JUNE 04,2020

By Shailesh Sheth, Advocate Founder, M/s. SPS LEGAL

IN Part I, the genesis of Notfn. No.43/20-CT dt. 16/05/2020 effectuating S.128 of the FA, 2020 from 18/05/2020 retrospectively amending S.140 of the CGST Act and the roots of this exercise were discussed. In Part-II, the issues viz. (a) the permissibility of the raising of new ground based on this retrospective amendment and (b) the Constitutional validity thereof were analysed. In this concluding Part, the effect of this retrospective amendment on the ratio decidendi of certain judicial pronouncements and the 'way forward' is discussed.

Issue 3:

"Does the retrospective amendment to S. 140 of the CGST Act, if considered or assessed to be valid, negate or nullify the judgement in Brand Equity's case (supra) and other judgements and the ratio decidendi thereof?"

It has already been opined that in case the retrospective amendment to S.140 is applied by the Department to the detriment of the Taxpayers who have 'missed the bus' as far as TRAN-1 is concerned, the validity thereof can certainly be challenged on the grounds of the retrospective amendment being violative of the fundamental rights guaranteed under Article 14 and 19(1)(g) of the Constitution of India, as well as the Constitutional rights to property under Article 300A of the Constitution and also being arbitrary, unreasonable and discriminatory in nature.

However, having said so, let us now assume, for the sake of argument, that the subject retrospective amendment is Constitutionally valid and in that case, the question posed above begs for an answer. This is particularly so as there is a wide-spread belief or apprehension that the subject retrospective amendment nullifies the effect of the judgement in Brand Equity's case and other judgements, notably, in Siddharth Enterprises' case and Adfert Technologies' case and that the taxpayers will be fighting a lost battle in the Supreme Court.

Let us closely examine this conundrum.

A careful reading of the various judgements on the subject issues involved and referred to in this article, would reveal that they fall in two categories, viz.

1. Cases where the vires of Rule 117 of the CGST Rules and the limitation period prescribed therein was under challenge; and

2. Cases where the Petitioners have not challenged the vires of Rule 117 or not pressed, if challenged, but merely sought the issue of the directions from the Court to the Department to permit them to carry forward the unutilized CENVAT Credit which could not be carried forward due to delayed filing or non-filing or incorrect filing of TRAN-1.

The judgements delivered by the Bombay High Court in JCB's case [in the context of S.140(3)(iv) of the CGST Act] and NELCO's case [in the context of S.140(1)] as well as by the Gujarat High Court in Willowood's case [in the context of S. 140(1)] fall under the first category. The respective High Courts in these cases have, for the reasons recorded in their respective judgements, upheld the vires of S.140 (3)(iv) or S.140(1), as the case may be, of the CGST Act read with Rule 117 of the CGST Rules. On the other hand, in Siddhartha Enterprises's case, Adfert Technologies's case and Brand Equity's case, the Gujarat High Court, Punjab & Haryana High Court and Delhi High Court respectively have, in effect, read down Rule 117 of the CGST Rules and held it to be merely directory and not mandatory in nature. The effect of the retrospective amendment to S.140 needs to be evaluated against the backdrop of these two clear streams of the judicial pronouncements that have emerged so far.

So far as the 'vires' of Rule 117 and the validity of the limitation period prescribed therein is concerned, the challenge thereto essentially rests upon the following premise, viz.

- that, the same is violative of the Fundamental Rights guaranteed under Article 14 and 19 of the Constitution and the Constitutional Right under Article 300A of the Constitution for various reasons; and

- that, Rule 117 and the limitation period prescribed therein is ultra vires S.140 of the CGST Act as the parent provision did not provide for the enabling power for the Central Government to 'prescribe' the time limit, by 'Rules', for the purposes of S.140. [This alleged/perceived lacunae has been removed by the present retrospective amendment to S.140 by S.128 of the FA, 2020.]

The author is of the view that the recourse to the challenge to the Constitutional validity of Rule 117 and the limitation period prescribed therein obviously remains available to the aggrieved parties which can be agitated before the Supreme Court.

However, the other argument based on the absence of 'enabling power' in S.140 may be, in author's view, precariously placed. One may here, for the time being, leave aside the retrospective amendment to S.140 and its validity which has been discussed in detail in Part-II. What is required to be noted is that the Gujarat High Court in Willowood's case and Bombay High Court in NELCO's case), has traced the 'source of power' for the Central Government to prescribe the limitation period by Rule 117, the general rule making powers vested in it under S.164(1) and (2), notwithstanding the fact that S.140 (before its retrospective amendment), did not provide for such enabling power. It is also pertinent to note here that the vires of Rule 117 has never been challenged on the ground that it has not been issued under S.140 and the various clauses thereof but has been issued under S.164 of the CGST Act. In author's humble view, such challenge, even if raised, would have been ill-founded. It shall be noted that the 'CGST Rules, 2017' are issued and notified by the Central Government in exercise of the powers vested in it under S.164 of the CGST Act only, though, the various provisions, other than Section 140 of the CGST Act, 2017 also employ the same phrase "in such manner as may be prescribed" as was used in the un-amended S.140. Needless to say, this is the most common way of drafting the statutory provisions where the draftsman provides for the 'substantial matter' in the provisions of the Parent Act (for instance, Registration, Valuation, Payment of tax, availment and utilization of ITC, etc. in the context of the CGST Act, 2017) and the ' machinery provisions' covering procedure, limitation, restrictions, etc. are left to be 'prescribed' by 'Rules', vesting, generally, Central Government with wide powers under a provision contained in the Parent Act to prescribe such 'Rules'. Therefore, the author is of the view that the challenge to the validity of Rule 117, to the extent it 'prescribed' the limitation period, on the ground of the absence of enabling power in (the un-amended) S.140 always stood on the shaky premise! In fact, in hindsight, one may even wonder whether the 'retrospective amendment' to S.140 was really warranted? Has the Board not queered the pitch for itself by resorting to the 'retrospective amendment' as it may now open the proverbial 'Pandora's Box'?

The above discussion now brings us to the ratio decidendi of the judgements that constitute the other stream of rulings, inter alia, holding the limitation period prescribed under Rule 117 is merely directory in nature and not mandatory. The question is "Whether this contention will be available to the aggrieved taxpayers before the Apex Court if the challenge to the vires of Rule 117 and/or the Constitutional validity of the retrospective amendment to S. 140 of the CGST Act fails?"

In the humble view of the author, this alternate contention shall always be available to the aggrieved taxpayers before the Apex Court, whether as the Petitioners or as the Respondents. In fact, in Willowood's case, the Gujarat High Court, while dismissing the challenge to the vires of Rule 117, has also categorically observed that the time limit provision contained in Rule 117 cannot be interpreted as being merely directory. It is understood that this judgement has already been challenged before the Supreme Court by the aggrieved Petitioner and, therefore, this particular issue may come up for consideration before the Court.

In Siddharth Enterprises's case, the Gujarat High Court clearly declared that "the due date contemplated under Rule 117 of the CGST Rules for the purposes of claiming transitional credit is procedural in nature and thus should not be construed as a mandatory provision."

In this case, the Revenue, for some inexplicable reasons, had not cited the judgement of the same Court in Willowood's case which had been delivered nearly a year before. However, later, the Revenue had moved a Review Petition before the High Court pleading as under:

+ that, due to inadvertence, they could not point out the judgement of the Court rendered in the case of Willowood Chemicals and in another case of Jay Chemicals Industries Pvt. Ltd. vs. UoI - 2018-TIOL-2880-HC-AHM-GST;

+ that, the judgement dated 06.09.2019 passed by the Court be reviewed on the ground that the same is per incuriam.

On the other hand, on behalf of the Respondents, a strong reliance was placed on the judgement of the same Court in Filco Trade Centre's case and also on the judgement of the Punjab and Haryana High Court in Adfert Technologies' case, besides other judgements of the different High Courts. It was also pleaded that in Willowood's case, the binding precedent in the case of Filco Trade's case had not been considered by the coordinate Bench.

Finally, the High Court, by its Order dated 14th February, 2020, dismissed the Review Petition filed by the Revenue, taking due note of the binding precedent in Filco Trade's case. The High Court was also not amused with this mechanical filing of Review Petition by the Revenue and made this stern observation:

"5.3 The applicants have not taken care to look into the previous judgement of the co-ordinate Bench of this Court in the case of Filco Trade Centre Pvt. Ltd.(supra) and have hurriedly filed these Misc. Civil Application alleging the order of this Court per incurium (and this) is required to be deprecated."

It may also be pointed out here that even at the stage of Review Petition, it was not pointed out by the Revenue that the judgement in Filco Trade's case (supra) has been stayed by the Supreme Court by its Order dated 02.01.2019 - 2019-TIOL-153-SC-GST.

It is understood that ultimately the Revenue has moved the Supreme Court against the judgement of the High Court in Siddharth Enterprises case. The central issue which would then arise for consideration in this case before the Supreme Court will be whether the limitation period prescribed under Rule 117 of the CGST Rules shall be construed as directory/procedural in nature or as a mandatory provision.

Be that as it may, the judgment of the High Court in Siddharth Enterprises' case declaring 'the time limit prescribed in Rule 117 as procedural in nature and not as mandatory provision' continues to hold the field to date.

This judgment was followed with approval by the Punjab & Haryana High Court in Adfert Technologies' case (involving a batch of total 102 Petitions) wherein the High Court took the similar view. As stated earlier, the Revenue moved only a solitary SLP against the judgement before the Supreme Court restricting it to the lead party that is, M/s. Adfert Technologies Pvt. Ltd. The SLP, however, was dismissed by the Supreme Court by its judgement dated 28.02.2020 - 2020-TIOL-64-SC-GST which reads as under:

"In the facts and circumstances of the present case, we are not inclined to exercise our jurisdiction under Article 136 of the Constitution. We accordingly dismiss the Special Leave Petition.

Pending application (s), if any, stand disposed of."

The effect of the dismissal of the SLP by the Supreme Court can be briefly summarized as under:

a) The dismissal would remain a dismissal by a non-speaking order as no reasons have been assigned and no law has been declared by the Supreme Court. A dismissal is not of the appeal but of the special leave petition. Even if the merit (may) have been gone into, they are the merits of the special leave petition only. Hence, neither doctrine of merger nor Article 141 of the Constitution will stand attracted to such an order ( Kunhayammed vs. State of Kerala - 2002-TIOL-50-SC-LMT-LB refers).

b) The dismissal of SLP albeit, by a non-speaking order, would, nevertheless, render the judgement of the High Court binding on the Revenue vis-à-vis M/s. Adfert Technologies Pvt. Ltd. In so far as the remaining 101 Petitioners involved in Adfert Technologies' case are concerned, if the Revenue has not challenged the common judgement of the High Court (it appears that it has not been challenged), the judgement and the directions contained therein have attained finality vis-à-vis the said 101 Petitioners are concerned.

It may be noted here that in this case, the High Court had categorized all the cases before it in two types, viz.

i. Registered person who did not or could not filed TRAN-1 by 27.12.2017 and have no evidence to establish that he had attempted to load TRAN-1 ; and

ii. Registered person who loaded TRAN-1 by 27.12.2017, but there was a mistake and he wanted to revise already loaded TRAN-1.

Even in such extreme cases, the High Court was pleased to effectively read down Rule 117 and direct the department to permit all the Petitioner to file or revise, where already filed, incorrect TRAN-1, either electronically or manually on or before 30.11.2019, leaving liberty to the department to verify the genuineness of the claim of Petitioner and by categorically directing that nobody shall be denied to carry forward of legitimate claim of CENVAT/ITC on the ground of non-filing of TRAN-1 by 27.12.2017. These sweeping directions of the High Court have attained finality for the lead Petitioner, namely, M/s. Adfert Technologies Pvt. Ltd. and the remaining 101 Petitioners, albeit, for the different reasons. In this view of the matter, the contention as to whether the limitation period prescribed in Rule 117 is directory in nature or mandatory can certainly be raised before the Supreme Court as otherwise it would result in discrimination vis-à-vis the parties involved in Adfert Technologies' case and in a host of other cases where the different High Courts have also granted reliefs to the Petitioner/s before the Court by issuing similar directions to the department.

Finally, in Brand Equity's case, the High Court took note of almost all the previous major decisions and after evaluating the factual position in each case, delved into certain fundamental issues and observed and held as under:

  The Government has no powers to deny accrued and vested rights and to

restrict them to 90 days by delegated legislation;

-  Considering the fact that the time limit under Rule 117 itself had gone beyond the period originally envisaged, there was nothing sacrosanct about the time limit;

-  The period of 90 days had no rationale and extensions had been granted by the Government largely on account of its inefficient network;

-  The classification introduced by sub-rule (1A) restricting the benefit only to those taxpayers whose cases were covered by "technical difficulties on common portal", subject to recommendations of the GST Council, was arbitrary, vague and unreasonable;

-  "Technical difficulty" is too broad a term and cannot have a narrow interpretation or application and would include within its purview any such technical difficulties faced by the taxpayers as well which could also be a result of the respondent's follies;

-  The introduction of sub-rule (1A) is a patchwork solution that does not recognise the entirety of the situation;

-  The provision of Rule 117, therefore, can unhesitatingly be read down, as being directory in nature in so far as it prescribes the time limit for transitioning of credit;

-  In absence of any specific provision in the CGST Act, the period of 'three years', in terms of the residual provision of the Limitation Act, should be the guiding principle and thus, the period of 'three years' from the 'appointed date' i.e.01.07.2017, should be the maximum period for availing of such credit and that, the Petitioners are permitted to file, either electronically or manually, the TRAN-1 on or before 30.06.2020.

The above and other scintillating observations and the conclusions reached by the High Court will certainly play a crucial role when the matter i.e. SLP filed by the Revenue against the judgement comes up for hearing before the Supreme Court.

To conclude, even if it is assumed, for the sake of argument, that Rule 117 of the CGST Rules and the limitation period prescribed therein and the retrospective amendment to S. 140 of the Act are considered to be valid, the other major issue as to whether the provision containing the time limit is directory/procedural or mandatory in nature can certainly be raised and will, in any event, arise for the consideration of the Supreme Court.

All is, therefore, not lost for the taxpayers!

Way forward - What should the taxpayers do?

While the battle continues to rage within the four walls of the Courtroom, the taxpayers who have not been able to file or correct, if already filed, the TRAN-1 by the due date in terms of sub-rule (1) or (1A), as the case may be, of Rule 117 of the CGST Rules, may be wondering about the next course of action they should adopt.

The author is of the view that such taxpayers, without waiting for the final outcome of the legal dispute pending in the Supreme Court, should file the TRAN-1 or Revised/corrected TRAN-1, as the case may be, on or before 30.06.2020 on the strength of the observations and directions of the Delhi High Court in Brand Equity's case and other judgements. The filing can be attempted electronically and if it fails, after carefully securing the evidence in the form of screenshot, they should file the same manually with the jurisdictional authorities. In case, the manual filing is not accepted (it's a strong possibility), the taxpayer should send it by 'Regd. Post A/D'. These steps can be taken by all the taxpayers concerned, irrespective of whether they have approached their respective jurisdictional High Court or not and whether they fall within the jurisdiction of the Delhi High Court or not. The moot point here is to keep the claim to the 'transitional credit' alive while always remembering the title of the famous Bond movie "Die Another Day"!

TRAN-1 battle - A battle between 'Ego' and 'Grace'!

Finally, this raging controversy and the sordid drama surrounding it may leave one wondering whether it is justified and unavoidable and is it really worth the trouble it has caused all around? The Government must appreciate that the unutilized CENVAT Credit as on 30.06.2020 had already accrued to the taxpayers and it was their vested right. Where is the justification for defeating this right by prescribing an impractical time limit in law? After all, the inability of the taxpayer to adhere to the time limit has been, in majority of the cases, due to the GSTN Portal's inadequacies and inefficiencies. To victimize the taxpayers for the Portal's technical deficiencies would mean 'taking advantage of one's own wrong' which itself is not permissible in law.

Ideally, the Government ought to be graceful and permit all the taxpayers concerned to file TRAN-1 or correct the TRAN-1, if already filed, either electronically or manually, at least upto 30.06.2020, if not beyond that. Sadly, one gathers an impression that this whole issue has become an 'Ego tussle' for someone in the bureaucracy and in the process, 'Grace' has left the stage! If one really considers the man-hours lost across the country in this totally avoidable battle and the monetary cost thereof, the question does haunt one: "Is this whole drawn out drama really worth it?". If not anything, the Government may extend the benefit of transitional credit in all deserving cases, keeping aside all procedural infractions and may even call it a part of the ' Economic package' or 'Financial Stimulus' in these crisis-laden times being faced by the businesses! Certainly, the businesses would not mind it!

The only explanation for the attitude so far displayed by the Revenue in this case (including the recourse to the retrospective amendment) can only be summed up, to borrow the expression used by the late renowned tax jurist Mr. N. A. Palkhiwala as "a triumph of bureaucratic obstinacy over good sense"!

"The good of the people is the chief law"

[Cicero]

[The series stands concluded - Editor]