2018 (10) TMI 1521 - HC - GST

Transitional Credit - validity of period of limitation - CENVAT credit of excise duty paid on capital goods which were in transit as on 01.07.2017 - inputs/capital goods - Vires of of Article 14 and 19(1)(g) of the Constitution of India - Gujarat Goods and Service Tax Act - IGST Act. Held that - Subsection (5) of section 140 allows a registered person, credit of eligible duties and tax in respect of inputs or input services which were received on or after the appointed day but on which the tax was paid earlier. In absence of any matching provisions pertaining to capital goods, in a situation where the duty had been paid on purchase of goods prior to the appointed day but the goods were received on or after the appointed day, there would be no possibility of availing credit on such tax under the GST regime. The legislature made a clear and conscious demarcation between capital goods and inputs when it comes to availing credit of the duties paid on the goods which are in transit. When the entire tax structure was being replaced by the GST provisions, there would arise a need for making transitional arrangements. In the present case, the source of the petitioner s grievance or dissatisfaction is that the inputs and capital goods are treated differently. When we find that the inputs and capital goods form different and distinct classes, the question of subclassification or artificial demarcation would not arise - it appears that the suggestion of the respondents is that unlike inputs, the capital goods which can be in the nature of plant and machinery including highly sophisticated specially designed and manufactured machines, may take much longer time for delivery and installation after the orders are placed by the manufacturers and the legislature was not inclined to keep the issues of migration of tax credits and pending claims open for indefinite period of time. If it is accepted that there is no time period for claiming input tax credit as contained in section 19(11), the provision would become too flexible and would give rise to large number of disputes including of verification of claim of input credit. Taxing statutes contained self contains scheme of levying computation and calculation of tax. The time under which a return is to be filed for the purpose of assessment of tax cannot be dependent on the will of a dealer. The statute in any manner do not violate Article 14 or 19(1)(g) of the constitution - petition dismissed.

Summary

Issues Involved:
1. Violation of Article 14 and 19(1)(g) of the Constitution of India by not allowing credit of excise duty on capital goods in transit as of 01.07.2017.
2. Discrimination between capital goods and inputs in the context of transitional provisions under the CGST Act.

Detailed Analysis:

1. Violation of Article 14 and 19(1)(g) of the Constitution of India:
The petitioner argued that the action of the respondents in not allowing the credit of excise duty paid on capital goods in transit as of 01.07.2017 is violative of Article 14 and 19(1)(g) of the Constitution of India. Article 14 prohibits class legislation but allows reasonable classification. The court noted that the legislature made a clear and conscious demarcation between capital goods and inputs when it comes to availing credit of the duties paid on the goods which are in transit. The court held that this distinction is not artificial, arbitrary, or discriminatory. The capital goods and inputs used in the manufacturing process have always been treated differently and distinct treatment has been given under the earlier statutes. The court concluded that the statute does not violate Article 14 or 19(1)(g) of the constitution.

2. Discrimination between Capital Goods and Inputs:
The petitioner contended that Section 140 of the CGST Act is a transitional provision that covers the migration of unutilized CENVAT credit for both inputs and capital goods. They argued that the exclusion of capital goods in transit from the benefit of availing excise duty credit is discriminatory and arbitrary. The court examined the statutory provisions and found that prior to 01.07.2017, manufacturers were entitled to take CENVAT credit of duty paid on inputs as well as on capital goods utilized in the manufacturing process, subject to conditions and restrictions. With the introduction of the GST statutes, this facility continued with certain modifications. The CGST Act allows the migration of unutilized CENVAT credit to the GST regime for both inputs and capital goods. However, Section 140(5) of the CGST Act provides credit for eligible duties and taxes in respect of inputs or input services received on or after the appointed day but does not extend this facility to capital goods in transit.

The court noted that the legislature made a conscious decision to distinguish between capital goods and inputs in the context of transitional provisions. The court referred to various judgments, including R.K. Garg v. Union of India, emphasizing that economic legislation is based on experimentation and must be viewed with greater latitude. The court concluded that the classification between capital goods and inputs is reasonable and has a rational relation to the purpose sought to be achieved. The distinction is not arbitrary or discriminatory, and the statute does not take away an existing right to claim CENVAT credit of the duty paid on capital goods.

Conclusion:
The petition was dismissed, with the court holding that the statute does not violate Article 14 or 19(1)(g) of the Constitution of India. The classification between capital goods and inputs in the context of transitional provisions under the CGST Act is reasonable and not arbitrary or discriminatory.