Transition Credit - Keep it simple

[Shailesh Bapat]

Along with COVID-19, Courts are witnessing a spate of litigation under GST provisions. Two main factors drive the taxpayers to Courts. One, the absence of the Appellate Tribunal and second, unfortunately, the perceived disinclination of the CBIC, followed by the State Governments, to strive and maintain a simple tax administration.

The most talked about disputes, as of now, are related to interest on delayed filing of GST returns and non filing of declaration in FORM GST TRAN-1. Both these issues are attempted to be overcome by bringing, or rather announcing, retrospective amendments to the relevant provisions in the Act and Rules or escalating to the higher judicial forum.

In respect of Transition Credit, numerous decisions have been rendered wherein High Courts, particularly Hon. Delhi / Punjab & Haryana / Kolkata / Ahmedabad High Courts, have repeatedly ruled that the taxpayer shall be allowed to file the declaration without reference to the time limit prescribed in Rule 117. On the other hand, there are decisions by Hon. High Court of Mumbai and recently by the Hon. High Court of Madras, holding that there is no reprieve for the taxpayers who missed the timeline.

The refrain of the favorable decisions is that the taxpayers should not be deprived of the credit which has been earned by them legally under the erstwhile laws. The directions to open the portal or to allow the taxpayers to file the declaration manually have not been heeded to and the Government has rushed to the Hon. Supreme Court to resolve the issue.

With due respect to the decisions wherein the procedure has been given primacy and with reverence and avowing obeisance to the final ruling to be given by the Apex Court, it is felt that the dispute could have been avoided or resolved at the initial stages if the Government had acknowledged that the taxpayers have already undergone the ‘agni pariksha’ or could still be subject to such tests. under time tested provisions of the erstwhile laws, including the time limit to take credit counting from the date of invoice.

Instead of insisting on filing a declaration, without giving up on the mandate of legislature to prescribe (time) and manner of transitioning the credit balance, the amounts as shown in the returns filed for the period ending on 30.06.2017, could have been directly transferred to the Electronic Credit Ledger of the respective taxpayers.

It may be pointed out that such simple procedure was followed for migrating the existing taxpayers to the new tax regime. Section 139 read with Rule 24 provided that on the registered person validating the e-mail address and mobile number, a provisional registration certificate for GST shall be issued. The final certificate registration was issued later.

A similar ‘manner’ and if required, time, could have been prescribed under Rule 117, instead of tapping complicated solutions such as setting up of Grievance Redressal Mechanism, inserting a new sub-rule for select category of registered persons, repeatedly extending time limit therein, retrospective amendment of Section 140, challenging High Court decisions in Supreme Court etc.

It is pertinent to recall that the CBE&C had issued a press release way-back in September, 2017 that as per the record of the Department, the unutilized CENVAT Credit as on 30.06.2017 was ₹ 1.27 lakh crore and that declarations in TRAN-1 have been filed only for ₹ 65,000 crores. Similar data should be available with the VAT department of State Governments also. If such credit, the data of which is available with the Governments, has been credited to the credit ledger based on the basis of ‘migrated registered persons’, whole lot of time and effort could have been saved for the registered persons, department(s) and of all that of the Courts at least with reference to Section 140(1) & (8).

The above situation may be compared to a simple analogous situation. When a transport corporation bus breaks down midway, the conductor of that bus puts a mark on each passenger’s ticket and the passengers board the next bus plying in the same route. The conductor of the next bus checks the ticket of the passengers while the bus is plying and any person who does not have a valid ticket is made to buy a new ticket. After all, the conductor knows that if he insists on checking the ticket before letting each passenger to board, his bus can’t be moving.

---

L.S. KARTHIKEYAN, ADVOCATE