SEPTEMBER 10, 2019

By Dr G Gokul Kishore

DECADES old laws are challenged as to validity of certain provisions. Some of them are, either in full or in part, held ultra vires. The legislature responds in certain cases by substituting with new provision or law with or without retrospective effect. If this is the fate of fairly older laws, new laws like CGST Act or IGST Act or rules thereunder are more susceptible to legal challenge considering the fact that they are new, untested in courts and do have rough edges which sometimes bleed the stake-holders. While it is not possible for the GST Council to recommend a litigation-proof GST law, it can alleviate the pains of taxpayers by taking cue from major judgments. Let us elaborate this plea in this 54th part.

Credit is a vested right - Time limit for declaration not mandatory

In this series, it was noted earlier (Part-33) that time-limit for availing input tax credit should be removed on the ground that credit is a substantive right and law of limitation being procedural, cannot curtail the same. Karnataka High Court judgment in the case of Kirloskar Electric Co. v. State of Karnakata - 2018-TIOL-131-HC-KAR-VAT was discussed wherein it was held that credit of input tax was not deniable even under the provisions relating to time frame like law of limitation barring the remedy rather than negativing the substantive claims under the taxing statute.

In a recent judgment, the Gujarat High Court has held that the time-limit prescribed for filing TRAN-1 and TRAN-2 forms under Rule 117 for claiming transitional credit of duties / taxes paid under the pre-GST laws as provided under Section 140 of CGST Act is procedural in nature and should not be construed as mandatory [Siddharth Enterprises v. The Nodal Officer, Judgment dated 6-9-2019] - 2019-TIOL-2068-HC-AHM-GST. It directed the respondent to allow the petitioners to allow filing of said forms to claim transitional credit.

The High Court has relied on celebrated Supreme Court judgments relating to Modvat/ Cenvat credit provisions whereby declarations for availing credit were held as procedural only and neither such forms nor the time-limit for the same can take away the vested right of credit. Notably, the judgment in Eicher Motors Ltd. v. UOI - 2002-TIOL-149-SC-CX-LB has been highlighted to drive home the point that the right to avail credit was absolute and such right accrued would continue till the facility got worked out or till those goods existed. The ruling of the Apex Court in and Collector of Central Excise v. Daiichi Karkaria Ltd. - 2002-TIOL-79-SC-CX-LB has been relied on to emphasis that credit is indefeasible.

Why time-limit for transitional credit?

The judgment of the Gujarat High Court interestingly compares purchases made in pre-GST period and post GST period. The time-limit for availing ITC in the latter case is till due date for filing September return of next FY or filing of annual return (whichever is earlier) whereas in the former, Rule 117 allowed time till 27th December, 2017 only for claiming transition credit. It held the same to be arbitrary and discriminatory. Though this judgment does not reveal any submission of the respondent as to the reason for prescribing such time-limit, the same can be gleaned from another judgment in the case of Filco Trade Centre Pvt. Ltd. v. UOI - 2018-TIOL-120-HC-AHM-GST wherein the provision restricting transition credit in respect of invoices of more than one year was stuck down. In this case, the respondent (government) had stated that such provision was introduced for physical identification of goods and administrative convenience which were not accepted by the Court. It appears from these judgments that there is no particular reason or rationale for introduction of time-limit in respect of either invoices or filing forms for availing transitional credit. Rationale which will stand judicial scrutiny is absent and the same is obvious.

Policy v. procedure and credit as property

One of the policy objectives of GST is to remove cascading effect of taxes. This formed one of the basis for the Gujarat High Court to hold that time-limit for filing transitional forms is not mandatory. A very interesting observation of the Court is in para 42 of the judgment. Cenvat credit earned under the erstwhile Central Excise regime has been held to be the property of petitioners and it cannot be appropriated on mere failure to file declaration when law there for is absent. As per the Court, it could have been appropriated through provisions in CGST Act but not through rules.

There are judgments holding credit is a vested right while certain others holding a different view. Probably, this is the first time that the judiciary has held credit to be in the nature of property. While this is in the context of appropriation of the same by the State without the authority of law, it may also lead to certain interesting situations. If credit is property, then it can well be a 'business asset' and transfer of business asset is supply of goods. Because of intangible nature and being in the nature of rights, transfer of credit may also be viewed as supply of service. As per Eicher judgment, credit is as good as tax paid till the same is adjusted. If it can be inter-changed with tax (as tax is taken as credit), then viewing the same as property may be incomprehensible. One hopes this is in the nature of obiter in the judgment so that unintended consequences are avoided.

Reiterating the plea

We reiterate our plea on removal of time-limit for availing input tax credit. In particular, prescription of time-limit for availing transitional credit is unwarranted. When credit is a right (vested or otherwise) conferred by statute and earned on satisfying the prescribed conditions and when such ITC is professed to be the bedrock of the tax system, to deny the same based on artificial fetters like time-limit cannot be termed as anything progressive. What is earned validly cannot be extinguished by lapsing it after certain time. While there are several judgments of High Courts either striking down certain provisions of GST law or upholding the same, at least those on time-limits for availing credit should be deliberated by the GST Council so that appropriate recommendation can be made for suitable amendments to protect taxpayers' rights.

[…To be continued]

See -Part 53

[The author is an Advocate. Views expressed are strictly personal]