GST TRAN-1 Journey – A bumpy ride

[niranjan gupta]

One can visualize a strenuous battle between the Indian Government and the taxpayers for claiming of unused input tax credit under the erstwhile VAT, Service Tax or Central Excise regime.

We are pleased to inform the readers that the Hon’ble Delhi High Court in W.P.(C) 11040/2018 filed by 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] has permitted that Form GST TRAN-1 can be filed upto 30.06.2020 by all the assesses registered under GST to carry forward/avail their transitional credit.

History and statutory provisions

1. Extension of time till 27.12.2019 and for specified categories of person till 31.03.2020

1. Rule 117 of GST Rules provided that an assessee is required to file Form GST TRAN-1 on common portal within a period of 90 days from the appointed day. However, proviso to said rule permits Commissioner to extend said time period of 90 days with a further period of not exceeding 90 days. Accordingly, the last date to file Form GST TRAN-1 was extended by Commissioner and it was allowed to be filed by 27.12.2017[1].
2. However, the Hon’ble Allahabad High Court in the case of Continental India Pvt. Ltd. v. Union of India[2]discussed that on account of ‘technical difficulty’ in the GSTN portal it is expected that Government will re-open the Form GST TRAN-1. But the assessee’s eligible to file TRAN-1 may be defined.
3. Accordingly, sub-rule (1A) was inserted in rule 117 of GST Rules vide NN 48/2018 – CGST dated 10.09.2018 which permitted registered persons who faced technical glitches in filing of Form GSTR TRAN-1 by due date and whose case would be recommended by GST Council, to file the same by 31.03.2019. As on date, this date has been extended till 30.06.2020[3].
4. Controversies due to different decision by Hon’ble High Courts on upholding the time limit as procedural in nature
5. On challenge being made to the power of Government to prescribed time limit to transition the credits under earlier law to GST regime, Hon’ble Gujarat High Court in the case of Willowood Chemicals Pvt Ltd Vs Union of India[4]held that said time limit of 180 days (90+90) is not ultra-vires to the Act. However, later on the same High Court in case ofSiddharth Enterprises v. The Nodal Officer[5]held that the right to carry forward the CENVAT credit is a right acquired under the erstwhile Central Excise Act, 1944 and under Section 174(2)(c) of the Central Goods and Services Tax Act, 2017. It is a ‘vested right’ which cannot be taken away by the time limit prescribed under Rule 117 of Central Goods and Services Tax Rules, 2017.
6. Therefore, a chaos was prevailing in the industry as to what is the real provision regarding eligibility to transition the credits in GST regime. The quandary was whether the amount not transitioned should be expensed off or a claim should be lodged to allow said non-transitioned amount as credit under the law. In one case where the petitioner claimed that his case is not covered by technical glitches i.e. under rule 117(1A) and requested the GST Council to consider his case of compassionate grounds and filed the writ before Hon’ble Delhi High Court[6]aggrieved by no response being received, succeeded to obtain a direction for the respondents to either open the online portal so as to enable the petitioner to file the Form TRAN-1 electronically, or to accept the same manually on or before 31.12.2019.
7. For the purposes of examining the issues involved one needs to go through the labyrinth of GST laws. The conspectus of various decisions gives the following picture. But author would like to say that the hullabaloo over the distinguished decisions finally turned in favor of taxpayers with the recent decision in case of Brand Equityrendered by Hon’ble Delhi High Court.

3. Flood of cases from 10.09.2018 to 31.12.2019 – a bumpy ride - Industry blowing hot and cold in the same breath

7. On our journey from 10.09.2018 to 31.12.2019, we witnessed various petitioners wandering in court of law seeking reliefs where GST Council did not recommend the cases for extension on account of failure of assessee’s to establish technical glitch. However, these anomalies were put to a stand halt by the decision of Hon’ble Kerala High Court in case of Larsen and Toubro Limited Versus Union of India[7]wherein it was held that the mere fact that the petitioner cannot establish that the inability to upload the required details or revise the same was on account of a system error that was occasioned by the respondents, cannot be a reason for denying him the substantive benefit of carrying forward the credit earned by him under the erstwhile regime. However, the controversies remained alive due to the presence of distinctive decision of Hon’ble Rajasthan High Court in case of M/s Braj Chemical and Minerals Versus Union of India[8]wherein it was held that the respondents shall permit the petitioner to submit online GST TRAN-1 form, subject to furnishing a proof that he had tried to upload GST TRAN-1 form prior to 27.12.2017 and such attempt failed due to technical fault/glitch on the common portal. Needless to mention that petitioner will be required to submit a certificate/recommendation issued by GST Council in this regard.

8. Among all this, Hon’ble Punjab and Haryana High Court in case of Adfert Technologies Pvt. Ltd. v. Union of India[9]held that unutilized credit arising on account of duty/tax paid under former tax laws is vested right which cannot be taken away on procedural or technical ground of non-filing of TRAN-1 by the deadline. Therefore, it was held that even if assessee’s have not filed the Form GST TRAN-1 at all, they can also file the same now.

9. However, assessee was not allowed to take a sigh of relief with another decision by Hon’ble Bombay High Court which added to the line. In Nelco Limited v. Union of India [2020 (3) TMI 1087 - BOMBAY HIGH COURT], HC dis-allowed the carry forward of transitional credit on the basis that the time limit stipulated in Rule 117 is in consonance with the transitional nature of the enactment and it is neither arbitrary nor unreasonable. It also records that availment of input tax credit under Section140 of CGST Act is a concession attached with conditions of its exercise within the time limit.

10. Mystifying to all those seeking plausible answers to the TRAN-1 imbroglio is why instead of indulging in such needless shenanigans, the government did not come out with a straight forward explanation of what it had sought and achieved by its actions. Unfortunately, this aspect is not being addressed adequately and suitably, and the government appears mired in confusion as to what should, or what should not, be done to ensure greater verisimilitude for the steps that it has taken.

4. A decision which may end the litigation on TRAN-1

11. A sudden ray of hope has been brought by the Delhi High Court in the case of 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]  which stated that CENVAT credit is an accrued and vested property of taxpayers and is a constitutional right under Article 300A of the Constitution of India. Therefore, credit should not be denied to any assessee and in the absence of any time limit given in the Act, limitations of Limitation Act would be applicable which provides for a time limit of 3 years. The provisions discussed by Hon’ble High Court are decoded for easy understanding below:

• Rule 117 of the CGST Rules, 2017

While analyzing the said Rule, the Hon’ble High Court has read down the said provision as being directory in nature, insofar as it prescribes the time-limit for transitioning of credit and therefore, the same would not result in the forfeiture of the rights, in case the credit is not availed within the period prescribed. This however, does not mean that the availing of CENVAT credit can be in perpetuity. The Court has also held that

“The effect of reading down of Rule 117 of the CGST Rule, insofar as it prescribes the time-limit, would be that the time limit of initial 90 days as prescribed in Rule 117 would not bar the tax payers from availing the credit standing in their favour on the appointed day (01.07.2017).”

• Rule 117(1A) of the CGST Rules, 2017

The Hon’ble High Court has also held that the Government cannot, by way of Rule 117(1A) create a classification between registered persons who could not file the GST Tran-1 due technical difficulties and the persons who attempted to file GST Tran-1 but could not file or incorrectly filed GST TRAN-1 and did not rectify within the prescribed time limit of 90 days extended 27th December 2017.

The Hon’ble High Court while interpreting the phrase “technical difficulty” held that it has a very broader meaning and cannot be given a narrow interpretation by restricting its applicability to the difficulties faced on the GSTN Portal. The phrase would also include the availability of the internet, knowledge and skills of computer, etc. Consequently, the Court held that prescribing a time limit and not allowing carry forward of credit (vested right) due to difficulties, which are by a certain viewpoint, not to be considered as technical glitches. The Act is cured of the deficiency and is a self-contained provision authorizing the rule making authority to prescribe time limit for filing Form TRAN-1. Therefore, the Hon’ble High Court held that the classification is unreasonable, un-defined, nebulous, arbitrary and vague.

In the end the Hon’ble High Court has held that:

“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.

We are also of the opinion that other taxpayers who are similarly situated should also be entitled to avail the benefit of this judgment. Therefore, Respondents are directed to publicise this judgment widely including by way of publishing the same on their website so that others who may not have been able to file TRAN-1 till date are permitted to do so on or before 30.06.2020.”

The Hon’ble Delhi High Court has held that period of 90 days for claiming input tax credit in TRAN-1 is directory and therefore, period of limitation of 3 years under the Limitation Act would apply. The direction would apply to all those who could not file TRAN-1 and claim input tax credit. The respondents shall thereafter process the claims in accordance with law. The court has further directed that it should be advertised that all taxpayers who have not filed TRAN-1 can do so by 30.6.2020. The judgment has been made applicable to all, irrespective of whether the taxpayer has approached the court or not.

Conclusion

The judgment in Brand Equity case has brought sunshine over the shadow for taxpayers. It will be a good booster to get businesses started from the COVID-19 lockdown. The registered persons, who have failed to file GST TRAN-1 due to the technical glitches are given another opportunity to file declaration under GST TRAN. The icing on the cake is the Court’s intention to the widely publicise the judgment for the benefit of even non-petitioners. There are chances to foster litigation on one topic. The Revenue Department might challenge the said judgment in the Supreme Court, even when it is forced to publicise the same. In addition, the decision has not dealt with the retrospective amendment made to Section 140 vide the Finance Act 2020, that has now added the phrase “within such time” in the main provisions. Moreover, it is advisable to follow the following steps to substantiate the claims:

1. Check whether GST portal is allowing facility to file / rectify Form GST TRAN-1. If it is not allowing, the proper screenshots should be taken and a letter should be written to the GSTN to open the portal for allowing to file the updated or rectified or fresh Form GST TRAN-1.
2. If TRAN-1 is still not opened, then a manual copy of Form GST TRAN-1 should be submitted in the jurisdictional office and GSTN giving reference of Delhi High Courts decision and the credit can be claimed as the transitional credit by way of filing GSTR-3B.
3. If need arises, a representation can also be made to CBIC.

The taxpayers should be cautious while evaluating their facts and take steps to blossom under the guidance of this judgment. It is also advised to re-review the already filed Form GST TRAN-1 and in case some left over entries are found, the same should be claimed.

[By NK Gupta, Senior Executive Director; CA Kashish Gupta, Head of Litigation Division; Ms Sanskriti Naruka, M/s SS Kothari Mehta & Co]

[1]Order Number 03/2017 GST dated 21.09.2017; 07/2017 GST dated 28.10.2017; 09/2017 GST dated 15.11.2017

[2] 2018 (1) TMI 1245 - ALLAHABAD HIGH COURT; 67 of 2018 dated 24-1-2018

[3] NN 49/2019 – CT dated 09.10.2019 (extended till 31.12.2019); NN 02/2020 – CT dated 01.01.2020 (extended till 31.03.2020); NN 35/2020 – CT dated 03.04.2020 (extended till 30.06.2020 due to widespread pandemic caused by COVID-19)

[4] 2018 (10) TMI 261 - GUJARAT HIGH COURT dated 19.09.2018; R/SCA No. 4252 of 2018 (followed by Bombay High Court in JCB India Limited [2018 (4) TMI 585 - BOMBAY HIGH COURT] 

[5] 2019 (9) TMI 319 - GUJARAT HIGH COURT dated 06.09.2019; C/SCA/5758/2019

[6] A.B. Pal Electricals Pvt. Ltd. Versus Union Of India & Ors  [2019 (12) TMI 1002 - DELHI HIGH COURT]

[7]W. P (C). No. 32968 OF 2019 (U) Dated 19.12.2019 [2019 (12) TMI 1084 - KERALA HIGH COURT]

[8] M/S. BRAJ CHEMICAL AND MINERALS VERSUS UNION OF INDIA [2020 (1) TMI 1043 - RAJASTHAN HIGH COURT]

[9] 2019 (11) TMI 282 - PUNJAB AND HARYANA HIGH COURT = W.P No.33290/2019 dated 19.11.2019 (Kar HC) [2019 (12) TMI 464 - KARNATAKA HIGH COURT]

Discussions to this article

[OmPrakash jain]

Sir,

1. The judgment of Hon'ble Delhi High Court in the case of Brand Equity Treaties Limited was reserved on 2.3.2020 & Pronounced on 5.5.2020 = 2020 (5) TMI 171 - DELHI HIGH COURT.

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

That is why this revenue oriented approach of the Govt. by annulling the various judgments of different courts has not been discussed in the judgment of HC.

2. The Bombay High Court in case of Nelco Limited v. Union of India 2020 (3) TMI 1087 - BOMBAY HIGH COURT basing its judgment on the case of JCB Limited = 2018 (4) TMI 585 - BOMBAY HIGH COURT, is under judicial consideration in the Supreme court for Constitutional Validity of S.140(3)(iv), CGST Act, 2017: wherein the last date of hearing was 25.2.2020. The Govt. went in the Supreme court due to difference of opinion between the High Court of Bombay & Gujarat High Court which rendered judgment in favour of the party in Filco Trade Centre Pvt. Ltd. v. Union of India 2018 (9) TMI 885 - GUJARAT HIGH COURT.

And as per Ratio decidendi of Supreme court in the case of UOI v. West Coast Paper Mills 2004 (2) TMI 344 - SUPREME COURT, when notices have been issued by admitting the SLP, then the judgment of the High Court is in jeopardy and the subject matter can not be said to have attained finality till decision of the Supreme court.

Therefore the judgment rendered on 20.3.2020, by the Bombay High Court in the case of Nelco Limited v. Union of India 2020 (3) TMI 1087 - BOMBAY HIGH COURT can not be made applicable till decision of the Supreme court.

3. Here it is worth mentioning that Bombay High Court delivered the judgment on 20.3.2020, much after the rejection of SLP on 28.2.2020 by the Supreme court: UNION OF INDIA & ORS. v. ADFERT TECHNOLOGIES PVT. LTD. 2020 (3) TMI 188 - SC ORDER, which was filed by the Govt. Even then, its reference was missing in the judgment of Bombay High Court.

[niranjan gupta]

Thanks for your inputs Om Prakash Ji.