MAY 18, 2020

By CA. (Dr.) Gaurav Gupta and Adv. Rakesh Chitkara

Preamble

The authors have tried to examine the effect of retrospective amendment as brought out in Section 140 of CGST Act, 2017 to restrict the time of claiming transitional credit upto December 27, 2017. The amendment is important considering the great many judgements from various High Courts reading the unamended provision in favour of Assessee. The authors have examined the question of whether the amendment can restrict the vested right of claiming transitional Credit retrospectively.

Background and context

Recently, the Government has notified May 18, 2020 as the date from which Section 128 of the Finance Act, 2020 shall come into force. Section 140 of the CGST Act, 2017 enables a registered person to claim Credit of taxes paid in erstwhile regime and which is either available as part of value of stock lying with him or is lying in his credit ledger as carry forward balance. Section 140 allows the Rules to provided for the manner in which such claim could be made by an Assessee. Accordingly, the subordinate legislation, Rule 117 of CGST Rules, 2017 provided for the manner viz., TRAN-1 as well as the timelines for filing form TRAN -1 in which claim of transitional credit was to be made by the registered person. This prescription of time limit by Rule when the same is not provided in the Act was successfully challenged by the Assessee before various high Courts, most recent being the decision of Brand Equity before Delhi High court - 2020-TIOL-900-HC-DEL-GST. Thus, the Government, to do away the anomaly, incorporated the power to prescribe the time (by introducing the phrase "within such time" at required places) in the Act by amending Section 140 RETROSPECTIVELY. While the amendment shall be effective from July 1, 2017, the enabling Notification No. 43/2020-Central Tax dated 16.5.2020 has notified 18.05.2020 as the appointed date on which amending provision (Section 128 of Finance Act, 2020) shall come into force. The sole question which needs to be determined is whether such amendment has a retrospective effect or shall have a prospective application.

Retrospective legislation - an old story

Its not new for the Government to bring an amendment in the law retrospectively. In the case of Hitendra Vishnu Thakur and others vs. State of Maharashtra and Others 1994 AIR 2623, Hon'ble Supreme Court laid the following principles for retrospective amendments:

- A statute which affects substantive rights is presumed to be prospective in operation unless made retrospective, either expressly or by necessary intendment, whereas a statute which merely affects procedure, unless such a construction is textually impossible, is presumed to be retrospective in its application, should not be given an extended meaning and should be strictly confined to its clearly defined limits.

- Every litigant has a vested right in substantive law but no such right exists in procedural law.

- A procedural statute should not generally speaking be applied retrospectively where the result would be to create new disabilities or obligations or to impose new duties in respect of transactions already accomplished.

- A statute which not only changes the procedure but also creates new rights and liabilities shall be construed to be prospective in operation, unless otherwise provided, either expressly or by necessary implication.

Thus, the Hon'ble Court held that it was very legal to effect a law (procedural) retrospectively, provided the same does not create new rights or disabilities.

Let's proceed to understand the present case in above context.

Limitation amendment are Procedural in nature

In case of N.Ranga Rao and Sons v. State of Karnataka, - 2007-TIOL-120-SC-CT and in the case of Thirumalai Chemicals Ltd. Versus Union of India & other, reported in 2011 (6) SCC 379, Hon'ble Supreme court held the aspect of limitation is a procedural law. Bennion on Statutory Interpretation 5th Edn.(2008) Page 321 while dealing with retrospective operation of procedural provisions has stated that provisions laying down limitation periods fall into a special category and opined that although prima facie procedural, they are capable of effectively depriving persons of accrued rights and, therefore, they need be approached with caution.

It is also a trite law that no amendment can, in its retrospective effect alter or destroy an existing right or create a new liability or obligation unless that effect cannot be avoided without doing violence to the language of the enactment. Support can be drawn from the judgment of Hitendra Vishnu Thakur and others vs. State of Maharashtra and Others 1994 AIR 2623.

In the case of New India Insurance Company Ltd. versus Smt. Shanti Misra, Adult reported in (1975) 2 SCC 840, in para 7 the Hon'ble Supreme Court has observed and held that the new law of limitation providing a longer period cannot revive a dead remedy and nor can it suddenly extinguish vested right of action by providing for a shorter period of limitation.

In the case of Thirumalai Chemicals Limited versus Union of India and Others reported in (2011) 6 SCC 739, while discussing the law of limitation, the Hon'ble Supreme Court in paragraph Nos.29 to 33 has observed that Statutes of limitation are thus retrospective insofar as they apply to all legal proceedings brought after their operation for enforcing cause of action accrued earlier, but they are prospective in the sense that neither have the effect of reviving the right of action which is already barred on the date of their coming into operation, nor do they have effect of extinguishing a right of action subsisting on that date. We find this case to most closely apply to present situation.

In the case of S. S. Gadgil versus Lal and Co., [1964-53 ITR 231] in para 12 and 13, Hon'ble Supreme Court read down the retrospective authority of the Income-tax Officer under the Act to issue notice for period of limitation which have lapsed before the date of amendment. However, Hon'ble Supreme court held its decision with the observations that the provision must be read subject to the rule that in the absence of an express provision or clear implication, the Legislature does not intend to attribute to the amending provision a greater retrospectivity than is expressly mentioned. Thus, in case an intent of legislation is so to do, this case might not help the Assessee.

Allahabad High Court in the case of PR. Commissioner of IT versus Sahara States Gorakhpur - 2019-TIOL-1944-HC-ALL-IT has also concluded the applicability of section 80IB(10)(d) of Income Tax Act as prospective and not retrospective. Said decision is based on the judgment of M/s Sarkar Builders - 2015-TIOL-123-SC-IT. In similar way, Delhi High Court has declared the section 9(2)(g) of DVAT Act as prospective in M/s Gurcharan Singh & Sons versus CTT & Ors 2019 (8) TMI 1249.

Transitional Credit is a vested right

In numerous decisions, various high Courts have held that the transitional credit on stock is a vested right. Amongst those, most notable decisions are M/s Siddharth Enterprises vs The Nodal Officer (Gujarat HC), Brand Equity Treaties Limited v UOI (Delhi HC), Blue Bird Pure Pvt. Limited vs. Union of India - 2019-TIOL-1564-HC-DEL-GST, Adfert Technologies Pvt Ltd v Union of India in CWP No. 30949/2018 (O&M) - 2019-TIOL-2519-HC-P&H-GST etc. To sum up the Transitional credit as a vested rights, the following arguments were upheld by the Hon'ble Courts:

- The right got vested in the Assessee as he had made tax paid legitimate purchases under erstwhile law.

- Disallowing such vested right is offensive against Article 14 of the Constitution.

- It is arbitrary and unreasonable to discriminate in terms of the time-limit to allow the availment of the input tax credit with respect to the purchase of goods and services made in pre-GST regime and post-GST regime.

- Liability to pay GST on sale of stock carried forward from the previous tax regime without corresponding input tax credit would lead to double taxation.

- CENVAT credit earned under the erstwhile Law is the property of the Assessee duly protected by Article 300A of the Constitution.

Preparedness of GSTN

While deliberating on the retrospective or prospective application of this amendment, the authors are of the opinion that the Courts shall definitely take into account the readiness of GSTN and awareness amongst subjects during this period. While a legislature can undo its mistake by retrospective amendment, no equal right vests with Assessee. The observation of unpreparedness of GSTN, GSTN being in its ‘trial and error' mode, etc. finds mention in the various decisions, including Bhargava Motors vs. UOI [W.P.(C) 1280/2019] - Delhi HC - 2019-TIOL-1060-HC-DEL-GST, In the case of Brand Equity Treaties Limited & Ors. v UOI [W.P.(C) 11040/2018 and C.M. No. 42982/2018] - 2020-TIOL-900-HC-DEL-GST [supra], it was even observed by the Hon'ble court that the approach of the Government cannot be arbitrary or discriminatory, if it has to pass the muster of Article 14 of the Constitution. The writ filed by Sales Tax Bar Association - 2020-TIOL-271-HC-DEL-GST surfaces scores of technical problems being faced on the portal. Hon'ble Delhi High Court observed in Brand Equity (Supra) that just like the department, even the taxpayers required time to adapt to the new systems, which was introduced as a completely online system.

Conclusion

Law of limitation is generally regarded as procedural and its object is not to create or take away any right but to prescribe periods within which legal acquiescence can be initiated by either party under substantive law. In Commissioner of Income Tax v. Vatika Township (P.) Ltd. - 2014-TIOL-78-SC-IT-CB, the Supreme Court held that any amendment can be considered retrospective in order to remove the hardship of Assessee but not of the Department. In the present case, there is a vested right of the Assessee and this right converts into a monetary benefit only when he files the required form with the authorities. It was not a mere absence of limitation provision which lead the courts to allowing such claims of the taxpayers, but also the fact that it was a substantive right of the Assessee and being a new law, like the department, the Assessee also needed time to adapt. Had there were no substantial claim to this Credit other than limitation, this amendment to limitation could have been said to be curative in nature. A rule which did not have statutory backing by the enabling section should be read as non est till its enabling provision is effected.

Thus, considering the above discussion, it would not be antagonistic to say all claims which have been filed before the amendment of Section 140 of the CGST Act, 2017 should be available to the Assessee, however, any claim made after the amendment may find itself as not available. In our humble opinion, the amendment though would have a detrimental impact on claims filed after 18.05.2020, it would not impact the claims made prior to such date as this retrospective amendment cannot impair the vested rights, and attach a new disability in respect of past claims already filed. As said, in its narrower sense, justice is fairness and that it that pays due regard to the proper interests, property, and safety of one's fellows.

[Inputs by Amrita, Advocate. The views expressed are strictly personal.]