Notice be issued to the learned Attorney General of India. Let Notice be also issued to the respondents herein, returnable on 31st July 2019. Let Notice be also issued as regards interim relief, which has been prayed for, in this petition, returnable on 31st July 2019. Direct service is permitted. Notify this matter on 31st July 2019 on top of the Board.

Issues Involved:
1. Constitutional validity of the amendment to Section 140 of the Central Goods and Services Tax Act, 2017.
2. Retrospective disallowance of the transition and carry forward of Education Cess (EC) and Secondary and Higher Secondary Education Cess (SHEC) in the GST regime.
3. Violation of Article 19(1)(g) of the Constitution.
4. Lack of reasons for the retrospective amendment.

Issue-wise Detailed Analysis:

1. Constitutional Validity of the Amendment to Section 140 of the CGST Act, 2017:
The primary issue in this writ application is the challenge to the constitutional validity of the amendment brought about in Section 140 of the Central Goods and Services Tax Act, 2017, via the Central Goods and Services Tax (Amendment) Act, 2018, effective from 1st July 2017. The unamended Section 140 allowed for the transition of CENVAT credit to the GST regime. The amendment, however, introduced changes that retrospectively disallowed the transition of certain credits, specifically the Education Cess (EC) and the Secondary and Higher Secondary Education Cess (SHEC).

2. Retrospective Disallowance of EC and SHEC:
The amendment to Section 140 sought to retrospectively disallow the transition and carry forward of EC and SHEC, which were levied on inputs, capital goods, and input services used in the manufacture of excisable products. This was a significant point of contention as these credits were previously allowed to be carried forward under the unamended Section 140. The petitioners argued that prior to the amendment, the transitional mechanism under Section 140(1) of the CGST Act allowed the transition of CENVAT credit, including EC and SHEC, which were reflected and carried forward in the last return of the pre-GST regime.

3. Violation of Article 19(1)(g) of the Constitution:
The challenge to the constitutional validity of the amendment is also based on the ground that it violates Article 19(1)(g) of the Constitution, which guarantees the right to practice any profession, or to carry on any occupation, trade, or business. The petitioners argued that the amendment is arbitrary and unreasonable as it seeks to deny and take away the vested and accrued rights and benefits that were allowed to be transitioned under the unamended Section 140(1) of the CGST Act.

4. Lack of Reasons for the Retrospective Amendment:
The petitioners contended that no reasons have been assigned for bringing about such an amendment retrospectively. They argued that in the absence of any valid reasons, giving retrospectivity to the amendment would be inequitable and arbitrary. The petitioners requested that the relevant files be called for to understand the reasons for the amendment. The Court, after hearing the arguments, decided to call upon the respondents to explain the impugned amendment, particularly considering the submissions made by the petitioners.

Conclusion:
The Court issued notices to the learned Attorney General of India and the respondents, returnable on 31st July 2019. The Court also requested the Union of India to file an appropriate reply and keep necessary files ready to indicate the reasons for bringing about the amendment with retrospective effect. The matter was scheduled to be notified on 31st July 2019 for further hearing.

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