DEPARTMENT’S STAND ON WRIT PETITIONS IN RELATION TO TRANSITIONAL CREDIT UNDER GST

[Dr. Sanjiv Agarwal]

It’s a fact that there are various writ petitions filed before various high courts /Supreme court in relation to disputes on allowability or disallowance of transitional credit under GST regime. While most of the writs have been disposed in favour of tax payers, yet disputes are not getting settled and the number of new writs are also on rise. The assessees are not getting respite from the department. The main issues relate to timely filing of GST-TRAN 1 and 2 forms online and technical glitches with  the GSTN portal.

The Policy Wing of CBIC has prepared a document containing departmental view point on relation to issues on transitional credit including non-filing of TRAN-1 and TRAN-2 by due date and other related issues.

CBIC policy wing has opined that :

1. Cenvat credits or input tax credits are not absoulte / vested rights over and above statue and are subject to statutory provisions and rule under which they exists credit can be availed only to the extent allowed by law and reasonable restrictions on availing credit can be imposed. The contention of the petitioner that CENVAT Credit / Input Tax Credit are absolute / vested rights is fundamentally flawed, legally erroneous and ex-facie contrary to the law.

2. Sub-Section (1) of Section 140 of the CGST Act, 2017, which deals with the transitional provisions, permits carry forward of the CENVAT credit of eligible duties. It is  submitted that merely because a carry-forward of CENVAT Credit is permitted from the earlier regime to the new regime it does not mean that this right is absolute in nature and can be claimed over and above the time and manner prescribed in the present statutory regime. In fact, on the contrary the very fact that the Legislature had to provide for this right under the statute means that it is a statutory right, which can only be availed of in the manner provided for in the statute.

3. The CENVAT Credit claimed by the petitioner, arose under an erstwhile regime which has been discontinued. The Credits enabled the petitioner to adjust/set-off the Credits against the taxes payable by it under the said erstwhile regime which has been discontinued. There was no obligation or requirement whatsoever on the Parliament to recognize and permit the carrying forward of CENVAT Credits to the new GST Regime. The benefit of carrying forward of the CENVAT Credit is therefore a creature of the statute and is a newly created right/benefit under the GST Regime. It would therefore necessarily be subject to the limitations and restrictions that are laid down by or under the CGST Act, 2017 and the rules.

4. Rule 117 / 120A of CGST Rules 2017 are within the rule-making power of the Central Government under the CGST Act, 2017

Section 140 of the CGST Act, 2017, provides for the transitional arrangement for input tax credit. Further the said section envisages certain benefits, in the form of tax credits, to be carried forward during the regime change. Such benefits of tax credits at a large scale cannot be allowed to linger indefinitely as it would have a direct impact at the tax collection, estimates and budgetary allocations. Section 140(1) of the said Act, as amended with effect from 01.07.2017, by Section 128(a) of the Finance Act, 2020, itself provides that a registered person shall be entitled to take the amount of CENVAT Credit carried forward in the Return relating to the period ending with the day immediately preceding the appointed day furnished by him under the existing law within such time and in such manner as maybe prescribed.

5. Time limit prescribed under Rule 117 / 120A of CGST Rules 2017 is rational and mandatory. It is well-settled that cut-off dates are in the realm of the legislature to lay down and the Courts especially in fiscal statutes should not interfere with such cut-off dates.

6. Sub-rule (1A) of Rule 117 of CGST Rules, 2017 cannot be termed as arbitrary or vague and is well within the four corners of the statue. It is contended that the root cause for various taxpayers not being able to file FORM TRAN – 1 is the failure of the network to work seamlessly is erroneous for the reason that 9.41 Lakh number of TRAN- 1 Returns have been successfully filed from 01.07.2017 till 27.12.2017, thereby highlighting that the network has been working and the petitioner has admittedly failed to file necessary returns along with proper documentation within the relevant time period for reasons other than technical difficulties. In contradiction to the large number of people who were filing the TRAN-1 Returns correctly within the prescribed time, the Petitioners and a handful of others did not do so.

Thus, the Government cannot be held responsible for negligence and dereliction of duty by a responsible taxpayer. Thus, Rule 117 and Rule 120 A of CGST Rules, 2017, prescribing time limit, are well within the ambit of Section 140 of the CGST Act, 2017 and nowhere goes beyond the Act.

7. Section 28 of the CGST (Amendment) Act, 2018 & Circular No.-87/06/2019-GST dated 02.01.2019 are legal and within the four corners of the statue. Section 140 of the CGST Act, 2017 read with Rule 117 of the CGST Rules, 2017 provides for transitional arrangement for input tax credit. Further the said section envisages certain benefits, in the form of tax credit, to be carried forward during the regime change. It has always been the intention of the GST Council to make available transitional credit of eligible duties only and not for all credits.

8. Cenvat credits or input tax credits are not absoulte / vested rights over and above statue and are subject to statutory provisions and rule under which they exists credit can be availed only to the extent allowed by law and reasonable restrictions on availing credit can be imposed. The contention of the petitioner that CENVAT Credit / Input Tax Credit are absolute / vested rights is fundamentally  flawed, legally erroneous and ex-facie contrary to the law laid down by the Supreme Court in few cases.

1. On issue of denial of credit violating article 14 & 19(1)(g) of the constitution, although, taxing statutes are not outside the purview of Article 14, but there are catena of pronouncements of Supreme Court which highlights that Legislature enjoys wide latitude in taxation statutes and same should not be subjected to the minute gravities of article 14 .

10. Parliament is given power to regulate trade and commerce in public interest under Article 302 subject to Article 303. As such, as enshrined by Article 301 of the Constitution of India freedom of trade, commerce and intercourse throughout the territory of India is also not restricted by the said provisions of the Act.

The references to the Policy Wing of CBIC may therefore, be limited to fresh references now.

Discussions to this article

[Ganeshan Kalyani]

Sir, I agree that sufficient time was given to the assessee to carry forward the credit by filing return. However, the fact that TRAN-1 form was not free from doubt also cannot be denied.