JULY 14, 2020

By K Srinivasan

THE decision of Delhi HC in Brand Equity case - 2020-TIOL-900-HC-DEL-GST is pending consideration before the Supreme Court, and the operation of which has been stayed by the Top Court - 2020-TIOL-115-SC-GST-LB. Sec 128(a) of the FA 2018 vide N.N 43/2020 CT dated 18/6/2020, had since retrospectively amended Sec 142(1) of the GST Act w.e.f 1/7/2107, to caution that there's a time limit within which Tran-1 Claim needs to be made by the Taxpayers to home their accumulated credits us safely to the new GST regime.

In the intervening time, after notification of the retrospective amendment by the Government, Delhi HC has passed another controversial decision dated 30/6/2020, on Tran credit besides Brand Equity dated 5/6/2020, this time in the case of Rehau Polymers Pvt Ltd - 2020-TIOL-1110-HC-DEL-GST, the gist of which are as follows;

Despite a SC stay in the Brand Equity case, the Court was approached by the Petitioner Rehau Polymers with a request to permit them provisional manual filing of the GST Tran-1 Form, in terms of Delhi HC' own decision in Brand Equity case, as per which time is allowed to file Tran-1 manually till 30/6/2020.

It was apprehended by the Petitioner - company that in the event of the Supreme Court upholding the decision in  Brand Equity case supra, the respondent Revenue, may present a fait accompli by pleading that 30/6/2020 which was the last date for filing Tran-1 permitted under the Brand Equity case supra, had already timed out.

The Court while barred on the one hand from passing any such direction as sought by the petitioner during the currency of SC's stay in the matter, it was thought sufficed to claim it even after 30/6/2020, on the ground that the petitioner has approached the Court by filing the subject writ petition already before the specified date i.e. 30/6/2020, and the case got listed for 30/6/2020 as well.

In case the Special Leave Petition, preferred by the respondents before the Supreme Court against the decision in  Brand Equity case, supra  were to be rejected and the Delhi HC decision upheld, the Court undertook to direct the respondents to accept the GST Tran-1 Form of the petitioner at even a later point of time, in light of the discussion contained in the Para above.

The question that arises in the minds of the readers and the Author, is whether the court can really do that especially -

1. When the three year period it took cover under, in terms of the residuary clause of limitation under the GCA, itself times out by 30.6.2020, and

2. The retrospective amendment made w.e.f 1/7/2017 by the Government vide N.N 43/2020-CT dated 18/6/2020 would become ineffective if due recognition for it is not accorded by the Courts.

Can it really do that? Will it be binding on the Government? are some of the most tricky questions?

Overwhelmed by its own earlier decision in the Brand Equity case, it has brushed aside the reminder from the Revenue that in an event of the decision of the Brand Equity case not being upheld, the implications of the retrospective amendment would frustrate any such direction sought to be given now by the Court.

While it may be that when the Brand Equity case came up before it, the retrospective amendment was not yet notified by then, the same is not the situation in the present case of Rehau Polymers now.

Therefore the gatekeeping provision of Sec 128(a) of the FA, retrospectively amending Sec 140(1) w.e.f 1/7/2017, appears to have been clearly relegated to the background in Rehau Polymers case by the Delhi HC, but not as it would appear in the case of Southey's Art Services case decision dated 3/7/2020 by the Bombay HC - 2020-TIOL-1143-HC-MUM-GST, which is being dealt in the later part of the discussion hereunder.

Government is already very clear that even if the decision in  Brand Equity, supra  is upheld, the petitioner would not be entitled to any relief as sought for in the petition, and that's precisely the reason for putting forth the above retrospective amendment plea, which unfortunately failed to invoke the much expected response from the Delhi HC.

The Court however acknowledged that this aspect would be considered as and when the writ petition came up for hearing, which got listed anyway for 16/9/2020 along with other similar matters on the Tran-1, earlier dealt with by the Court.

Position of law on Sotheby's Art Services case of Bombay HC as distinguished in Rehau Polymers decision of Delhi HC, post stay of brand equity case by SC and the impact of retrospective amendment of Sec 142(1) of the GST Act

1. The plenary provision i.e. Section 140 (1) as amended w.e.f.1/7/2017 by Section 128(a) of the Finance Act 2020, itself prescribes a time-limit for exercising or availing the right of carry forward of transitional credit.

2. ITC credits are not absolute/vested rights over and above the statute but subject to the statutory provisions and rules under which they exist.

3. The cut-off date prescribed by the Delhi HC as 30/6/2020 has no rationale, as the Limitation Act, 1963 cannot override limitations prescribed in a special statute for filing of return, which is required for the smooth functioning of administrative machinery.

It is well settled that cut-off dates are very much in the realm of the legislature to lay down the same and the Courts usually in fiscal statutes uphold them.

However, in a very recent decision dated 3/7/2020 in the case of Sotheby's Art services by the Bombay HC, touching upon the same aspect of belated filing of Tran-1 by the Petitioners before the Authorities on 4/12/2019, it has been held that the petitioner has attempted to file Form GST TRAN-1, although belatedly, but along with the applicable late fees in compliance of the erstwhile service tax laws as also the provisions of the GST Act.

It is pertinent to note that unlike in the Brand Equity case, petitioner's application dated 04.12.2019 was pending adjudication with the appropriate authority.

Accordingly a direction was given by the HC to the respondent authority to consider the application dated 04.12.2019 filed by the petitioner for seeking a carry forward of the credit through TRAN-1 in accordance with law, by passing a speaking order.

It is equally important to note that it is not one of a direction unlike the Delhi HC in Brand Equity case, to the Government of India to open up the Portal to all tax payers across the country, regardless of prior application or experiencing of any delay or facing any technical glitches and to keep it open till 30/6/2020.

It is equally important that it is an order in personam, having limited application to the Petitioner's case which is peculiar to that instance and not a direction in rem to the whole body of taxpayers across the country, without reference to the applicability of the decision to the facts of each case.

Allowing a Writ Petition in personam, is easy to pass but not taking some drastic views, shaking the foundations of Law in the humble opinion of the Author.

The above order is a very staid, keeping in mind the fact that the Brand Equity order is under siege before the SC, in an SLP.

Writ is a personal remedy and the Bombay HC has allowed it because Petitioner had already filed a Tran-1 Application before the Authorities on 4/12/19 and it was pending and perhaps has some record of delay of the portal in support of the Petitioner unlike in the Brand Equity case.

We mustn't forget that it's the same Bombay HC that held a contrarian view in Nelco Tran-1 case - 2020-TIOL-641-HC-MUM-GST. But it also depends upon what is under challenge and in line with it the survival of such an order before the SC will therefore much depend on the nature of challenge.

If it involves the foundations of Law, result of which involves throwing the baby with the bath water, one can be rest assured that the SC would certainly come to the rescue of the baby first. It's an art to save the baby without letting both sides to create a ripple effect in the tax jurisprudence of the country. The above judgment that way, has managed to keep its grace to itself in a rough sea amidst turbulent waves!

Position of GST Law on Transition credit:

1. The time limit prescribed under Rule 117(1)/117(1A) for transitional credit is not ultra vires Sec 164(2) - the principal repository containing the rule making powers of the Act.

These Rules, like other rules prescribing a time limit under GST Act to make the operation of the Act viable, is rightly traceable to the powers conferred under section 164 (2) to do so.

If every such rule in the rulebook prescribing a time limit is made unviable of the Act and evacuated as excessive legislation, then you will be left with only a big vacuum in the Act. It will be having a both disabling and demoralising effect on the Government from carrying out its actions in a time bound manner.

2. A permit for carrying forward one's input tax credit under section 140(1) is a concession coming with an attached condition of its exercise within the time limit, for a smooth transition into the new tax regime. Time expired permits need to be set aside as invalid under any Law.

And such time limit stipulated in Rule 117, for the sole purpose of smooth transition from the existing legislation to the newly founded legislation of the Government would look perfectly logical and in sync with the transitional nature of the enactment, which is neither arbitrary nor unreasonable.

3. It is highly unclear on what basis the Delhi HC has consented to equate an entitlement of credit of a tax to a right to property as envisaged under Article 300A. The implications or consequences of terming credit as a right equivalent to a property right, has overreaching implications which would need testing by the SC, only on the anvil of the Constitution of India.

4. CENVAT credit is not so absolutely a vested right in favour of the claimant to hold the field of taxation entirely in his favour without the remit of any time or requirements of Law, to claim it unconditionally and eternally. This is settled jurisprudence of Law under the old CENVAT regime, and it is only apt that in the new regime it is allowed by the Judiciary to be emulated it in its true letter and spirit of the old Law.

5. In view of the neutrality of the stand of the Government in chalking out a time bound course of transition from the old to the new regime of taxation, it would look far from being violative of Articles 14 and 19(1)(g) of the Constitution as there is no discrimination in the said dispensation of the transition of tax credits to the taxpayer.

6 . Sec 140(1), from which the powers to prescribe time always flowed to Rule 117(1A) despite the retrospective amendment, had inherent powers, as far back as even 1/7/2017 itself to prescribe a time limit. The retrospective amendment was made only with a view to putting it straight that staking a claim of TRAN-1 would not be allowed endlessly without application of any time, much less up to 3 years under the GCA.

In the above back drop, the outcomes of similar cases - Brand Equity and Rehau Polymers at the forefront of course, are most eagerly awaited by the trade and legal fraternities alike, to gauge the mind of the SC and to know the correct position of Law in this much debated issue, involving huge revenue and propriety of the Government at the same time.

[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.]