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Transitional Credit - Determined to Deny

JULY 01, 2020

By Vijay Kumar

AS we enter the fourth year of GST and as revenue collections have gone for a toss, the GST Department seems to be determined to fight it out to deny a little transitional credit to a few unfortunate taxpayers who could not avail it for various reasons, including incompetence of the Government.

The GST Policy Wing in the CBIC in a letter last week [F.No. CBEC-20/10/11/2019-GST/1001] [Still CBEC?] advised the field formations on how to fight the menace of "unscrupulous" taxpayers claiming transitional credit.

They have observed that appeals have been or are being filed in the various High Courts by taxpayers who were not able to carry forward or transition the accumulated CENVAT credit under the erstwhile regime to GST regime due to non-filing of TRAN-1/ TRAN-2 within due date due to technical glitches or various other reasons. In all these cases, the petitioners, time and again, challenge the transitional provisions of the Central Goods and Services Tax Act, 2017 and rules made thereunder. Now, the Policy Wing has suggested the model defence for the field formations before the High Courts. Their suggestions look like hoarse war cries.

See a few samples:

CENVAT CREDITS OR INPUT TAX CREDITS ARE NOT ABSOULTE /VESTED RIGHTS OVER AND ABOVE STATUE

AND ARE SUBJECT TO STATUTORY PROVISIONS AND RULE UNDER WHICH THEY EXISTS:

First of all, see the highlighted words. Maybe what they mean are

1. ABSOULTE = ABSOLUTE

2. STATUE = STATUTE

3. EXISTS = EXIST

It is with this kind of language that they want to impress the High Courts on what the words in the statute mean.

For the record, such eyesores appear these many times in this advisory - five (5) "STATUE", three (3) "ABSOULTE" and three (3) "EXISTS".

Anyway, the letter concludes that, it is clear that a taxpayer cannot claim input credit of the duty or tax paid as a vested right under GST and input credit is in the form of a concession / benefit and reasonable restrictions on availing such credit can be imposed. Thus, a taxpayer cannot claim credit accumulated under the erstwhile taxation regime (Central Excise and Service Tax) as a vested right for transition under GST. Provisions have been made under section 140 of the CGST for transition of credit for different class of tax payers and restrictions, if any, placed on a particular class of taxpayers are reasonable in nature and by no stretch of imagination be termed as perverse, arbitrary and unreasonable.

RULE 117 / 120A OF CGST RULES 2017 ARE WITHIN THE RULE-MAKING POWER OF THE CENTRAL GOVERNMENT UNDER THE CGST ACT, 2017

The letter explains:

Section 140 of the CGST Act, 2017, provides for the transitional arrangement for input tax credit. Further the said section envisages certain benefits, in the form of tax credits, to be carried forward during the regime change. Such benefits of tax credits at a large scale cannot be allowed to linger indefinitely as it would have a direct impact at the tax collection, estimates and budgetary allocations. Section 140(1) of the said Act, as amended with effect from 01.07.2017, by Section 128(a) of the Finance Act, 2020, itself provides that a registered person shall be entitled to take 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 within such time and in such manner as maybe prescribed.

The words "within such time" has been retrospectively added to Section 140(1) of the CGST Act, 2017 by Section 128(a) of the Finance Act, 2020. The amendment has been brought about with effect from 01.07.2017 and notified on 16.05.2020. Therefore, the exercise or availing of the right of carrying forward CENVAT credit in the plenary provision itself has been made subject to "within such time and in such manner as maybe prescribed". Therefore, when Rule 117 lays down the manner in which such Right can be prescribed, it cannot be said that such Rule in any manner was an excessive delegation. The petitioner has fallen into error in holding that there is nothing sacrosanct in sub-rule (1A) of Rule 117 in laying down the outer limit as 31.12.2019.

TIME LIMIT PRESCRIBED UNDER RULE 117 / 120A OF CGST RULES 2017 IS RATIONAL AND MANDATORY:

SUB-RULE (1A) OF RULE 117 OF CGST RULES, 2017 CANNOT BE TERMED AS ARBITRARY OR VAGUE AND IS WELL WITHIN THE FOUR CORNERS OF THE STATUE.

Again, a statue, not statute!

Interestingly, installing a "statue" in place of a "statute" is not new for the Revenue departments.

From our archives -

Though a minor error, the letter from NADT mentions interpretation of   statues, not  statutes. It is this kind of callous attitude that makes lifeless statues of vibrant statutes. In any case interpreting a statue is far more difficult than interpreting our statutes. - DDT 2364

3. National Academy (NACEN) to conduct regular training for all adjudicating authorities - former members of the CESTAT (The Appellate Tribunal) to be invitees to lecture the officers. Intensive training also to  AR's   in the act of advocacy, interpretation of  statues, to be given.

Please note all the words marked in red. If they had an English teacher in the Board, she would have told them that an apostrophe is not used for plural as  AR's   don't mean  ARs. And training on 'interpretation of  statues'   is not really a good idea as they should be trained in statutes and that 'advice' is a noun. - DDT 2767

The Policy Wing letter concludes:

It is clear from the above discussions that the Government cannot be held responsible for negligence and dereliction of duty by a responsible taxpayer. Thus, Rule 117 and Rule 120 A of CGST Rules, 2017, prescribing time limit, are well within the ambit of Section 140 of the CGST Act, 2017 and nowhere goes beyond the Act. It may be noted that if the contention of the petitioner were to accepted by providing the facility of filing / revision of TRAN - 1, it would jeopardize Government revenue on account of similar demands from other taxpayers who could not file / revise in time due to negligence and it would be difficult for the Government to verify bona fides of such claims. Further, if the same ratio is accepted then any time limit provided in fiscal statutes like filing of statutory appeals, claim for refunds, issue of demand notices etc. would be necessarily challenged thereby setting a chaos in the system.

The Policy Wing Commissioner, who has issued this letter says it has been issued with the approval of the Member, GST. Fine, but why do you use the entire might and brilliance of the gigantic Government of India to deny a little rightful credit to a few taxpayers? After all, GOI will not go bankrupt if credit is allowed to these taxpayers, but the taxpayers will, if credit is denied. At least in these COVID times can't you show a little mercy and allow small benefits to the trade so that they will stand up and work hard to give you more revenue? What will you get if you throttle the geese that consistently, painfully and even inexplicably have been laying golden eggs for you?

As we enter the fourth year of GST, please be a little considerate and -

1. Allow all the transitional credit as a one-time measure.

2. Treat all the GST pending appeals as decided in favour of the taxpayers.

3. Close down the AAR, AAAR and the Anti-Profiteering Authority and treat all the orders given by them as non-existent.

4. Build up your IT infrastructure and stop punishing taxpayers for your lapses.

5. Please remember taxpayers are Indians, you don't need to fight them.

Three Years of GST

Whether GST was a boon or bane, it is here to stay and when it's inevitable, let's learn to live with it. Maybe, we have realised that it is much better than Covid or China.

Yesterday, we had a very interesting webinar on the occasion of three years of GST. You can watch it at https://youtu.be/s3Hrcr1r7Lg. We have another webinar today.

GST has completed three

Years of glory

we are not free

From Litigation spree

Not always voluntary

Limitless seems to be the boundary

Until next week


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