The Delhi High Court while passing an order in the case Brand Equity Treaties vs UOI has read down Rule 117 of Central Goods and Services Tax (CGST) Rules, 2017 as being directory in nature, insofar as it prescribes a time-limit for transitioning of CENVAT credit. (Brand Equity Treaties vs UOI)
The Court has held that Rule 117 would not result in the forfeiture of the rights when the credit is not availed within the period prescribed under it.
It is nonetheless clarified that CENVAT credit has to be availed within a period of three years from the date of appointment cannot be in perpetuity
A Division Bench comprising of Justices Vipin Sanghi and Sanjeev Narula had given the judgement in a batch of petitions seeking Tax Authorities to permit the Petitioner companies to avail input tax credit of the accumulated CENVAT credit as of June 30, 2017 by filing declaration Form TRAN-1 beyond the period provided under the Central Goods and Services Tax Rules, 2017 (CGST Rules).
The Petitioners had also argued that Rule 117 of the CGST Rules was arbitrary, unconstitutional and violative of Article 14 as it imposed a time limit for carrying forward the CENVAT credit to the GST regime.
The Petitioners had failed to file the declaration in Form TRAN-1 within the prescribed date under Rule 117.
The Petititioners submitted that accumulated CENVAT credit was the property of the assessee and was constitutionally protected right under Article 300A of the Constitution. He further added that such right could not be taken away on account of failure to fulfil conditions which are merely procedural in nature
Petitioner submitted that he should not be made to suffer on account of inefficiency in the systems of the tax department especially when the GST system is in a nascent “trial and error” phase.
It was contended the Petitioners were not entitled to any relief as they failed to file the declaration Form TRAN-1 within the due date and the same was not attributable to any technical glitches but their own mistakes.
Defending Rule 117 it was stated that Section 164(1) of the CGST Act authorised the Central government to make rules to carrying out the provisions of the Act on recommendation of the Council while in consonance with the intention of the legislature.
Reliance was also placed on Section 140(1) CGST Act according to which the Government was empowered to fix the time frame for availing the carry forward of input tax credit by transitioning the CENVAT credit into the GST regime.
After considering the submissions made by the parties, the Court noted that on enactment of the CGST Act, while no mechanism was provided for the refund of the credit that existed the only mechanism provided was for utilization of such credit by migrating the same to the GST regime by way of filing declaration Form TRAN-1.
It further recorded that the manner and procedure for utilizing such credit was prescribed under Section 140(1) which enabled a registered person to carry forward CENVAT credit in return to the period ending with the day immediately preceding the appointed date which is July 1, 2017 furnished by him under the existing law.
However, The Court observed that no provision in the CGST Act prescribed a time limit for the transition of the CENVAT credit except for Rule 117.
Noting that the 90-day time limit was extended by the Commissioner from time to time, the Court stated,
..there is nothing sacrosanct about the time limit so provided. It is not as if the Act completely restricts the transition of CENVAT credit in the GST regime by a particular date, and there is no rationale for curtailing the said period, except under the law of limitations. The period of 90 days has no rationale and as noted above, extensions have been granted by the Government from time to time, largely on account of its inefficient network.
While also taking note of the technical difficulties faced by a tax player from their end while submitting the TRAN-I Form the court stated,
“A basket of Central and State taxes were merged into a single tax. New forms were introduced and, as aforesaid, all of them were not even operationalised. Just like the respondents, even the taxpayers required time to adapt to the new systems, which was introduced as a completely online system. Apart from the shortcomings in the system developed by GSTN Ltd., the assessees also faced the challenges posed by low bandwidth and lack of computer knowledge and skill to operate the system. It is very unfair on the part of the respondents, in these circumstances, to expect that the taxpayers should have been fully geared to deal with the new system on day-one, when they themselves were completely ill-prepared, which led to creation of a complete mess. The respondents cannot adopt different standards – one for themselves, and another for the taxpayers.”
While holding that CENVAT credit was the property of the assessee and a constitutional right under Article 300A of the Constitution the court held that it could not be taken away merely by way of delegated legislation which was not based on any overarching provision in the GST Act.
The Court concluded by stating that taxpayers could not be robbed of their valuable rights on an unreasonable and unfounded basis of them not having filed TRAN-1 Form within 90 days when civil rights could be enforced within a period of three years from the date of commencement under the Limitation Act, 1963.
Since all the Petitioners had either filed or attempted to file Form TRAN-1 within a period of three years, they were awarded the Input Tax Credit accruing to them.
Advocates for the case-
Petitioner Brand Equity Treaties- Advocate Abhishek A Rastogi.
Micromax Informatics- Advocate Alok Yadav.
Developer Group India- Advocates Kavita Jha, Shammi Kapoor, Kritika Kapoor, Swati Agarwal.
Revenue- Standing Counsel Amit Bansal with Advocates Aman Rewaria, Vipasha Mishra.
Reliance Electrik- Advocates Ruchir Bhatia, Madhura MN. In this case, Revenue was represented by Standing Counsel Ashim Sood with Advocates Armaan Pratap Singh.
Read Judgment here: