MAY 29, 2020

 By K Srinivasan

DOES it not sound a bit elementary to ask a question like this? Yes. It does! But there is a reason for such an elementary question to surface in the wake of the FA, 2020 and the recent Delhi HC decision [Brand Equity Treaties Ltd. -   2020-TIOL-900-HC-DEL-GST.].

Let me explain the background of the amendment and the decision of the HC, so that you can appreciate the trigger of the above question.

The GST legislation had to provide the old taxpayers with a mechanism to carry forward their CENVAT credit lying with them in their accounts.

It is technically known as a transition of credit from the old to the new law, more particularly here the CENVAT credit account shown in their last tax return filed, into the new electronic ITC ledger.

There is only this route to be taken apart from the other route of a cash refund in lieu of the old credit due and lying to the credit, in certain specified circumstances and there is no other, like after the first death.

The Repeal

The reason for this is technical in that Sec 174 of the GST Act, in the wake of introduction of GST, has repealed the old Law, save as otherwise provided under Sec 173 of the old Chapter V of the Finance Act, 1994 since omitted, and hereafter to be referred as the amended Act.

The provision relevant for our discussion here in connection with the retrospective amendment through FA, 2020 is Sec 140(1) of the GST Act, 2017, which opening reads as follows;

(1) A registered person, other than a person opting to pay tax under section 10, shall be entitled to take, in his electronic credit ledger, the amount of CENVAT credit carried forward in the return relating to the period ending with the day immediately preceding the appointed day, furnished by him under the existing law in such manner as may be prescribed;

Entitlement to credit is subject to fulfillment of the conditions in the manner prescribed which is always sought to be done through the rule-book.

The relevant rule for regulating the credit is Rule 117 of the CGST Rules, 2017 extracted below for ready reference -

Tax or duty credit carried forward under any existing law or on goods held in stock on the appointed day (Chapter-XIV: Transitional Provisions) 

(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 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.

Provided further that where the inputs have been received from an Export Oriented Unit or a unit located in Electronic Hardware Technology Park, the credit shall be allowed to the extent as provided in sub-rule (7) of rule 3 of the CENVAT Credit Rules, 2004.

(1A) Notwithstanding anything contained in sub-rule (1), the Commissioner may, on the recommendations of the Council, extend the date for submitting the declaration electronically in  FORM GST TRAN-1  by a further period not beyond 31st 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 a recommendation for such extension.

The taxpayers regularly experienced technical difficulties known as glitches in properly filing the Tran-1 declaration to get through to their credit in the electronic ITC credit ledger within the original time prescribed under the Rules.

Therefore, the trade and industry approached the judicial forums and the Government to redress their grievances by extending the time limits for filing the Tran-1 forms.

Extension of time limit for submitting the declaration in FORM GST TRAN-1 under rule 117(1A) of the Central Goods and Service Tax Rules, 2017 in certain cases, was eventually conceded by the GST Council and announced by the Government. The CBIC has issued Order No. 4/2018-GST dated 17th  September, 2018 extending time limit for submitting the declaration in FORM GST TRAN-1 up to December, 31, 2019 under rule 117(1A) of the CGST Rules, 2017.

Form TRAN-1 should be filed by every person having Input Tax Credit (ITC) on closing stock and migrated to GST from VAT, Service Tax, or Central Excise.

Registered persons who could not submit the declaration in FORM GST TRAN-1 under rule 117(1A) of the CGST Rules, 2017 on account of technical difficulties on the common portal and whose cases have been recommended by the GST Council  could have submitted the said declaration till 31 st  December, 2019.

In the meantime, the legal challenges were mounted by the taxpayers before various High courts of Gujarat, Bombay and Delhi.

The Petitioners before the Delhi HC, raised the ground of a lack of authority for prescribing time under rule 117 and extension of time under 117(1A) among other grounds of the credit being their vested right and that the Rules prescribing and extending time as they liked were ultra vires the Act, were leveled against the Government.

The Delhi HC had found the arguments of the taxpayers reason enough to concede to their grounds and held the Rules to be ultra vires the Act and permitted the Tran-1 forms to be filed by all as a one-time chance up to 30/6/2020 by an order dated 6/5/2020 without discrimination between those who had log-in difficulties called glitches and the other unsolicited applicants, who made no attempt to file the said Tran-1 forms, or much less faced any difficulty/glitch in claiming their credit.

When the Government was firmly committed to the amendment already and bound to carry it out in Sec 140(1), any time too soon, as assured by the GSTC effective from 1/7/2017, it must have been more than clear to the HC that a verdict that it has chosen to shoot through such a wide aperture, can produce but only a more blurred picture than we already have, perhaps.

The CBIC can't but look in astonishment at the decision of the HC, for not being in a position to implement any part of it, except to revisit the Court to make appropriate submissions in this regard. And also the above judgment of the Delhi HC is unlikely to attain finality amidst variant circumstances surrounding it, as of now.

Barely, two days after the Delhi HC verdict, the much awaited retrospective amendment of Sec 128 of the FA, 2020 vide Notification No. 43/2020-CT dated 16/05/2020, came like a bolt from the blue.

It provides for redress of glitches up to 17/5/2020 with back dated effect from 1/7/2017.

We, therefore, have before us resultant upon the decision of Government and the Court, three different dates, namely 1/7/2017 and 17/5/2020 on the one hand by the Government and 30/6/2020 by the HC, on the other. The question is which one will apply to what and their implications from past to present and future, resembling a session of complicated semantics and Law.

The following are a series of questions raised by taxpayers in different permutations and combinations -

Q. 1 If we look at overall rules, it has given benefits/relaxations continuously since October 2017.(period from 1/7/2017 to 30/9/2017 being the first ninety days' time originally permitted under Rule 117)

a) Whether it is applicable in respect of those filing or original TRAN-1 or

b) Revision of TRAN-1 Or

c) Filing of TRAN-1 manually by the assesse who could not file the same due to technical glitches?

Q. 2 What about Rule 117(1A) which gave relaxation specifically vide Order No. 4/2018-GST dated 17th  September till 31st December 2019?

Q. 3 The amended provision of Section 140(1) of CGST Act is very clear. The intent is to make it effective only up to 17.05.2020.

Is it the correct view to be taken?

Q. 4 However, the amended provisions of Section 140 will be treated as if they were in force from the date of the original enactment.

Q. 5 By issuing the Notification No. 43/2020-CT dated 16.05.2020, has the Government accepted the various pronouncements declaring CGST Rule 117/117(1A) as ultra-vires for the intervening period from 01.07.2017 to 17.05.2020?

Q.6 What would happen to relaxations made vide 117(1A) from time to time? Would all that also turn ultra vires during the interregnum i.e. 01/07/2017 to 17/05/2020?

Q.7 By various relaxations, benefit has already been extended to that category of taxpayers who applied for it and it makes no difference if the relaxation is now turned as ultra vires. But, for the whole time up to 17.05.2020, whether all the beneficiaries of Tran-1 are to be treated equally, including those who did not apply at all any time through Tran-1?

Q.8 If you accept the rules 117/117(1A) as ultra vires during 01/07/2017 and 17/05/2020, whether it would result in surrendering the benefits or recovering the benefits given under Tran-1, if you say that the rules were ultra vires in the interregnum.

Q.9 Whether the Tran-1 Applications are to be allowed up to 30/06/2010 as ordered by the Court though the buck stops at 17/05/2020 by the retrospective amendment notification 43/2020-CT dated 16/05/2020, giving an outer time limit only up to 17/05/2010.

Author's Comment

All Tran-1 actions are to be ratified for the period 1/7/2017 to 17/5//2020. Any other interpretation will lead to chaos of the Tran-1 application Process/scheme as per Rule 117 up to 30/9/2017 /117(1A) as extended from time to time by GSTC up to 31/12/2020 and further opened up to 17/05/2020 by the retrospective amendment Notification dated 18/05/2020.

The order of the Delhi HC permitting it up to 30/06/2020 would look like a sore thumb sticking out, running counter to the retrospective amendment action of the Parliament as it can't go beyond the end date of Notification 43/2020-CT dated 16/5/2020 opened up to 17/05/2020.

End Note

Where no such evidence is forthcoming and no recommendation is made by the GSTC, as in the Applicant's case, or in any other's case, in the absence of any such proof, no relief is extendable to either the Applicant or similarly placed taxpayers in rem, as that would be discriminatory.

Any unsolicited free for all one time offer of Tran-1, without any time limit or application logs, to even taxpayers who failed to claim Tran-1 credit, would be highly unviable and would send wrong signals to others who have made arduous attempts to get it.

How retrospective the FA, 2020 could be?

All Tran-1 applicants faced with technical difficulties/glitches with log-in proofs would get their credits transitioned subject to the Transitional provisions under Sec 140 of the Act, from 01/07/2017 to 17/5/2020.

Surely, similar leeway must be there for the taxpayers from the states, to file Tran-1 applications and claim transitional credits from 1/7/2017 until about the dates of the notifications of the state amendment Acts, yet to come.

The Author is of the view that the benevolence of these Acts can't stretch endlessly and beyond, lest the retrospective amendment must turn purposeless in the end, even as the Government is already learnt to be before the SC with an SLP, in the matter.

(The Author is a former Assistant Commissioner of GST, Chennai and a CBIC Master Trainer, GST and currently a Senior Associate, Indirect & Corporate Taxes, at a Chennai-based Law Firm, RANK Associates. The views of the Author are purely personal.)