Whenever
a new tax regime replaces an old tax regime there are numerous changes which a
taxpayer faces and there are lot of
legal challenges in the transition from old regime to new regime. For the
smooth transition of the new tax regime it is quite common to introduce the
transitional provisions under the new tax law.
GST
law is no different with respect to introduction of transition provisions. Since
the existing indirect taxes had the system of input tax credit which was continued
in the GST regime, there was a need for transition of input tax credit and credit
of other taxes available to the taxpayers under the existing regime. Hence Chapter XX was incorporated in the CGST and SGST Acts,
2017 for the smooth transition of the GST laws over the existing indirect tax
regime which consisted of different
indirect taxes such as VAT, Central excise service tax. Section 140 of
CGST and SGSTs Act under Chapter XX provides for transitional arrangements for
the input tax credit.
The
aim was that the input tax credits available to the taxpayer in the older
regime do not get affected and they get the similar ITC under GST subject to
certain conditions so that there can be no tax cascading effect due to
changeover.
Time limit for
Transitional credit:
Rule 117 of CGST Rules, 2017 provided an important timeline for claiming
the input tax credit under transitional arrangements of 90 days with a power
to commissioner to extend this period further for 90 days. The period was extended till 27th
December, 2017 to claim transitional credit. It is pertinent to mention here
that no time limit for filing transitional claim was provided in the Act
itself rather it was provided in the Rules. Since the time limit was very short the
transitional credit could not be taken by many taxpayers. As a result lot of writ petitions were filed in various High Courts challenging the transitional
provisions and for claiming the transitional credit after the elapse of
prescribed time limit.
Thereafter
vide Notification No 48/2018 Central Tax Dated 10.09.2018 sub-Rule (1A) was
introduced in Rule 117 to allow those taxpayers who could not submit the
Transition form within time limit notified due to technical glitches. This term
technical glictches is never defined in the Rules of Act and continued to be
interpreted in vague manner both by the Government and taxpayers before the
High Courts.
Court’s verdicts: Punjab
and Haryana High court while deciding the writ petition in favour of the
taxpayers in Adfert Technologies Pvt Ltd vs Union of India allowed the claim of
petitioners with respect to the transitional credit even after the elapse of
time notified. The SLP filed against this order was dismissed by SC.
Similarly
other High courts in the different cases allowed petitioners to claim the
transitional credit even after the elapse of notified time limit. By and large apart
from Bombay High Court in
case of Nelco Ltd. vs Union of India it was principally
accepted that the transitional credit is a vested right and is subject to
scrutiny by the Department and the same cannot be taken away by prescribing a
time limit in the Rules and the time prescribed in the Rules is directory in
nature and not mandatory.
Delhi High Court’s
verdict: Recently
Delhi High Court in the case of Brand Equity
Treaties Ltd vs Union of India by going a step further has held that time prescribed in rule 117 of CGST Rules, 2017 for transitioning
of credit (during Transition from Pre-GST Regime to GST Regime), is directory
in nature and would not result in forfeiture of rights, in case credit is not
availed within period prescribed. This, however, does not mean that availing of
CENVAT credit can be in perpetuity, but the court held that in terms of
residuary provisions of Limitation Act, a period of three years from appointed
date would be maximum period for availing of such credit.
Delhi High Court also observed with
regard to technical gliteches in para 18 as under:
“In
above noted circumstances, the arbitrary classification, introduced by
way of sub Rule (1A), restricting the benefit only to taxpayers whose cases are
covered by "technical difficulties on common portal" subject to
recommendations of the GST Council, is arbitrary, vague and unreasonable. What
does the phrase "technical difficulty on the common portal" imply?
There is no definition to this concept and the respondent seems to contend that
it should be restricted only to "technical glitches on the common
portal". We, however, do not concur with this understanding.
"Technical difficulty" is too broad a term and cannot have a narrow
interpretation, or application. Further, technical difficulties cannot be
restricted only to a difficulty faced by or on the part of the respondent. It
would include within its purview any such technical difficulties faced by the
taxpayers as well, which could also be a result of the respondent's follies…….”.
It has also been
held by the Hon’ble Delhi HC that rule 117 whereby mechanism for availing
credits has been prescribed, is procedural and directory, and cannot affect
substantive right of registered taxpayer to avail of existing/accrued and
vested CENVAT credit. Procedure could not run contrary to the substantive right
vested under sub-section (1) of section 140.
Retrospective amendment in section 140 wef
01.07.2017: In the Finance Act, 2020 the Government came with a
retrospective amendment in section 140 of CGST Act, 2017 wef 01.07.2017 in the
section by adding the words “as may be prescribed” where ever required, to plug
in a loopwhole to the effect that section 140 before this amendment did not
prescribe any time limit of claiming transitional credit.
The notification No.
43/2020 Central Tax is introduced on 16.05.2020. The said notification has
brought in force the amendment u/s 140 as introduced in the Finance Act, 2020. Now
after adding the words “as may be prescribed” with retrospective effect from
01.04.2017 u/s 140, the Government seem to have attempted to cure the defect as
pointed out above.
Impact of the retrospective amendment: But the question here is, will this amendment make
any difference to the rulings already passed by various High courts in the favour
of taxpayers allowing them transitional credit beyond the time limit notified.
To my mind it makes no difference. The Hon’ble High courts which have given
favourable judgements including Delhi
High Court’s Rulling in the case of Brand Equity Treaties Ltd,
have upheld the principle that transitional credit is a vested and substantive
right and merely due to procedural lapses like non filing of Tran-1 or Tran-2 form within the
time limit notified, it should not result in lapse of such right.
Delhi
High court in Brand Equity Treaties Ltd case has even gone a step further ahead
by asking Government 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.
Even after the passing of the judgement Tran-1
has not been opened on the GST portal by the Government till date. It remains to
be seen whether Government will challenge the Delhi HC verdict by way of SLP
before the SC. But if it is not challenged the government will have to open
Transition forms on the common portal for whole of India.
However,
considering the today’s scenario of Covid-19 pendemic, where Government is
looking forward for pumping the liquidity in the market, the government should
allow all the taxpayers to file Tran-1 who could not file rather than
prolonging the litigation unnecessarily.
Posts
synmac tax consultant in Delhi
doing company registration in Delhi,GST registration in Delhi,Tax consultant in Delhi...
company register
company register in Delhi
GST register in Delhi
tax consultant in Delhi
the information you have updated is very good and useful, please update further.
if you require any info regarding TAX & GSTR please visit
GST Return Filing Services in Bangalore
GST Registration in Bangalore