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TMI Blog2018 (9) TMI 885X X X X Extracts X X X X X X X X Extracts X X X X ..... ification takes away the vested right of the petitioners and thus acts with retrospective effect? Whether clause(iv) of subsection (3) of section 140 of the CGST Act is required to be declared unconstitutional? Held that:- It is well settled that as long as the legislation has necessary competence to frame a law and the law so framed is not violative of the fundamental rights enshrined in the constitution or any of the constitutional provision, the Court would not strike down the statute merely on the perception that the same is harsh or unjust. Particularly, in taxing statutes the Courts have recognized much greater latitude in the legislation in framing suitable laws. It is equally well settled that wherever the parliament has the power to frame a statute it also includes the power to make the law retrospective. In other words, the parliament also has wide powers to frame the laws including taxing statutes with retrospective effect. However, the Courts have recognized certain inherent limitations in framing retrospective tax legislations. The legislature (after transition to GST Regime) recognized the existing rights and largely protected the same by allowing migratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the appointed day. This retrospectivity given to the provision has no rational or reasonable basis for imposition of the condition. The reasons cited in limiting the exercise of rights have no co-relation with the advent of GST regime. Same factors, parameters and considerations of “in order to co-relate the goods or administrative convenience” prevailed even under the Central Excise Act and the CENVAT Credit Rules when no such restriction was imposed on enjoyment of CENVAT credit in relation to goods purchased prior to one year. Though the impugned provision does not make hostile discrimination between similarly situated persons, the same does impose a burden with retrospective effect without any justification - clause (iv) of subsection (3) of section 140 is unconstitutional, and the same is struck down. Petition allowed. - R/SPECIAL CIVIL APPLICATION NO. 18433 of 2017 With R/SPECIAL CIVIL APPLICATION NO. 20185 of 2017 - - - Dated:- 5-9-2018 - MR. AKIL KURESHI AND MR. B.N. KARIA JJ. Appearance: UCHIT N SHETH(7336) for the PETITIONER(s) No. 1,2 JAIMIN A GANDHI(8065) for the RESPONDENT(s) No. 2 MS TRUSHA K PATEL(2434) for the RESPONDENT(s) No. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nion legislature framed different laws to usher in the GST regime in substitution of the existing Central Excise and Value Added tax provisions and certain other taxing statutes. The Central Goods and Services Tax Act, 2017 ( CGST Act for short) was brought into effect from 1.7.2017. Section 9 thereof is a charging section providing for levy and collection of tax. Sub-section(1) of section 9 authorises collection of tax called the central goods and service tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption at the prescribed rates not exceeding twenty per cent to be paid by the taxable person. Section 16 of CGST Act pertains to eligibility and condition for taking input tax credit. Sub-section(1) of section 16 envisages entitlement of tax credit of input tax charged on any registered person on supply of goods or services or both which would be credited to electronic credit ledger of such person. Chapter XX of the CGST Act contains transitional provisions. Section 139 makes provisions for migration of the existing tax payers to the new regime. Section 140 contains provisions for transitional arrangements for i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the same, so as to ensure that the first stage dealers do not take any undue advantage of such benefit and so as to accommodate the administrative convenience, the stature has provided for the restriction of 12 months. The petitioners' case was also distinguished from the case of an unregistered dealer by pointing out that under section 140 of the CGST Act, limited benefits have been granted to unregistered dealers. 7. In background of such facts and pleadings, learned counsel Shri Uchit Sheth for the petitioners raised the following contentions : 1) In the earlier regime, the first stage dealers were put at the same position as the manufactures by removing the burden on such dealers of the duty on manufacture. Under sub-section(3) of section 140 of the CGST Act in respect of goods purchased by a first stage dealer from the manufacturer prior to one year, the dealer is put in disadvantageous position. 2) The distinction drawn in case of the first stage dealer is arbitrary and discriminatory. The first stage dealers are not accorded the same treatment as is given to the manufactures. Our attention was also drawn to certain other provisions of section 140 to arg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Article 14 of the Constitution : a) The State of AP and another v. Nalla Raja Reddy and others reported in AIR 1967 Supreme Court 1458. b) John Vallamattom and another v. Union of India reported in AIR 2003 Supreme Court 2902. c) Kunnathat Thathunni Moopil Nair etc. v. State of Kerala and another reported in AIR 1961 Supreme Court 552. Certain other decisions were cited in the context of testing a taxing statute framed by the parliament and the parameters within with the Court would strike down the statute. To the extent necessary, we would refer to these judgments at an appropriate stage. 8. On the other hand, learned ASGs Shri Jaimin Gandhi and Ms. Trusha Patel opposed the petitions. Their contentions were : 1) In taxing statutes, parliament has much greater latitude. The Court would not expect precise or scientific division before approving the classification. 2) It is not a case of hostile discrimination. First stage dealers form a special class. Their position cannot be compared either with the manufactures. 3) Allowing CENVAT credit is in the nature of a concession granted to an assessee and is always made subject to conditions impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contention that a taxing statute cannot be challenged on the ground that it is unjust or acts harshly against some, decision of Supreme Court in case of Union of India and others v. Nitdip Textile Processors Private Limited and another reported in (2012) 1 Supreme Court Cases 226. v) Decision in case of State of W.B and another v. E.I.T.A. India Ltd. and others reported in (2003) 5 Supreme Court Cases 239 was cited in support of the contention that in taxing statute, the legislature enjoys greater latitude. vi) On the basis of decisions in case of Ramrao and others v. All India Backward Class Bank Employees Welfare Association and others reported in (2004) 2 Supreme Court Cases 76 and in case of University Grants Commission v. Sadhana Chaudhary and others reported in (1996) 10 Supreme Court Cases 536, it was canvassed that it is always open for the legislature to introduce a cut-off date for granting any benefit. Merely because such cut-off date creates two classes, would not be a ground to hold that the law is unconstitutional. vii) Referring to the decisions in case of R.K. Garg v. Union of India and others reported in (1981) 4 Supreme Court Cases 675 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehalf of the said manufacturer, under cover of an invoice; or (ii) an importer or from the depot of an importer or from the premises of the consignment agent of the importer, under cover of an invoice; 12. Sub-rule(1) of Rule 3 of the Rules of 2004 empowered a manufacturer or producer of final products or a provider of input service to take CENVAT credit of the excise duty and other duties specified therein. Rule 9 inter-alia provided that CENVAT credit shall be taken by the manufacturer on the basis of documents mentioned therein. Sub-clause(iv) of clause (a) of sub-rule(1) of Rule 9 pertained to an invoice issued by a first stage dealer or a second stage dealer, as the case may be, in terms of of the provisions of Central Excise Rules, 2002. Thus upon the first stage dealer issuing invoice, his purchaser- manufacturer would be entitled to take CENVAT credit of the duty paid. Like-wise clause(c) of sub-rule (1) of Rule 9 pertained to bill of entry. Sub-rule (4) of Rule 9 enables purchase of input or capital goods from a first stage dealer or second stage dealer, provided certain conditions are fulfilled. Sub-rule(4) reads as under : (4) The CENVAT credit in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or a depot of a manufacturer, shall be entitled to take, in his electronic credit ledger, credit of eligible duties in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day subject to the following conditions, namely: (i) such inputs or goods are used or intended to be used for making taxable supplies under this Act; (ii) the said registered person is eligible for input tax credit on such inputs under this Act; (iii) the said registered person is in possession of invoice or other prescribed documents evidencing payment of duty under the existing law in respect of such inputs; (iv) such invoices or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day; and (v) the supplier of services is not eligible for any abatement under this Act: Provided that where a registered person, other than a manufacturer or a supplier of services, is not in possession of an invoice or any other documents evidencing payment of duty in respect of inputs, then, such registered person shall, subject to such conditions, limitations and safeguards as may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r in mind the facts and circumstances in order to judge the validity of a classification. It was observed that there is a presumption of constitutionality of a statute. The burden is on one who canvasses that certain statute is unconstitutional to set out facts necessary to sustain the plea of discrimination and to adduce cogent and convincing evidence to prove those facts. In order to establish that the protection of the equal opportunity clause has been denied to them, it is not enough for the petitioners to say that they have been treated differently from others, not even enough that a differential treatment has been accorded to them in comparison with other similarly circumstanced. Discrimination is the essence of classification and does violence to the constitutional guarantee of equality only if it rests on an unreasonable basis. 18. On the question of the grounds on which a law framed by the legislation i.e. the parliament of the State assembly the decision of three Judge Bench of Supreme Court in case of State of A.P. And ors vs. Macdowell and Co. and ors reported in (1996) 3 SCC 709 held the field and was often referred. In the said judgement, the Supreme Court had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d disproportionate, such legislation would be manifestly arbitrary. We are, therefore, of the view that arbitrariness in the sense of manifest arbitrariness as pointed out by us above would apply to negate legislation as well under Article 14. 20. It is well settled that as long as the legislation has necessary competence to frame a law and the law so framed is not violative of the fundamental rights enshrined in the constitution or any of the constitutional provision, the Court would not strike down the statute merely on the perception that the same is harsh or unjust. Particularly, in taxing statutes the Courts have recognized much greater latitude in the legislation in framing suitable laws. Reference in this respect can be made to the well known judgement of Supreme Court in case of R.K.Garg vs. Union of India and ors (supra) it was observed as under: 8. Another rule of equal importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc. It has been said by no less a person than Holmes, J. that the legislature should be allowed some play in the joints, because it h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e possibilities of abuse, but that too cannot of itself be a ground for invalidating the legislation, because it is not possible for any legislature to anticipate as if by some divine prescience, distortions and abuses of its legislation which may be made by those subject to its provisions and to provide against such distortions and abuses. Indeed, howsoever great may be the care bestowed on its framing, it is difficult to conceive of a legislation which is not capable of being abused by perverted human ingenuity. The Court must therefore adjudge the constitutionality of such legislation by the generality of its provisions and not by its crudities or inequities or by the possibilities of abuse of any of its provisions. If any crudities, inequities or possibilities of abuse come to light, the legislature can always step in and enact suitable amendatory legislation. That is the essence of pragmatic approach which must guide and inspire the legislature in dealing with complex economic issues. 21. It is equally well settled that wherever the parliament has the power to frame a statute it also includes the power to make the law retrospective. In other words, the parliament also has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later. 33. We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. In Government of India Ors. v. Indian Tobacco Association[5], the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other the burden of duty element of the goods so purchased or the CVD value of the imported goods would be shifted from the petitioner-company as first stage dealer. Duty element suffered on the goods purchased from manufacturers would be neutralized at the time of sale of such goods by the dealer. In case of Eicher Motors Ltd vs. Union of India (supra), the Supreme Court considered the nature of Modvat credit and observed that if on the inputs the assessee had already paid the taxes on the basis that when the goods are utilized in the manufacture of further products as inputs thereto, then the tax on these goods get adjusted which are finished subsequently. The Court therefore held that a right accrued to the assessee on the date when the paid tax on the raw materials or the inputs and that right would continue until the facility available thereto gets worked out or until those goods existed. This concept was further elaborated by the Supreme Court in case of Collector of Central Excise, Pune vs. Dai Ichi Karkaria Ltd (supra) observing that it is clear from the Modvat Rules that a manufacturer obtains credit for the excise duty he paid on raw material to be used by him in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lying unutilized in the Modvat credit account of an assessee on 16th March 1995 would lapse. Such provision was questioned. The Supreme Court held that since excess credit could not have been utilized for payment of the excise duty on any other product, the unutilised credit was getting accumulated. For the utilization of the credit, all vestitive facts or necessary incidents thereto had taken place prior to 16.3.1995. Thus the assessees became entitled to take the credit of the input instantaneously once the input is received in the factory of the manufacturer of the final product and the final product which had been cleared from the factory was sought to be lapsed. The Supreme Court struck down the rule further observing that if on the inputs the assessee had already paid the taxes on the basis that when the goods are utilized in the manufacture of further products as inputs thereto then the tax on those goods gets adjusted which are finished subsequently. Thus a right had accrued to the assessee on the date when they paid the tax on the raw materials or the inputs and that right would continue until the facility available thereto gets worked out or until those goods existed. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be seen as a sunset clause permitting the dealers to manage their affairs for which reasonable time frame is provided. The present condition however without any basis limits the scope of a dealer to enjoy existing tax credits in relation to purchases made prior to one year from the appointed day. No such restriction existed in the prior regime. Merely the stated grounds in the affidavit in reply that the provision is introduced since physical identification of goods is necessary so as to ensure that the first stage dealers do not take any undue advantage of such benefit and also to accommodate the administrative convenience would not be sufficient. Firstly, as noted, there was no such restriction in the CENVAT Credit Rules or analogous provisions of similar rules in the past. Since decades therefore the credits would be available to a first stage dealer on all purchases towards the manufacturing duty. No time frame of the past dealings was envisaged under such rules. The same grounds of physical identification of goods preventing undue advantage being taken and the administrative convenience would exist even then. Secondly, no limitation of time is prescribed in the proviso to s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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