2020 (5) TMI 171 - HC - GST

Transitional Input tax credit - availment of accumulated CENVAT credit as of 30th June, 2017 by filing declaration Form TRAN-1 beyond the period provided under CGST Rules - validity of Rule 117 of the CGST Rules - challenge 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 - cause for not filing the TRAN-1 Form within time is sufficiently explained - section 140 of CGST Act. HELD THAT - On 1st July, 2017, the new indirect tax regime was introduced in the country by way of enactments, including the Central Goods and Services Tax Act, 2017 (CGST Act). The CGST Act introduced transitionary provisions to enable the taxpayers to migrate from the erstwhile indirect tax regime to the new GST regime. Section 140 of the CGST Act deals with the transitionary provisions - In pursuance of the above noted provision, respondent No.1 framed the CGST Rules - Rule 117 of the said rules imposed a time limit of 90 days for availing benefit of the accumulated CENVAT credit as provided under Section 140 (1) in its input tax credit register under the CGST Act. The transition from the erstwhile regime to GST for the availment of the CENVAT credit was to be by way of a declaration to be submitted electronically in Form GST TRAN-1. The date prescribed for filing of the said Form was extended several times by way of orders issued from time to time, finally till 27th December, 2019. Several taxpayers however could not meet the deadline. This was on account of several factors - predominantly being inadequacies in the network of the respondents, which failed to meet the expectations and serve the needs of taxpayers. Thousands of taxpayers complained that there was low bandwidth and despite several attempts being made on the GST Network, they were unsuccessful in filing the statutory GST TRAN-1 Form online - The recommendations of the Grievance Redressal Committee were also brought to the notice of the GST Council and the matter was deliberated upon. Several cases got settled at the government level, however some cases were contested on the ground that taxpayers did not put forward any evidence to suggest that they faced any technical glitch on the portal that prevented them to submit the GST TRAN-1 Form within the prescribed time limit. Many such matters travelled to courts. Majority of them were allowed in favour of the taxpayers, and directions were issued to the respondents to permit the filing of TRAN-1 Form beyond the extended date. The insertion of Sub-rule 1(A) and, thereafter, extensions being granted for filing of GST TRAN-1, notwithstanding the period envisaged under sub rule (1) of Rule 117, demonstrates that the respondents recognize the fact that the registered persons were not able to upload GST TRAN-1 due to technical difficulties on the common portal. This also substantiates that the period for filing the TRAN-1 is not considered either by the legislature, or the executive as sacrosanct or mandatory. In the present case, Are the facts before us such, as to deny the petitioners the relief extended to taxpayers covered by the category of technical glitches or technical difficulties ? - HELD THAT - The facts of each case enumerated above indicate that the petitioners have, either, not been vigilant of the timelines, or have been victims of the chaos and confusion that was prevailing at the time when the GST regime was introduced. As a result, Petitioners may not have concrete evidence in their hand to convincingly exhibit that they faced a technical issue on the GSTN portal while uploading the declaration in GST TRAN-1 - We were faced with a similar situation in the case of AB Pal Electricals Pvt. Ltd. vs. Union of India 2019 (12) TMI 1002 - DELHI HIGH COURT decided vide judgmentdated 17th December, 2019. In the said case, the assessee could not file the form within prescribed time for the reason that the Managing Director of the company was not keeping well, and as a result was unable to attend to the business affairs of the company for a long time - When the Managing Director recovered from his illness, he followed up with the authorities by submitting a representation seeking benefit of the CBIC s orders issued from time to time-extending the last date for submission of the TRAN-1 Form. The case was considered by the GST Council, but it failed to redress his grievance and the matter reached before us. We considered the situation and accepted respondents contention that the case of the petitioner could not be strictly considered as one covered by the situation of technical glitches - The above decision would also cover the case of the Petitioners, and there can be no two views about this proposition and we would like to extend similar benefit to them. Whether the Government could curtail the accrued and vested right, and restrict it to 90 days by a subordinate legislation? - HELD THAT - There is nothing sacrosanct about the time limit so provided. It is not as if the Act completely restricts the transition of CENVAT credit in the GST regime by a particular date, and there is no rationale for curtailing the said period, except under the law of limitations. The period of 90 days has no rationale and as noted above, extensions have been granted by the Government from time to time, largely on account of its inefficient network. In order to avail the benefit, no restriction has been put under any provisions of the Act in terms of the time period for transition. The time limit prescribed for availing the input tax credit with respect to the purchase of goods and services made in the pre-GST regime, cannot be discriminatory and unreasonable. There has to be a rationale forthcoming and, in absence thereof, it would be violative of Article 14 of the Constitution - further, the CENVAT credit which stood accrued and vested is the property of the assessee, and is 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. The appellant-company was a registered dealer under the Tamil Nadu Value Added Tax Act, 2006 (Tamil Nadu VAT Act)who was engaged in the business of leasing management of the motor vehicles and resale of used motor vehicles. It claimed entitlement to input tax credit of the amount paid on the purchases made from the registered dealer of motor vehicle as per Section 19(2) of the Tamil Nadu VAT Act.As per Section 19(11), if a dealer had not claimed input tax credit for a particular month, the dealer could claim the input tax credit before the end of the financial year or before 90 days from the date purchase, whichever was later. When the petitioner filed its return for the assessment year 2007-08 - for want of tax invoices, the said input tax credit could not be claimed - in the instant cases, the input tax credit had been claimed in the erstwhile regime and was being reflected in the CENVAT credit ledger. This credit, under the Section 140(1), has to be carried forward and in that sense, the vested right of the property of the petitioner stood accrued and the same cannot be taken away by the respondents by way of Rules. Lastly, there are also merit in the submissions of the petitioners that Rule 117, whereby the mechanism for availing the credits has been prescribed, is procedural and directory, and cannot affect the substantive right of the registered taxpayer to avail of the existing / accrued and vested CENVAT credit. The procedure could not run contrary to the substantive right vested under sub Section (1) of Section 140 - Under the garb of framing Rules which are subordinate legislation, the width of those limitations could not have been expanded as is sought to be done by introduction of Rule (1A). In absence of any consequence being provided under Section 140, to the delayed filing of TRAN-1 Form, Rule 117 has to be read and understood as directory and not mandatory - Therefore, in the present cases, the purport of the transitory provisions is to allow a smooth migration from the erstwhile service tax regime to the new GST regime and the interpretation must be in consonance with the said purpose. Thus there are no hesitation in reading down the said provision Rule 117 as being directory in nature, insofar as it prescribes the time-limit for transitioning of credit and therefore, the same would not result in the forfeiture of the rights, in case the credit is not availed within the period prescribed. This however, does not mean that the availing of CENVAT credit can be in perpetuity. Transitory provisions, as the word indicates, have to be given its due meaning. Transition from pre-GST Regime to GST Regime has not been smooth and therefore, what was reasonable in ideal circumstances is not in the current situation. In absence of any specific provisions under the Act, we would have to hold that in terms of the residuary provisions of the Limitation Act, the period of three years should be the guiding principle and thus a period of three years from the appointed date would be the maximum period for availing of such credit - since all the Petitioners have filed or attempted to file Form TRAN-1 within the aforesaid period of three years they shall be entitled to avail the Input Tax Credit accruing to them. They are thus, permitted to file relevant TRAN-1 Form on or before 30.06.2020. Respondents are directed to either open the online portal so as to enable the Petitioners to file declaration TRAN-1 electronically, or to accept the same manually. Respondents shall thereafterprocess the claims in accordance with law. We are also of the opinion that other taxpayers who are similarly situated should also be entitled to avail the benefit of this judgment - Respondents are directed to publicise this judgment widely including by way of publishing the same on their website so that others who may not have been able to file TRAN-1 till date are permitted to do so on or before 30.06.2020. Petition allowed.

Summary

Issues Involved:
1. Whether the petitioners are entitled to avail input tax credit by filing Form TRAN-1 beyond the stipulated period under the CGST Rules.
2. The validity and constitutionality of Rule 117 of the CGST Rules imposing a time limit for carrying forward the CENVAT credit.
3. Whether the delay in filing Form TRAN-1 was due to technical glitches or other reasons.
4. Whether the right to input tax credit is a vested right and protected under Article 300A of the Constitution.

Issue-Wise Detailed Analysis:

1. Entitlement to Avail Input Tax Credit by Filing Form TRAN-1 Beyond the Stipulated Period:
The petitioners sought relief to file Form TRAN-1 beyond the period provided under the CGST Rules to avail input tax credit of accumulated CENVAT credit as of 30th June 2017. The court noted that it had allowed numerous similar petitions in the past, where delays were attributed to technical glitches. Despite the respondents' objections that the delays in these cases were not due to technical glitches, the court found no significant difference in circumstances compared to previously decided cases. The court concluded that the petitioners should be given another opportunity to file their TRAN-1 forms belatedly.

2. Validity and Constitutionality of Rule 117 of the CGST Rules:
Petitioners challenged Rule 117 of the CGST Rules as arbitrary, unconstitutional, and violative of Article 14 to the extent it imposes a time limit for carrying forward the CENVAT credit. The court observed that the CGST Act does not prescribe a time limit for transitioning CENVAT credit, and the time limit under Rule 117 is procedural and directory, not mandatory. The court held that the period of 90 days prescribed by Rule 117 has no rationale and is arbitrary. The court read down Rule 117 to be directory in nature, allowing a period of three years from the appointed date for availing such credit.

3. Delay Due to Technical Glitches or Other Reasons:
The respondents argued that the delays in filing Form TRAN-1 were due to the petitioners' own technical difficulties and not glitches in the GSTN. The court acknowledged that the GST system was in a nascent "trial and error" phase and faced several shortcomings and inadequacies. The court noted that taxpayers, including the petitioners, faced various technical difficulties, including low bandwidth and lack of computer skills. The court emphasized that "technical difficulty" should not be narrowly interpreted and includes difficulties faced by taxpayers as well.

4. Right to Input Tax Credit as a Vested Right:
Petitioners argued that the accumulated CENVAT credit represents their property and a vested right, constitutionally protected under Article 300A. The court agreed, stating that the credit standing in favor of an assessee is "property" and cannot be taken away without authority of law. The court emphasized that the right to carry forward CENVAT credit is a substantive right and cannot be curtailed by procedural rules. The court held that the time limit for filing TRAN-1 should not result in forfeiture of this vested right.

Conclusion:
The court allowed the petitions, directing the respondents to enable the petitioners to file Form TRAN-1 electronically or manually by 30th June 2020. The court also directed the respondents to publicize the judgment widely to allow other similarly situated taxpayers to avail the benefit. The court reiterated that the right to input tax credit is a vested right and procedural rules should not deprive taxpayers of this right. The judgment emphasized a fair and reasonable approach in transitioning to the GST regime, considering the technical and procedural challenges faced by taxpayers.