Fate of transitional credit is still in ambiguity-Apex Court accepts SLP by UOI in matters of Brand Equity Treaties Limited & Others

[Ashish Mittal]

Breif Background:                     

The long awaited journey of biggest indirect tax reforms in the country in the form of introduction of goods and Service tax (in short “GST”) attained its destiny on 1^st July 2017. The new regime subsumed various levies such as Central excise, Service tax, VAT, CST, entry tax etc. replaced with a unified levy in form of GST. To enable smooth transition, the new regime entitled the taxpayers to carry forward the amount of unutilized CENVAT credit & Input tax Credit i.e. ITC accrued till 30 June 2017, by filing a declaration in form GST TRAN-1 (TRAN-1) within a prescribed a time limit of 90 days or within notified extension i.e. till 27^th Dec 2017.

In this juncture, taxpayers availed the benefit of the same but due to new taxation system, complexities in business, technical glitches, lack of proper IT support and other varied reasons, held back many taxpayer in complying with prescribed time limits. Now to resolve the issue taxpayers approached Jurisdictional Commissionerate, Judicial platforms as well which were also challenged in higher courts by revenue as well as taxpayers following some retrospective amendments carried by revenue in the statue.

In light of above background, in this compilation an attempt has been made to discuss one such judgement of Hon’ble Delhi High Court in matters of Brand Equity Treaties Limited & 3 Other taxpayers (hereinafter referred as “petitioners”) Vs Union of India (UOI) (hereinafter referred as “respondent”) for transitional credit in dispute, which was followed by retrospective amendment in statue by the revenue & thereby challenging the matter through Special Leave Petition (in short “SLP”) before the apex court by UOI.

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 the aforesaid matters the Hon’ble Delhi High Court was approached by the petitioners, wherein parties were having similar issue & grounds of relief. For extracting the essence of the judgment- facts, issue involved, findings & observation and conclusion have been summarised below. Also since 4 parties were involved in the matter use of the term petitioners have been referred.

1.  Fact of the case: The facts of the instant matter have been divided in two parts in first part case wise specific facts have been quoted in tabular form & second part contains common understanding developed from the same.

Case Specific facts: 

Name of the Parties	Case Reference No.	Amount in Dispute	Facts of the Case
BRAND EQUITY TREATIES LIMITED	W.P.(C) 11040/2018 and C.M. No. 42982/2018	₹ 72,80,529	1. Legitimate credit of ₹ 72, 80,529 was duly filed in Service Tax Returns. 2. Petitioner was part of big group involving multiple entities with centralized tax operations, due to which TRAN-1 was not filled within stipulated time.
MICROMAX INFORMATICS LTD Vs UOI	W.P.(C) 196/2019 & CM APPL. 965/2019	₹ 6,04,47,033	1. Legitimate credit of ₹ 6, 04, 47,033 was duly filed in Service Tax Returns. 2. TRAN-1 was dully filled on 24th Nov 2017, later called for verification. 3. Later discovered that they have inadvertently missed reflecting the correct CENVAT credit in the Form 4. Attempts made to re-submit with adequate proof, reference to circulars made & jurisdictional Commissionerate were visited but no positive response received.
DEVELOPER GROUP INDIA PRIVATE LIMITED Vs UOI	W.P.(C) 8496/2019	₹ 60,15,498	1.  Petitioner was indulged in advertising, brand promotion and public relation management 2. Legitimate credit of ₹ 60, 15,498 which was duly filed in Service Tax Returns, was to be carried as transitional credit under GST. 3. They had an opinion to file refund of the amount Under Sec. 142(3) of Central GST Act' 2017 (in short "CGST Act") i.e. refund eligible under erstwhile law can be claimed in GST Law. 4. Due to technical glitches & Error not able to file refund application. 5. Jurisdictional Commissionerate was approached who denied refund under Sec. 142(3) of CGST Act' 2017. 6. Then manual application was made for claiming the same in TRAN-1 with documents which did not find a way through. So this writ petition was filled.
RELIANCE ELEKTRIK WORKS Vs UOI	W.P.(C) 13203/2019	Not Specified	1. In this case also petitioner due to system error could not upload TRAN-1. 2. Follow up with respondent was made but course of action taken in favour.

Certain Common Points:

1. Petitioners are having legitimate CENVAT credit which was admissible under the law which can be duly carried forward in the new regime.

2. The delays caused in the instant cases was not on account technical glitches on the portal unlike various other matters came before the court.

3. Instead delay was caused due to other technical difficulties, misinterpretation of law, complexity of operation resulted in non-filling of TRAN-1 filled before the prescribed due date cap.

4.  Appropriate jurisdictional Commissionerate & respondent office was also being approached for granting to file the statement but the request were not materialized on varied grounds.

2. Issue Involved & Plea Made:

   1. To allow petitioners to avail accumulated credit in GST regime thereby allow filling TRAN-1 even beyond time limit under Rule 117 of CGST Rules 2017

   2. To declare Rule 117 of the CGST Rules as void on the ground that it is arbitrary, unconstitutional and violative of Article 14 to the extent it imposes a time limit for carrying forward the CENVAT credit to the GST regime if petitioner do not allow to carry forward the transitional credit beyond time limits prescribed.

   3. To treat them at par with other taxpayers who faced technical glitches in filling TRAN-1 and extend the filing for them as well.

3. Findings & observations:

1. Submission by petitioners:

   1. GST portal is currently and then was in “trial and error” phase, so taxpayers should not suffer for the same.

   2. References have been made upon the judgment in A.B. Pal Electricals Pvt. Ltd. Versus Union Of India & Ors. - 2019 (12) TMI 1002 - DELHI HIGH COURT wherein TRAN-1 was not filled since the Managing Director was unwell & was not able to attend companies affairs, Hon’ble Court extended the benefit of circular for technical glitches and allowed the taxpayer to file TRAN-1 and several others similar rulings.

   3. The accumulated CENVAT credit is vested property of the assessee and protected by Article 300A of the Constitution.

   4. Further Rule 117 of CGST Rules is procedural in nature, and not a mandatory provision, which cannot deprive the petitioners from availing their vested right supported by Supreme Court ruling in the case of M/s Scg Contracts India Pvt. Ltd. Versus K.S. Chamankar Infrastructure Pvt. Ltd. & Ors. - 2019 (2) TMI 1658 - Supreme Court.

2. Submission by Respondent:

   1. UOI strongly opposed the petitions as facts of each case exhibit a casual approach on part Petitioners with no technical glitches

   2. Defence of Rule 117 of the CGST rules was made on grounds that Sec. 164(1) of CGST Act’2017 empower government with GST council recommendation to make rules, empowering to fix the time frame for availing the transitional credit, hence not arbitrary in nature.

   3. Benefit of taking credit is not a vested right of an assessee and certainly cannot be claimed in perpetuity & hence time limits can be quoted and enforced with condition which was supported by judgement.

3. The Hon’ble Delhi HC took a note of Section 140 of CGST Act’ 2017 & Rule 117 of CGST Rules’ 2017, and thereby admitting that GST portal have a lot technical glitches which were addressed by IT Grievance Redressal Committee formed by respondent wherein selected taxpayers allowed to file TRAN-1 even beyond time limits which also was subjected to many extensions & in other matters were presented before varied High Courts included Delhi HC wherein the matter was decided in the favour of the taxpayers thereby quoting few such judgments.

4. The Hon’ble court admitted that on part of taxpayers there were bonafide errors, lack of understanding of the complete overhaul of the indirect tax system; or complicated filing procedure and the statutory forms resulting in erroneous information being stated therein. Further it was stated lack proper IT backbone was eventually reason for sheer many cases and during proceeding of one such matter higher officials of GSTN network & respondent’s senior official and policy makers were called for special hearing & revamping problems at a grass-root level was taken under. GSTN network, indeed, is riddled with shortcomings and inadequacies. These need urgent resolution which respondent unfortunately has failed to take care adequately.

5. The Hon’ble court referred various judgement with similar facts amongst them referred the case of M/s. Blue Bird Pure Pvt. Ltd. Versus Union Of India & Ors. - 2019 (7) TMI 1102 - DELHI HIGH COURT and SARE REALTY PROJECTS PRIVATE LIMITED, DOTCOM HOME FASHIONS PVT LTD., TARA CHAND SALUJA & SONS, VEE GEE AUTO COMPONENTS PVT. LTD., ANKUR OIL & REFRIGERATION, M/s TARA CHAND SALUJA & COMPANY, M/s ALLIANCE GRAPHIC EQUIPMENT PRIVATE LIMITED, M/s BATRA ART PRESS, BENLON INDIA LTD., FRV POWER INDIA PVT. LTD., AMAN MOTORS Versus UNION OF INDIA & ORS. - 2018 (9) TMI 373 - DELHI HIGH COURT wherein it was held portal was in trail & run phase and factually taxpayers faced difficulty in filling the form. Further the counter of not having proper evidence of error cannot be basis for rejection since in such hassle many taxpayer’s may not have had the presence of mind to create any record of their having tried, and failed, to upload the Form GST TRAN-1. Furthermore the admitted that the transitional credit is property of taxpayer as per Constitution of India.

6.  The Hon’ble Court raised and answered two questions:

   1. “Whether the Government could curtail the accrued and vested right, and restrict it to 90 days by a subordinate legislation?”

The court referred and examined the provision of Sec. 140 of CGST Act’ 2017 read Rule 117, and mentioned the fact only remedy to such accumulated credit with taxpayers is claiming as transitional credit in TRAN-1. Also it was mentioned that there is nothing sacrosanct about the time limit so provided as rule gave power to commissioner to extend the same for specified taxpayers which has not ended till date largely on account of its inefficient network for taxpayer facing “technical difficulties on common portal” is arbitrary, vague and unreasonable. There is no rationale for curtailing the said period, except under the law of limitations.

1. 2. “What does the phrase “technical difficulty on the common portal” imply?”

“Technical difficulty” has no definition & it is too broad a term and cannot have a narrow interpretation, or application. Further, technical difficulties can be on both ends i.e. even on taxpayers end. If difficulty is faced by respondent in implementing complete new system then even the taxpayers required time to adapt to the new systems, which was introduced as a completely online system who apart portals shortcomings, faced challenges of low bandwidth and lack of computer knowledge & skill to operate. The successful migration to the new system was a formidable and unprecedented task. Thus, the phrase “technical difficulty” is being given a restrictive meaning which is supplied by the GST system logs. Thus 90 days tenure is not justified where civil rights can be enforced within a period of three years under the Limitation Act, 1963.

7. Further the Hon’ble court stated that logs might not be generated by the GST portal due to technical glitches and mere on such grounds the relief of extension by virtue of Rule 117(1A) cannot be extended to only certain taxpayers only.

8. The approach of the Government should be fair and reasonable. It cannot be arbitrary or discriminatory in view of Article 14 of the Constitution. Further, CENVAT credit is the vested property of the assessee, and they have 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. As also held in A.B. Pal Electricals (supra mentioned).

4. Conclusion (Held that):

1. The Hon’ble court accepts that Rule 117 is procedural and directory, and cannot affect the substantive right. They referred apex court observation “procedural law is not to be a tyrant but a servant, not an obstruction but an aid to justice” [Ref: Salem Advocate Bar Association Versus Union of India (UOI) - 2002 (10) TMI 796 - Supreme Court].

2. Due to absence of any specific provisions under the Act, Limitation Act residuary provision shall apply, a period of three years from the appointed date would be the maximum period for availing of such credit.

3. Petitioners shall be allowed to file & avail transitional credit in the said three years tenure i.e. Up to 30th June 2020.

4. Respondents are directed to either open the online portal or accept manually TRAN-1, thereafter process the claims in accordance with law.

5. All other taxpayers with similar facts may benefit of this judgment and avail the credit before 30th June 2020.

Retrospective amendment in the statue:

1. The Finance Act’ 2020 vide Section 128 of Finance Act’ 2020 introduced a retrospective amendment in Section 140 of CGST Act’ 2017 thereby creating power to prescribe time limit and manner for availing ITC in the Form TRAN-1 (As per clause 126 of Finance Bill 2020 read with memorandum explaining the finance bill).

2. The amendment was carried by adding the words “within such time and” in various sub sections of Sec. 140.

3. This retrospective amendment was brought in force by Notification No. 43/2020-CT dated 16^th May 2020 which shall come into force on 18^th May 2020 thereby amending the Sec. 140 of CGST Act’ 2017 from 1^st July 2017.

4. This amendment was introduced with an intention to nullify the grounds supra mentioned i.e. Rule 117 is arbitrary in nature as time limit is not specified in statue.

UNION OF INDIA VERSUS BRAND EQUITY TREATIES LIMITED AND ORS. ETC. [2020 (6) TMI 517 - SC ORDER]

Now the above matter was raised by UOI before apex court through SLP No.7425-7428/2020 dated 19.06.2020. The apex court held:

1. Notice to be issued to the petitioner.

2. The matter escalated was accept for hearing.

3. The impugned order of Delhi High Court shall stands stayed.

Conclusion

On the quotient of above discussion and analysis of the facts, amendment in statue, it would be not wrong to mention that the most debatable matter of transitional credit is still in question and there is wide probability of hardship on taxpayers if the tables are turned by the apex court. Although the merit to a large extent lies in the favour of the petitioner but responded would also be having various grounds to fight the case.

(The author of this article can be reached on his email id- [email protected] or contact no. - +91-9582532845)