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2019 (9) TMI 319 - HC - GSTFiling of Form GST Tran-1 and GST Tran-2 - transitional credit - credit in respect of inputs held in stock on the appointed day in terms of Section 140(3) of the Central Goods and Services Tax Act, 2017- It is the case of the writ-applicants that the declaration in the form GST TRAN-1 could not be filed on account of the technical glitches in terms of poor net connectivity and other technical difficulties on the common portal - HELD THAT - The right to carry forward credit is a right or privilege, acquired and accrued under the repealed Central Excise Act, 1944 (1 of 1944) and it has been saved under Section 174(2)(c) of the CGST Act, 2017 and, therefore, it cannot be allowed to lapse under Rule 117 of the CGST, 2017, for failure to file declaration form GST Tran-1 within the due date, i. e. 27. 12. 2017 - The right to carry forward CENVAT credit for not being able to file the form GST Tran-1 within the due date offends the policy of the Government to remove the cascading effect of tax by allowing the input tax credit as mentioned in the Objects and Reasons of the Constitution 122nd Amendment Bill, 2014. The Objects and Reasons of the Constitution 122nd Amendment Bill, 2014 clearly set out that it is intended to remove the cascading effect of taxes and to bring out a nationwide taxation system. The cascading of taxes, in simple language, is tax on tax'. The denial of carry forward of tax paid on stock on the appointed day may lead to cascading effect of tax because the GST will again have to be paid on the Central Excise duty already suffered on the stock. It is an established principle of law that it is necessary to look into the mischief against which the statute is directed, other statutes in pari materia and the state of the law at the time. It was held by the Supreme Court in the case of District Mining Officer and Ors. v. Tata Iron and Steel Co. and Ors. , 2001 (7) TMI 1277 - SUPREME COURT that, the process of construction combines both literal and purposive approaches. In other words, the legislative intention, i. e. the true or legal meaning of an enactment, is derived by considering the meaning of the words used in the enactment in light of any discernible purpose or object which comprehends the mischief and its remedy to which the enactment is directed. It was held by the Supreme Court, in the case of U. P. Bhoodan Yagna Samiti, U. P. v. Braj Kishore and Ors. , 1988 (9) TMI 343 - SUPREME COURT , that it is clear that when one has to look to the intention of the Legislature, one has to look to the circumstances under which the law was enacted, the Preamble of the law, the mischief which was intended to be remedied by the enactment of the statute. Thus, it is arbitrary, irrational and unreasonable to discriminate in terms of the time-limit to allow the availment of the input tax credit with respect to the purchase of goods and services made in the pre-GST regime and post-GST regime and, therefore, it is violative of Article 14 of the Constitution. - It is legitimate for a going concern to expect that it will be allowed to carry forward and utilise the CENVAT credit after satisfying all the conditions as mentioned in the Central Excise Law and, therefore, disallowing such vested right is offensive against Article 14 of the Constitution as it goes against the essence of doctrine of legitimate expectation. By not allowing the right to carry forward the CENVAT credit for not being able to file the form GST Tran-1 within the due date may severely dent the writ-applicants working capital and may diminish their ability to continue with the business. Such action violates the mandate of Article 19(1)(g) of the Constitution of India - The liability to pay GST on sale of stock carried forward from the previous tax regime without corresponding input tax credit would lead to double taxation on the same subject matter and, therefore, it is arbitrary and irrational. The respondents are directed to permit the writapplicants to allow filing of declaration in form GST TRAN-1 and GST TRAN-2 so as to enable them to claim transitional credit of the eligible duties in respect of the inputs held in stock on the appointed day in terms of Section 140(3) of the Act - It is further declared that the due date contemplated under Rule 117 of the CGST Rules for the purposes of claiming transitional credit is procedural in nature and thus should not be construed as a mandatory provision - Application allowed.
Issues Involved:
1. Whether Section 140(3) of the CGST Act provides a substantive right that cannot be curtailed by procedural lapses. 2. Whether the entitlement to carry forward the credit of eligible duties is a vested right. 3. Whether the rights accrued under the existing law have been saved by the CGST Act. 4. Whether the right to carry forward the CENVAT credit is a constitutional right. 5. Whether it is arbitrary, irrational, and unreasonable to discriminate in terms of the time limit for availing input tax credit between pre-GST and post-GST regimes. 6. Whether the doctrine of legitimate expectation is violated. 7. Whether not allowing the right to carry forward the CENVAT credit impacts the working capital and violates Article 19(1)(g) of the Constitution. 8. Whether the liability to pay GST on stock carried forward from the previous tax regime without corresponding input tax credit leads to double taxation. 9. Whether the action is violative of Article 300A of the Constitution of India. Detailed Analysis: 1. Substantive Right under Section 140(3): Section 140(3) of the CGST Act allows the carry forward of eligible duties in respect of inputs held in stock, subject to certain conditions. The court held that this section provides a substantive right that cannot be curtailed by procedural rules. The court cited several judgments, including those from the Madras High Court and the Supreme Court, emphasizing that substantive rights cannot be defeated by procedural lapses. 2. Vested Right to Carry Forward Credit: The entitlement to carry forward the credit of eligible duties is a vested right. The court referred to the Supreme Court's decision in Eicher Motors Ltd. v. Union of India, which recognized the provision for the facility of credit as a vested right. The credit is indefeasible and cannot be taken away by procedural rules. 3. Rights Saved by CGST Act: The rights accrued under the existing law have been saved by the CGST Act. The court noted that the right to carry forward credit is a right or privilege acquired under the repealed Central Excise Act and has been saved under Section 174(2)(c) of the CGST Act. 4. Constitutional Right to Carry Forward CENVAT Credit: The right to carry forward the CENVAT credit is a constitutional right. The court emphasized that this right is protected under Article 300A of the Constitution, which states that no person shall be deprived of property except by authority of law. 5. Arbitrary Discrimination in Time Limits: The court found it arbitrary, irrational, and unreasonable to discriminate between the time limits for availing input tax credit for purchases made in the pre-GST and post-GST regimes. This discrimination was held to be violative of Article 14 of the Constitution, which guarantees equality before the law. 6. Doctrine of Legitimate Expectation: The doctrine of legitimate expectation was found to be violated. The court held that it is legitimate for a going concern to expect that it will be allowed to carry forward and utilize the CENVAT credit after satisfying all conditions under the Central Excise Law. 7. Impact on Working Capital and Violation of Article 19(1)(g): Not allowing the right to carry forward the CENVAT credit for failing to file the form GST TRAN-1 within the due date could severely impact the working capital of businesses, thereby violating Article 19(1)(g) of the Constitution, which guarantees the right to practice any profession or carry on any occupation, trade, or business. 8. Double Taxation: The liability to pay GST on stock carried forward from the previous tax regime without corresponding input tax credit would lead to double taxation, which is arbitrary and irrational. The court referred to C.B.E. & C. Flyer No. 20, which clarified that it is not the intention of the Government to collect tax twice on the same goods. 9. Violation of Article 300A: The action was also found to be violative of Article 300A of the Constitution, which protects the right to property. The CENVAT credit earned under the erstwhile Central Excise Law is considered the property of the taxpayers and cannot be appropriated without proper authority of law. Conclusion: The court allowed the writ applications and directed the respondents to permit the filing of declarations in form GST TRAN-1 and GST TRAN-2 to enable the petitioners to claim transitional credit. It declared that the due date under Rule 117 of the CGST Rules is procedural and not mandatory. The court made the rule absolute to the extent of allowing the reliefs sought by the petitioners.
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