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The Delhi High Court has read down Rule 117 of Central Goods and Services Tax Rules, 2017 as being directory in nature, insofar as it prescribes the time-limit for transitioning of CENVAT credit. (Brand Equity Treaties vs UOI)
The Court has thus held that Rule 117 would not result in the forfeiture of the rights, in case the credit is not availed within the period prescribed under it.
It is nonetheless clarified that availing of CENVAT credit cannot be in perpetuity and has to be availed with a period of three years from the appointment date.
The Judgement was passed by a Division Bench of Justices Vipin Sanghi and Sanjeev Narula in a batch of petitions seeking a direction to 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).
Additionally, the Petitioners also assailed Rule 117 of the CGST Rules on the ground that it was arbitrary, unconstitutional and violative of Article 14 to the extent it imposed a time limit for carrying forward the CENVAT credit to the GST regime.
For various reasons, the Petitioners were unable to file the declaration in Form TRAN-1 within the prescribed due date in terms of Rule 117.
The Petititioners broadly argued that accumulated CENVAT credit was the property of the assessee and a constitutionally protected right under Article 300A of the Constitution. Such accrued or vested right could not be taken away on account of failure to fulfil conditions which are merely procedural in nature, it was stated.
Especially when the GST system is in a nascent “trial and error” phase, Petitioners should not be made to suffer on account of inefficiency in the systems of the tax department, it was further argued.
Revenue 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 while uploading the forms but their own follies.
Rule 117 was defended on the ground that Section 164(1) of the CGST Act authorised the Central government to make rules for carrying out the provisions of the Act on recommendation of the Council amd in consonance with the intention of the legislature.
Reliance was also placed on Section 140(1) CGST Act to state that 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, no mechanism was provided for the refund of the credit that existed and the only mechanism 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 utilization of such credit was prescribed under Section 140(1) which enabled a registered person to carry forward CENVAT credit in the return relating to the period ending with the day immediately preceding the appointed date which is July 1, 2017 furnished by him under the existing law.
The Court observed that no provision in the CGST Act, however, prescribed a time limit for the transition of the CENVAT credit, and it was introduced only by way of Rule 117.
Stating that this 90-day time limit was extended by the Commissioner from time to time, the Court recorded,
The Court also took note of the technical difficulties faced by a tax player from their end while submitting the TRAN-I Form, apart from the glitches that occur on the GST Common portal, and remarked,
"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."
The Court held that CENVAT credit which stood accrued and vested was the property of the assessee and a constitutional right under Article 300A of the Constitution and could not be taken away merely by way of delegated legislation which is not based on any overarching provision in the GST Act.
The Court ultimately concluded 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 of limitation under the Limitation Act, 1963.
In view of the above, the Court held that Rule 117 was directory in nature, and credit could be availed within the period of three years from the appointed date.
Since all the Petitioners had either filed or attempted to file Form TRAN-1 within the period of three years, they were awarded the Input Tax Credit accruing to them.
Petitioner Brand Equity Treaties are represented by Advocate Abhishek A Rastogi.
Micromax Informatics was presented by Advocate Alok Yadav.
Developer Group India was represented by Advocates Kavita Jha, Shammi Kapoor, Kritika Kapoor, Swati Agarwal.
Revenue was represented by Standing Counsel Amit Bansal with Advocates Aman Rewaria, Vipasha Mishra.
Reliance Electrik was represented by Advocates Ruchir Bhatia, Madhura MN. In this case, Revenue was represented by Standing Counsel Ashim Sood with Advocates Armaan Pratap Singh.
Read the Judgement: