By TIOL News Service

AHMEDABAD, OCT 03, 2018: PETITIONER was previously registered under the Gujarat Value Added Tax Act, 2003. With the advent of GST regime with effect from 1 st July 2017, the company had to migrate to the new tax structure.

The newly framed statutes for such purpose include transitional provisions, enabling dealers to carry forward tax credits available to them as on 30th June 2017.

Rule 117[1] of the CGST Rules, 2017 envisages that every registered person entitled to take credit of input tax under Section 140, shall submit a declaration electronically in Form GST Tran­1 within ninety days of the appointed day. This time limit was extended from time to time. The final extension was granted up to 27.12.2017, beyond which the respondents did not accept any further declarations.

Likewise, Section 140 of the GGST Act also envisages carry forward of the tax credits available to a dealer as on 30th June 2017 subject to certain conditions. Rule 117 of the GGST Rules also contains a provision for filing declaration electronically of the tax credit which, as initially prescribed, had to be within ninety days from the appointed day. This was also extended simultaneously with the CGST finally up to 27th December 2017 and beyond which there was no further extension.

Kindly note - A limited extension has thereafter been granted by the Government by inserting sub­rule [1A] in Rule 117, authorizing the Commissioner to extend the date for submitting the declaration electronically by a further period not beyond 31 st March 2019, in respect of registered persons who could not submit the said declaration by the due date on account of technical difficulties on the common portal and in respect of whom, the Council has made recommendation for such extension. Effectively thus, the last date for filing the declaration under sub­rule [1] of Rule 117 in general class of persons remained 27th December 2017. For cases falling under sub­rule [1A] of Rule 117, the same could be extended maximum upto 31 st March 2019.

Case of the petitioners is that in terms of Rule 117 of the CGST Rules, the petitioners tried to upload the declaration in TRAN­1 on the official portal on 27.12.2017, however, due to technical glitches in the portal, the petitioners could not upload the declaration. The petitioners, therefore, approached the authorities concerned on 28.12.2017 and submitted physical declaration in the proper format. The authorities, however, conveyed that they have no power to accept physical declarations.

The Petitioners' grievances, therefore, are:

[i] On account of technical glitches in the Government portal, despite efforts made by the petitioners for filing the declaration electronically, the same could not be done within extended time for no fault of the petitioners. Thus, the tax credit available in the accounts as on 30th June 2017 would be lost forever, since in absence of such declaration within the time envisaged, tax credit would not be transferred to the GST regime;

[ii] Second proviso to Section 140 [1] of the CGST Act is unconstitutional. This proviso limits the right of a dealer to claim carry forward of the tax credit in relation to inter­State sales as well as branch transfers or export sales, unless necessary declarations in Forms­C, F & H are produced.

[iii] Rules 117 of the CGST Rules and GGST Rules which prescribe the time for making a declaration of available tax credits as on 30th June 2017 are ultra vires the Act and the rule making powers of the authority. Such time limit in any case should be read as directory and not mandatory.

The second proviso to Section 140 [1] of the Gujarat Goods and Services Tax Act, 2017 reads -

Provided further that so much of the said credit as is attributable to any claim related to section 3, sub-section (3) of section 5, section 6, section 6A or sub-section (8) of section 8 of the Central Sales Tax Act, 1956 which is not substantiated in the manner, and within the period, prescribed in rule 12 of the Central Sales Tax (Registration and Turnover) Rules, 1957 shall not be eligible to be credited to the electronic credit ledger:

Rule 117(1) of the CGST Rules, 2017 and the first proviso thereto reads -

117. Tax or duty credit carried forward under any existing law or on goods held in stock on the appointed day. - (1) Every registered person entitled to take credit of input tax under section 140 shall, within ninety days of the appointed day, submit a declaration electronically in FORM GST TRAN-1, duly signed, on the common portal specifying therein, separately, the amount of input tax credit of eligible duties and taxes, as defined in Explanation 2 to section 140 to which he is entitled under the provisions of the said section:

Provided that the Commissioner may, on the recommendations of the Council, extend the period of ninety days by a further period not exceeding ninety days.

The petitioners have, therefore, prayed that the respondents be directed to allow the petitioners to carry forward CENVAT credit in the electronic credit ledger, available as on 30th June 2017 in terms of Section 140 [3] of the CGST Act, 2017. Similar direction is sought in connection with the carry forward of eligible credit of State tax i.e ., the Value Added Tax available as on 30th June 2017.

The High Court considered the exhaustive submissions made by both sides and inter alia observed thus -

+ It is well settled that there is a presumption of constitutionality of a statute.

+ It is equally well settled that the presumption of constitutionality would touch even the subordinate legislation.

+ While the entire tax structure within the country was thus being replaced by a new frame­work, it was necessary for the legislature to make transitional provisions.

+ Section 140 of the CGST Act, which is a transitional provision, essentially preserves all taxes paid or suffered by a dealer. Credit thereof is to be given in electronic credit register under the new statute, only subject to making necessary declarations in prescribed format within the prescribed time.

+ Combined effect of the powers conferred to subordinate legislature under sub­sections [1] and [2] of Section 164 of the CGST Act would convince us that the prescription of time limit under sub-rule [1] of Rule 117 of the CGST Rules is not ultra vires the Act.

+ Likewise, such prescription of time limit cannot be stated to be either unreasonable or arbitrary.

+ When the entire tax structure of the country is being shifted from earlier framework to a new one, there has to be a degree of finality on claims, credits, transfers of such credits and all issues related thereto.

+ The petitioners cannot argue that without any reference to the time limit such credits should be allowed to be transferred during the process of migration. Any such view would hamper the effective implementation of the new tax structure and would also lead to endless disputes and litigations.

+ Thus, merely because the rule in question prescribes a time frame for making a declaration, such provision cannot necessarily be held to be directory in nature and must depend on the context of the statutory scheme.

+ Time-limit provisions contained in sub-rule (1) of rule 117 of the CGST Rules is not ultra vires the Act or the powers of the rule making authority.

+ Interpreting such powers as merely directory would give rise to unending claims of transfer of credit of tax on inputs and such other claims from old to the new regime.

+ Under the new GST laws, the existing tax structure was being replaced by a new set of statutes, through an exercise which was unprecedented in the Indian context.

+ The claims of carry forward of the existing duties and credits during the period of migration, therefore, had to be within the prescribed time. Doing away with the time limit for making declarations would give rise to multiple large-scale claims trickling in for years together, after the new tax structure is put in place.

+ This would, besides making the task of matching of the credits impractical if not impossible, also impact the revenue collection estimates.

+ Saving clause inserted in the Gujarat Value Added Tax Act provided that nothing done in the amendment of the Gujarat VAT Act shall affect any right, privilege, obligation or liability acquired, accrued or incurred under the Act prior to coming into force of the said amendment. Such saving has to be read and appreciated in tune with the specific provisions made in the CGST & GGST Acts.

+ Any interpretation of such provisions cannot run counter to the express legislative intent of restricting or limiting enjoyment of the existing rules, or in otherwise to make continuous enjoyment of the rights, subject to certain safeguards and conditions.

+ In the present case, we have noted the statutory provisions, the scale of operations and the possible repercussions if such time limit contained in Rule 117 is annihilated and a registered person is allowed to make declarations of the left over residuary duty of credit at the time of migration to the new tax structure.

+ The time limit provisions, we have already stated more than once, under such circumstances cannot be seen as merely technical in nature. Removing such time limit would have a potential to lead to utter economic chaos.

The Petition was dismissed.

(See 2018-TIOL-2873-HC-AHM-GST)