GST – one of the major indirect taxation reforms expected to bring smoothness in business operations. The reality, however, may be far from what the government has been touting. Three years of GST and still we are in dilemma for migrating the unutilised credits to GST regime, that too for want of a transitional Form. Taxpayers have experienced the strenuous battle between legislative wing and judiciary wing of the Government on transitional provisions with no execution by executive wing.
Introduction
The time limit to file transitional form was extended till December 27, 2017 by the Government. However, on account of representations made across the Country and directions given by various High Courts, Government extended the time limit till 31.03.2020 (now stands extended till 31.08.2020 due to COVID reliefs) for those taxpayers who experienced technical glitch while filing the transitional form.
However, this was not enough to resolve the taxpayer’s grievance. Taxpayers need to have a recommendation from the GST Council in order to file transitional form after December 27, 2017, which is not given open heartedly. Also, there were many cases revolving around the issues of arithmetical errors, omissions and non-filing of these forms. Various High Courts gave favourable rulings extending the benefits to taxpayers.
It was expected that Delhi High Court’s judgment dated May 05, 2020 in case of Brand Equity will give an epistemological break. However, this break has lead to the beginning of next phase - the retrospective amendment to law which has effectively shrunk the taxpayer’s girth.
List of important judgments on the subject issue
The range of judgments is accouched by the various High Courts to permit the taxpayers to claim the transitional credit. The landmark rulings are as follows:
- Hon’ble Delhi High Court in the case of Brand Equity Treaties Limited[1] 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. Hon’ble court extended the benefit of this judgment to all taxpayers. Further, due to outbreak of COVID-19, the last date of benefit stands extended to August 31, 2020. However, Government decided to challenge this judgment before Supreme Court and SLP filed has been accepted on 19.06.2019 and the operation of this judgment is stayed.
- Hon’ble Punjab and Haryana High Court in case of Adfert Technologies Pvt. Ltd. v. Union of India[2] 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. It is worthwhile to note that SLP filed by the Government against this judgment was dismissed by the Supreme Court (Refer SLP No. 4408 of 2020). Hence, this judgment holds the field as on date.
- Hon’ble Gujarat High Court in case of Siddharth Enterprises v. The Nodal Officer[3] 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. However, Government decided to challenge this judgment before Supreme Court and notice has been issued on 19.05.2019.
- Hon’ble Madras High Court in case of Tara Exports v. The Union of India[4] held that the due date contemplated under the laws to claim the transitional credit is procedural in nature. In view of the GST regime and the IT platform being new, it may not be justifiable to expect the users to back up digital evidences. Even under the old taxation laws, it is a settled legal position that substantive input credits cannot be denied or altered on account of procedural grounds.
Retrospective Amendment in Law
- Before the Finance Act, 2020, the section was legislatively nevermore time-bound. However, the Rule specified a time limit of 90 days from July 1, 2017, which was to extend until December 27, 2017 and then until 31.08.2020 in respect of those taxpayers who faced technical glitch on the portal.
- After the pronouncement of judgment by Delhi High Court in case of Brand Equity (Supra) on May 05, 2020, Government gave effect to the retrospective amendment made in section 140 of the CGST Act, 2017, to interpolate the words 'within such time', on May 16, 2020.
- The prompt question & the efficacy of such judgments were tested before Court in the case of SKH SHEET METALS COMPONENTS VERSUS UNION OF INDIA & ORS. [2020 (6) TMI 385 - DELHI HIGH COURT] wherein the Court granting ITC made the following remark:
"19………the said amendment came into force after the date of the decision in Brand Equity (Supra). The said amendment was also not cited before the Court to contest the petitions. With that being said, since, there is no specific challenge to the amendment introduced by Section 128 of the Finance Act, 2020, we do not want to venture into the legality of the said provision viz-a-viz the judgment of Brand Equity (Supra)."
- Therefore, the thorny question that remains is, what are the implications of retrospective amendment?
Reasons for filing SLP against Brand Equity judgment despite making retrospective amendment in law
- The legislature is bound by the mandamus issued by the Court. A judicial pronouncement is always binding unless the very fundamentals on which it is based are altered and the decision could not have been given in the altered circumstances. The Legislature cannot, by way of introducing an amendment, overturn a judicial pronouncement and declare it to be wrong or a nullity. What the Legislature can do is to amend the provisions of the statute to remove the basis of the judgment.
- Since the Brand Equity’s decision was in nature of mandamus, Government had to approach apex court by way of filing SLP.
Concept of Retrospective amendment
“76.The principle which emerges from these authorities is that the legislature can change the basis on which a decision is given by the Court and thus change the law in general, which will affect a class of persons and events at large. It cannot, however, set aside an individual decision inter parties and affect their rights and liabilities alone. Such an act on the part of the legislature amounts to exercising the judicial power of the State and to functioning as an appellate court or tribunal.”
- In S.R. Bhagwat and Others vs. State of Mysore 1995 (9) TMI 370 - SUPREME COURT, a three-Judge Bench was dealing with a case where the petitioners were held entitled to certain promotions and service benefits from a particular date. Even though these benefits were given to them, the State did not give them the monetary benefits and, in fact, passed a law which had the effect of denying the monetary benefits due to the petitioners, in terms of the judgments earlier passed in their favour. After dealing with the entire law on the subject Supreme Court held as follows :-
“12. It is now well settled by a catena of decisions of this Court that a binding judicial pronouncement between the parties cannot be made ineffective with the aid of any legislative power by enacting a provision which in substance overrules such judgment and is not in the realm of a legislative enactment which displaces the basis or foundation of the judgment and uniformly applies to a class of persons concerned with the entire subject sought to be covered by such an enactment having retrospective effect………
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15. We may note at the very outset that in the present case the High Court had not struck down any legislation which was sought to be re-enacted after removing any defect retrospectively by the impugned provisions. This is a case where on interpretation of existing law, the High Court had given certain benefits to the petitioners. That order of mandamus was sought to be nullified by the enactment of the impugned provisions in a new statute. This in our view would be clearly impermissible legislative exercise.”
“30.……The legislature has the power to enact laws including the power to retrospectively amend laws and thereby remove causes of ineffectiveness or invalidity. When a law is enacted with retrospective effect, it is not considered as an encroachment upon judicial power when the legislature does not directly overrule or reverse a judicial dictum. The legislature cannot, by way of an enactment, declare a decision of the court as erroneous or a nullity, but can amend the statute or the provision so as to make it applicable to the past……”
- The Legislature has the power to enact validating laws including the power to amend laws with retrospective effect. However, this can be done to remove causes of invalidity. When such a law is passed the Legislature basically corrects the errors which have been pointed out in a judicial pronouncement. Resultantly, it amends the law, by removing the mistakes committed in the earlier legislation, the effect of which is to remove the basis and foundation of the judgment. If this is done, the same does not amount to statutory overruling.
- The Legislature cannot set at naught the judgments which have been pronounced by amending the law not for the purpose of making corrections or removing anomalies but to bring in new provisions which did not exist earlier. The Legislature may have the power to remove the basis or foundation of the judicial pronouncement but the Legislature cannot overturn or set aside the judgment, that too retrospectively by introducing a new provision.
Applicability of above principles in present case
- In the present case, the Government, in so far as it has made the amended provisions retrospective, has attempted to remove the causes of invalidity or basis or foundation of judgments passed till date. However, since the Government cannot nullify the writ of mandamus issued by the Court in favour of the taxpayers (which were prevalent as on March 27, 2020), the matter is being contested before Apex Court by way of filing a SLP. This mandamus could not have been set at naught by making the provisions retrospective. This would be a direct breach of the doctrine of separation of powers as laid down in State of Tamil Nadu vs. State of Kerala and Another 2014 (5) TMI 1110 - SUPREME COURT
- Nevertheless, all things examined, despite the amendment, we can say without hesitation that the said decision is not entirely resting on the fact that the CGST Act did not prescribe for any time limit for availing the transition of the input tax credit. There are several other grounds and reasons enumerated in the said decision and discussed hereinafter, that continue to apply with full rigour even today, regardless of the amendment to Section 140 of the CGST Act. These are as under:
- When indirect tax reforms were initiated, the Finance Minister made a statement that no retrospective amendments would be made which impacted the taxpayer. Lamentably, this great application has not been followed and the hope promised by the Government is not retained as usual.
- No suspicion, the Government has the power to make the retrospective amendment though it is unethical and creates ambiguity. It is adequate to mention that the retrospective amendments can be thumped underneath if such amendment creating any irrational limitations which violate the right to carry on business or the right to hold & dispose of the property. The instant case of the retrospective amendment shall pass through this judicial test.
- Be that as it may, it is concluded that a retrospective amendment blueprinting the new law of limitation cannot suddenly annihilate the vested right of action by providing for a shorter period of limitation. Similarly, the retrospective action should not be given to a law to impair an existing right. Based on this legal principle, the petitions filed before May 18, 2020 would not get influenced by such a retrospective amendment and stands in a more vigorous condition compared to the requests made later.
- There is no intelligible differentia in cases of persons who faced technical glitch and in case of others.
- Likewise, the Hon'ble High Courts in the various cases allowed petitioners to claim the transitional credit even after the lapse of the stated time limit. By and large, apart from Bombay High Court in case of Nelco Ltd. vs Union of India, it was generally held that the transitional credit is a vested right and is subject to scrutiny by the department and the same cannot be taken away by prescribing a time limit in the Rules and the time prescribed in the Rules is directory in nature and not mandatory.
Conclusion
The present case illustrates how the tax administration has inadequately hampered the expectation of the taxpayers. Regrettably, the department has failed to address the fundamental obstacle confronted by the taxpayers that befell while filing a Form, apparently on account of a bona fide mistake. Instead of offering a clarification, they have stonewalled all the struggles made by the taxpayers. The prejudice and intolerance caused to the assessee(s) is subterranean and its disillusionment and hopelessness are visible.
The taxation laws are complicated and hard to interpret. Moreover, no matter how well conversant the taxpayers maybe with the provisions, fallacies are bound to happen. Hence, if the tax filing procedures do not provide for an appropriate parkway to correct a bonafide mistake, the same would lead to the taxpayers avoiding compliances.
Given the fact that GST is in the "trial & error" phase, the registered persons who wish to transit their credits should be given a reasonable time. Thus, in our opinion foisting rigorous timelines under such law is unreasonable ultimately lead to deprivation of such ITC to such person. In order to keep the claims alive, it is suggested that taxpayers shall make their claims in the GSTR-3B return and shall keep the same unutilized till the matter is ultimately settled by the apex court. Also, intimation to this effect should be given to the jurisdictional officer.
Assisted by: Sanskriti Naruka, a student of Institute of Chartered Accountants of India
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