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The Gujarat High Court this week issued notice in a petition challenging the vires of Rule 117 of the Central Goods and Services Tax (CGST) Rules, 2017, a provision that prescribes a time limit for filing and revising a form to claim transitional credit under the GST regime.
The petition was filed by Jay Chemicals Industries Limited, a company which claimed to have inadvertently omitted to claim credit in excess of Rs. 25 lakh.
Section 140(5) of the CGST Act allows a registered person to claim input tax credit, subject to the condition the invoice for the same was recorded in the account books of the person within a period of thirty days from the rollout of the GST regime, ie, July 1, 2017. This time period can be extended by another thirty days, provided sufficient cause is shown.
As per Rule 117 of CGST Rules, registered persons claiming input tax credit are required to submit a declaration of the same in Form GST TRAN-1 within ninety days. This period can be further extended by another ninety days on the recommendation of the GST Council.
The petitioner company – represented by advocates Vinay Shraff, Vishal J Dave, Nipun Singhvi and Hiral Dave – claimed to have filed and claimed a credit of Rs. 12,76,12,259 by filing Tran 1, in terms of Section 140 of the CGST Act. However, they inadvertently omitted to claim credit amounting to Rs. 25,48,577.
It was further contended that the error in not claiming the credit with respect to goods in transit could not be traced in one hundred and eighty days, because the petitioner is registered in seven locations and they were required to file multiple monthly returns for each location in addition to declaration for transitional credit.
The company had initially approached the jurisdictional GST authority at Ahmedabad, which declined to accept the same on the ground that under the GST laws, they do not have any jurisdiction to accept any physical copies of GST Tran 1. This prompted the present petition to be filed in the Gujarat High Court.
The petition states that the time limit of one hundred and eighty days is prescribed under Rule 117, even though there is no such requirement of the time limit under Section 140 of the CGST Act.
“Section 140(5) of the Central GST Act provides for both substantive as well as procedural conditions to be eligible to take credit of eligible duties in their electronic credit ledger and does not restrict such claim in terms of time limit.”
It is further argued in the petition that Rule 117 is ultra vires the enabling provision of Section 140(5) of the CGST Act, and is violative of Articles 14, 19(1)(g), 265 and 300A of the Constitution.
“…there is no reasonable rationale in discriminating between a transitional return and other returns to be filed under the Act…Transitional Credit is substantive right and cannot be taken away by procedural requirements.”
Another ground for challenge is that the Rule does not allow opportunity to rectify errors and omission while filing GST Tran-1, even though Section 39(9) of the Act allows rectification of any omission or incorrect particulars in any return filed until September or second quarter following the end of the financial year, or the actual date of furnishing of relevant annual return, whichever is earlier.
Therefore, it has been prayed that Rule 117 be struck down as being violative of Section 140(5) and the aforementioned Constitutional provisions. It is also prayed that the High Court declare Section 164 of the Central Goods and Services Tax Act, 2017 as unconstitutional as it suffers from the vice of excessive delegation.
The High Court Bench of Justices MR Shah and AY Kogje issued notice in the matter, returnable by July 25.
Earlier this year, the High Court had issued notice in a petition challenging provisions of the CGST Act restricting the credit of the input tax credit on goods/services or both used by advocates.
Read the petition: