MARCH 02, 2020

By Dr G Gokul Kishore

GENERALLY, a judgment of High Court in favour of taxpayers brings smile on the face of the industry. When such judgment is upheld by the Supreme Court, the joy is overwhelming. It is overwhelming only if the government permits it as it reserves the right to amend the law retrospectively thus nullifying the judgments. Before completion of three years of GST, we are unfortunately witnessing an episode of this kind. This 75th part seeks to elaborate this episode and its ramifications.

Transitional credit - First brick in building mistrust

In Tamil, there is a saying "The thing which could reach the hand, did not reach the mouth". A hungry person who got a morsel of food in his hands, before he could eat, lost it. We are reminded of this saying on seeing the Supreme Court order dismissing special leave petition of the department filed against the judgment of Punjab & Haryana High Court in the case of Adfert Technologies - 2020-TIOL-64-SC-GST and 2019-TIOL-2519-HC-P&H-GST. Upholding of High Court order by the Apex Court should be a matter to be rejoiced. But, in the Finance Bill, 2020, amendments have been proposed to Section 140 of CGST Act to empower the government to fix time-limit for filing TRAN-1 form for transitioning credits from pre-GST laws to GST regime. This amendment is proposed to be given retrospective effect from 1st July, 2017.

Various High Courts have held (discussed in earlier parts in detail) that time-limit for filing TRAN-1 as provided in CGST Rules cannot be considered as mandatory and the same was merely procedural. Based on such reasoning, the petitioners were granted relief to file the forms beyond the due date prescribed in the rules. Once Finance Act, 2020 comes into force, the effect of the P&H High Court judgment as affirmed by Supreme Court will get neutralized. Petitioners who might have filed TRAN-1 consequent to High Court orders extending the time-limit and availed credit, may be compelled to reverse the same when the department armed with amended Section 140 initiates recovery action.

Certainly, this is not an ideal situation for both the taxpayers and the tax administration considering the nascent stage of GST law. If initial years are marked by such adversity, one can imagine the extent of animosity or mistrust such partners in progress will share in the future. Instead of bringing retrospective amendment to Section 140, the GST Council should have recommended removal of time-limit itself as argued by us in this series. It is unfortunate that after all these years, tax credits are seen as largesse to be distributed by the tax administration at its discretion while the courts have been holding it as vested right, at least in some of the cases. By forcing taxpayers to forego credits earned in the previous regime based on artificial fetters like time-limit, non-filing of form and other similar procedural issues, the die has been cast for a long drawn battle between the industry and the tax administration in the GST era.

Restricting credits - Industry suffers

Short term revenue pressures should not blur the vision as GST is much more progressive than its predecessors and such law should be nurtured with more progressive elements instead of retrospective amendments denying credits thus stunting the growth of, an otherwise, good law. The government is empowered to prescribe time-limit to claim a right but extinguishing such right through back-dated amendments is not the way a new law like GST should be administered. One is reminded of the constricting Modvat era with specified inputs, specified capital goods, filing of declarations and time-limit for availing credits along with the ambiguous definition of "in or in relation to manufacture".

Overcoming the effect of a judgment interpreting a provision of law in favour of the taxpayer as against the State, through ante-dated amendments is a traditional modus operandi when the tax collections are under great strain. It is by having a back-date, the department gets the right to recover the credits and thus make good the shortfall in revenue, to an extent. The process is painful as the industry is already reeling under recession though a few economists may argue that such phase has not yet come. Government is prodding banks to lend more and ‘transmission' issue is being blamed - though banks have been provided funds, they do not pass on the same to the industry. Demand continues to be subdued and consumption is too weak. In this gloomy scenario, such amendments denying even the legitimate tax credits to the industry, will not help the economy. May be, the industry will seek loan to tide over financial difficulties when transitional credit is denied and ITC is blocked for non-reporting of a few invoices by the supplier.

Keeping policy and objective in focus

Jargons like 'ripple effect' in the economy are quite common. One is compelled to use the same jargon when the adverse consequences of such retrospective amendments are analysed. It is quite possible that the draftsman might have committed a mistake. It is understandable that the legislative intention might have been different. But all these become secondary when the plight of economy is all too visible. These days, High Courts interpret the law based on the prevailing situation and the objective as can be seen in the case of orders passed in matters relating to Sabka Vishwas Scheme, thus interpreting provisions keeping public policy in focus - 2020-TIOL-474-HC-DEL-ST refers]. It is ironical that the government which frames the policy is adopting a rigid interpretation coupled with amendments to make the provisions more regressive. Neither the time is right nor are such measures desirable. Let us not retrospectively change our hopes for improving the GST law by removing artificial restraints and adopting purposive interpretation.

[To be continued…]

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

See Part 74.