In a Writ Petition filed by Brand Equity Treaties Limited before Hon'ble Delhi High Court in matter of TRANSITIONAL CREDIT u/s 140 of CGST Act, 2017

[Rachit Agarwal]

BRAND EQUITY TREATIES LIMITED, MICROMAX INFORMATICS LTD., DEVELOPER GROUP INDIA PRIVATE LIMITED, RELIANCE ELEKTRIK WORKS VERSUS THE UNION OF INDIA AND ORS. [2020 (5) TMI 171 - DELHI HIGH COURT]

In a Writ Petition filed by Brand Equity Treaties Limited before Hon'ble Delhi High Court in matter of TRANSITIONAL CREDIT u/s 140 of CGST Act, 2017

[Para 18]- Technical Difficulties- "Technical difficulty" is too broad a term and cannot have a narrow interpretation, or application. Further, technical difficulties cannot be restricted only to a difficulty faced by or on the part of the respondent. It would include within its purview any such technical difficulties faced by the taxpayers as well, which could also be a result of the respondent's follies. Just like the respondents, even the taxpayers required time to adapt to the new systems, which was introduced as a completely online system. The respondents cannot adopt different standards - one for themselves, and another for the taxpayers.

 [Para 19 & 21]- Substantive Vested Right- Rule 117, whereby the mechanism for availing the credits has been prescribed, is procedural and directory, and cannot affect the substantive right of the registered taxpayer to avail of the existing / accrued and vested CENVAT credit. The procedure could not run contrary to the substantive right vested under Sub section (1) of Section 140. Further, we are also of the view that the CENVAT credit which stood accrued and vested is the property of the assessee, and is a constitutional right under Article 300A of the Constitution. The same cannot be taken away merely by way of delegated legislation by framing rules, without there being any overarching provision in the GST Act

[Para 21]- Mechanism for Transitional Credit is Procedural and Directory- the mechanism for availing the credits has been prescribed, is procedural and directory, and cannot affect the substantive right of the registered taxpayer to avail of the existing / accrued and vested CENVAT credit. The procedure could not run contrary to the substantive right vested under Sub Section (1) of Section 140. ). There is no consequence provided in Rule 117 of GST Rules on account of failure to file GST TRAN-1. In absence of any consequence being provided under Section 140, to the delayed filing of TRAN-1 Form, Rule 117 has to be read and understood as directory and not mandatory

 [Para 20]- Right ACCRUED to Assessee- Since the statute did not give any indication w.r.t extension of time for claim of input tax credit, the period could have been extended by authority. However, in the instant cases, the input tax credit had been claimed in the erstwhile regime and was being reflected in the CENVAT credit ledger. This credit, under the Section 140(1), has to be carried forward and in that sense, the vested right of the property of the petitioner stood accrued and the same cannot be taken away by the respondents by way of Rules.

 [Para 18 & 22]- ]Right to avail Transitional Credit cannot be in Perpetuity- Limitation Act- Thus, the phrase "technical difficulty" is being given a restrictive meaning which is supplied by the GST system logs. Conscious of the circumstances that are prevailing, we feel that taxpayers cannot be robbed of their valuable rights on an unreasonable and unfounded basis of them not having filed TRAN-1 Form within 90 days, when civil rights can be enforced within a period of three years from the date of commencement of limitation under the Limitation Act, 1963.

Right to avail Transitional Credit is given in Rule 117 cannot be allowed in perpetuity. In absence of any specific provisions under the Act, we would have to hold that in terms of the residuary provisions of the Limitation Act, the period of three years should be the guiding principle and thus a period of three years from the appointed date would be the maximum period for availing of such credit.

Discussions to this article

[Prasanna Kumar]

Good presentation. The decision benefits many.

[OmPrakash jain]

Sir,

1. This judgment was reserved on 2.3.2020 & Pronounced on 5.5.2020.

The retrospective amendments to S.140, regularising Rule 117 in tune with the Act were carried out on 27.3.2020.

What are your views on Reading down Rule 117 by the court after retrospective amendments to S.140. Whether the time limit prescribed in Rule 11 will prevail of the Limitation Act will prevail after passing the amendments in S.140.

Your’s expert opinion is needed I this regard.

2. What are your views on the contrary judgment of Nelco Limited v. Union of India 2020 (3) TMI 1087 - BOMBAY HIGH COURT after passing the amendments in S.140.

3. Since both the cases cited by you in my article dated 2.5.2020, have been elaborately discussed in the above case of Delhi HC, on the lines of my reply dated 3.5.2020, you must have been satisfied completely in regard to your arguments dated 2.5.2020 on my article dated 2.5.2020.

[Rachit Agarwal]

Hon'ble Bombay High Court in case of NELCO Limited vs Union of India = 2020 (3) TMI 1087 - BOMBAY HIGH COURT has given the judgement that the time limit prescribed in Rule 117 is not Ultra Vires.

Hon'ble Delhi High Court in case of Brand Equity Treaties Limited vs Union of India = 2020 (5) TMI 171 - DELHI HIGH COURT has read down the Rule 117 of CGST Rules 2017.

Both the judgments are not contrary in nature.

Calcutta Gujrati Education Society and Ors. vs. Calcutta Municipal Corporation and Ors.: MANU / SC / 0631 /2003-  = 2003 (8) TMI 476 - SUPREME COURT First attempt should be made by the courts to uphold the charged provisions and not to invalidate it merely because one of the possible interpretation leads to such a result, howsoever attractive it may be. Thus, where there are two possible interpretations, one invalidating the law and the other upholding, the latter should be adopted. For this, the courts have been endeavouring, sometimes to give restrictive or expansive meaning keeping in view the nature of the legislation, may be beneficial, penal or fiscal etc. Cumulatively, it is to sub-serve the object of the legislation. Old golden rule is of respecting the wisdom of legislature, that they are aware of the law and would never have intended for an invalid legislation. This also keeps courts within their track and checks individual zeal of going wayward. Yet in spite of this, if the impugned legislation cannot be saved the courts shall not hesitate to strike it down. Similarly, for upholding any provision, if it could be saved by reading it down, it should be done, unless plain words are so clear to be in defiance of the Constitution.

Input Tax Credit which has been accrued in Erstwhile Law is a Accrued Vested Right and Property of the Assessee under Article 300A of the Constitution.

However the Input Tax Credit under the GST Law being time being in force is a entitlment subject to conditions and same cannot be treated as right of the assessee.

[OmPrakash jain]

Sir,

After the retrospective amendments in S.140 w.e.f. 27.3.2020 by inserting the words “within such time and”, whether the time limit prescribed under he Limitation Act will prevail ? Will it not be against the provisions of the GST Act?