APRIL 15, 2020

By Tarun Sharma, Joint Director, Lakshmikumaran & Sridharan

ON 01.07.2017, the Government introduced its ambitious tax reform which replaced a host of indirect taxes and brought the levy on supply of all goods and services (barring a few exceptions) under a common umbrella - the GST. The legislature incorporated a separate Chapter under the CGST Act, 2017 on transitional provisions (Sections 139 to 142) which, inter-alia, provides the mechanism for transfer of various credits lying unexhausted under the excise and service tax regime to the GST regime. Similar provisions are also incorporated in the State GST Acts to transfer the VAT credit to the GST regime. However, these transitional provisions brought along its own set of glitches. Over the period, legislature has also made certain amendments in these provisions.

To be more specific, Section 140(1) of the CGST Act, 2017 entitles a registered person to take in its electronic credit ledger, an amount of Cenvat credit of 'eligible duties', in the manner as may be prescribed. Section 140 is silent on the time limitation for taking said amount in electronic credit ledger.

Rule 117(1) of the CGST Rules, 2017 provides the manner of carrying forward the amount of credit under Section 140, by way of filing a declaration electronically in Form TRAN-1. Rule 117(1) also provides the time-period of ninety days from the appointed day (with an additional time-period of ninety days, which finally ended up on 27.12.2017) to file said declaration. Several registered persons could not file declaration in Form TRAN-1 by 27.12.2017 due to various reasons like technical glitches on the GST portal or other technical difficulties like Internet breakdown, power failure, etc, for which they may or may not have evidence to establish. There were other cases also where the registered persons missed the dead line of 27.12.2017.

CBIC vide Circular No. 39/13/2018-GST dated 03.04.2018 provided for the setting up of an IT Grievance Redressal Mechanism to address the grievances of taxpayers due to technical glitches on GST Portal. Later, the Legislature vide Rule 117(1A) of the CGST Rules, 2017, provided the extended period (till 31.03.2020) for filing Form TRAN 1 only in those cases where said declaration could not be filed by due date on account of technical difficulties on the GST portal.

In this background, validity of time-period prescribed under Rule 117(1) was challenged before various High Courts, on various grounds viz. since Section 140 neither provided any limitation of time for taking credit nor provided that the time will be prescribed, the Rules could not have prescribed the same. Accordingly, the time prescribed under rule has no legal backing. It was also contended that the substantial benefit of Credit cannot be curtailed by limiting the time to file claim in that regard.

The Courts have diversely interpreted Rule 117(1) of the CGST Rules 2017 and provisions of Section 140 and Section 164 of the CGST Act, 2017.

In some cases, Courts [Willowood Chemicals Pvt. Ltd. -  2018-TIOL-2873-HC-AHM-GST, Nelco Limited -  2020-TIOL-641-HC-MUM-GSThave upheld the constitutional validity of Rule 117(1) w.r.t. time limit framed therein, by holding that said Rule is framed under Section 164 of the CGST Act, 2017 and it applies to all cases of credits under Section 140 of the said Act and that the credit envisaged under Section 140 is a concession and it can be regulated by placing a time limit.

However, in other cases, Courts [Siddharth Enterprises - 2019-TIOL-2068-HC-AHM-GST, Filco Trade Centre Pvt. Ltd. - 2018-TIOL-2861-HC-AHM-GST, Topline Switchgear Pvt. Ltd. - 2020-TIOL-665-HC-AHM-GST while relying upon the decisions of the Apex Court [Eicher Motors Ltd. - 2002-TIOL-149-SC-CX-LB, Dal Ichi Karkaria Ltd. - 2002-TIOL-79-SC-CX-LB, have held that the due date provided under Rule 117(1) is procedural in nature and the same should not be construed as a mandatory provision. The Courts noted that since the right to carry forward credit is a right acquired and accrued under the erstwhile Acts and it has been saved under Section 174(2)(c) of the CGST Act, 2017, said credit cannot be allowed to lapse under Rule 117(1) of the CGST Rules, 2017. The Courts have also found the validity of impugned time limit violative to Article 14 and Article 19(1)(g) of the Constitution of India. The Court [Adfert Technologies Pvt. Ltd. - 2019-TIOL-2519-HC-P&H-GST has also permitted to file TRAN 1 even in those cases where no attempt was made to file TRAN 1 by due date. Later, the Supreme Court accepted said decision and dismissed the appeal filed against said decision. The Court [Khurana Enterprises - CWP No. 34721/2019-P&H HC ] has also gone one step further by permitting to claim credit in GSTR-3B Return in case petitioner is hampered in any manner due to non-opening of GST portal by the GST Authorities.

It is worthwhile to note that Section 128 of Finance Act, 2020 has now amended Section 140 of the CGST Act, 2017 by way of inserting the phase 'within such time and' before the phase 'manner as may be prescribed', w.e.f. 01.07.2017. Section 128 of the Finance Act, 2020 is yet to be notified, however, once it will be notified, it will have far reaching implications so far as claim of the taxpayer to file Form TRAN 1 beyond the due date is concerned.

Vide this amendment, legislature has attempted to validate the time limit provided in Rule 117 retrospectively. This may be to ensure that Form TRAN 1 filed by the due date should only be entertained. Whilst, it would be imperative to examine whether validation of time limit provided under Rule 117 by virtue of amended Section 140, will be enough to deprive a taxpayer to carry forward its eligible credit in electronic credit ledger after due date, especially in the light of the fact that the High Courts have independently examined this issue and held that eligible credit cannot be lapsed due to non-filing of Form TRAN 1 by due date. The said question is also important to examine as in a new system of GST, where implementation is being done on trial and error mode, confining the relief of extension of time only to IT related glitches on GST portal under Rule 117(1A) and not to cases falling under the scope of human errors / reasons beyond his control, certainly causes arbitrariness and discrimination. Further, format of Form TRAN-1 was not prescribed until 21.08.2017 which had resulted in non-availability of Form TRAN 1 for 51 days. In this scenario, any rigid approach followed by the GST Authorities by resorting to amended Section 140 for denying filing of Form TRAN 1 beyond stipulated date, would result in undue hitches to the tax payers and ultimately further litigation on this subject matter.

To sum up, amendment in Section 140 of the CGST Act, 2017 (yet to be notified) may cause further litigation so far as the question regarding carry forward of credit beyond due date provided in Rule 117 of the CGST Rules, 2017, is concerned.

[The views expressed are strictly personal.]