Now file your TRAN-1 by 30th June, 2020

CA VARUN SHARMA , Last updated: 19 May 2020
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Executive Summary

If you are the one who have missed out to file TRAN-1 on and before 31st December 2019, then nothing to worry in it, as Honorable Delhi High Court has come up with a land mark judgment capable to palliate & elate those who have accumulated balance of CENVAT Credit laying as on 30th June 2017 and could not file TRAN- 1 on time due to some reason.

Honorable Delhi High Court under a writ petition pronounced this land mark judgment in case of "Brand Equity Treaties Limited - vs - The Union of India & ORS" W.P.(C) 11040/2018 and CM No. 42982/2018 on 5th May 2020, granting a big relieve to the petitioner by permitting to file relevant TRAN-1 declaration form on or before 30.06.2020. In the judgment it has directed to the respondent (Union of India/Central Government) either to open the online portal so as to enable the petitioner to file declaration TRAN-1 electronically, or to accept the same manually, inter alia expressed its opinion that the other tax payers who are similarly situated should also be entitled to avail the benefit of the decree.

In nutshell court constructed the opinion that Rule 117 made under Goods and Service Tax Rules 2017 is directive and procedural in nature and the stipulated time line within the rule is contrary to substantive right vested under sub section (1) of section 140 of the Act. The Honorable Court cognized that the Rule 117 is ultra vires to section 140 of the act as far as it mentions the time line for submitting the TRAN-1 and also violates the Article 14 & Article 300A of the Constitution.

In absence of any specific provision in the CGST Act 2017 for the time limit vis a vis to restrict the perpetuity of availing CENVAT Credit it had referred to the residuary provisions of The Limitation Act 1963 and taken the period of three years specified therein as guiding principle, resultantly it held that a period of three years from the appointed date would be the maximum period for migrating of such CENVAT credit. Appointed date is the date of GST Act 2017 getting effective that is 1st July 2017 and three years from it matures on 30th June 2020, therefore TRAN-1 can be filed upto 30th June 2020.

However there is another case law which gives a contrary view in an identical matter which reached to Bombay High Court. The Honorable Bombay High Court in case of "Nelco Limited vs Union of India:" write petition no. 6998/2018 pronounced on 20th March 2020 not only confirmed the constitutional validity of Rule 117 but also sets aside the objection raised on the substantively of Rule 117. Hence it did not give any benefit to the petitioner owing to which petitioner couldn't be allowed to file TRAN-1 beyond 31.12.2019.

This has raised a situation of dilemma as two High Courts expressing oxymoron and contradicting judgments in identical cases. Albeit author is of the opinion that Delhi High Court judgment is more rational, logical, justifiable and sustainable in Apex Court as compare to the contemporary judgment of Bombay High Court.

Let's heed and delve into the two judgments to frame a viable opinion in order to take consequential forthcoming action in case if TRAN-1 yet not filed.

Section 140, Section 164 of the Act and Rule 117 of CGST Rules 2017 has been cited at the appendix section of the article for reading.

Analysis of Honorable Delhi High Court Judgment in Case of Brand Equity Treaties Ltd.

Brand Equity Treaties Ltd is one of the petitioners among others in the above case which could not submit the declaration Form TRAN -1 within the time line specified under the Sub Rule (1A) of Rule 117 of the CGST Rule 2017 i.e. on or before 31.12.2019.

Hence it filed the writ petition in Honorable Delhi High Court to seek a relief in the nature of mandamus, directing the respondent to permit the petitioner to avail input tax credit of the accumulated CENVAT credit as of 30th June, 2017 by allowing it to file declaration Form TRAN-1 even if the due date as provided under Rule 117 (1A) of the Central Goods and Services Tax Rules, 2017 for submitting the same has expired. Additionally, petitioner also assail Rule 117 of the CGST Rules on the ground that it is arbitrary, unconstitutional and violative of Article 14 to the extent it imposes a time limit for carrying forward the CENVAT credit to the GST regime.

Prior to this case in numerous other cases relief have been granted to file TRAN-1 beyond the stipulated date. But that was only to the cases where it could not be filed due to technical glitches in the GST Portal. But in the said case of Brand Equity it was not so as it did not attempt to file it on or before the designated date. Respondent (Union of India/Central Government's council) asserted that the petitioner not entitle to any relief as it did not honored the deadline and it is entirely attributable to their follies and negligence. Respondent also contended that petitioner itself had disclosed that delay in their case did not occur on account of any technical glitch on the portal, but arose owing to other technical difficulties at the end of the petitioner. Hence if non filing of TRAN-1 cannot be attributable to any technical glitch related to GSTN Portal so the petitioner is not entitled to get any sort of relief under Rule 117(1A), as this very rule entertains the matters which involve technical difficulties faced related to GSTN Portal while uploading the form on GSTN.

Respondent was of strong belief that in case of petitioner there is no indication of any such error or glitch on the GSTN Network relating to submission of TRAN-1 Forms and hence it should not be subject to a relief under the circular by Central Government addressing the matters where such technical error/glitch was on record. The said circular was notified vide Notification No. 48/2018 - CT Dated 10th September 2018 inserting sub rule (1A) to rule 117 to be read as under :-

"Notwithstanding anything contained in sub-rule (1), the Commissioner may, on the recommendations of the Council, extend the date for submitting the declaration electronically in FORM GST TRAN-1 by a further period not beyond [31st December, 2019], in respect of registered persons who could not submit the said declaration by the due date on account of technical difficulties on the common portal and in respect of whom the Council has made a recommendation for such extension."

However regardless to the respondent's objection Honorable court gave its verdict in favor of petitioner based on the arguments in following matters :-

Rule 117 (1) of CGST Rules 2017, ultra vires to section 140 (1) of the CGST Act 2017
Rule 117 (1A) of CGST Rules 2017, is arbitrary, unconstitutional and violative to Article 14 of the constitution
Meaning of the term "Technical Difficulties"
Protection of property rights under Article 300A of constitution
Inefficiency of GSTN System

2.1 Rule 117 (1) of CGST Rules 2017, ultra vires to section 140 (1) of the CGST Act 2017

Based on the arguments from both sides it has been finally constructed that Rule 117 (1) is inconsistent against the conferred powers instrumented by section 140 (1) because this Rule 117 (1) expresses a time limit which infact has not been empowered to be notified through rules.

Section 140 (1) only confers the power to make rules with respect of manner in which CENVAT credit to be taken further in electronic credit ledger under the new GST System.

Sub Section (1) of Section 140 as follows

"A registered person, other than a person opting to pay tax under section 10, shall be entitled to take, in his electronic credit ledger, 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 in such manner as may be prescribed"

The word manner implies the procedure or as sort of mechanism and such procedure/mechanism does not includes time line in any of their wider sense.

Upon a plan reading of section 140(1) it looks like that CENVAT credit can be taken in perpetuity without being restricted through any time line because under the said section neither the time line has been specified nor it conferred the power to make rules with respect of such time line within which such CENVAT credit can be shifted to the new system. Rather it has only conferred the power to make rules related to procedure or mechanism through which such CENVAT credit could be transferred into the new system.

So for instance if a literal interpretation of the section 140 (1) if made then it can be inferred that CENVAT credit can be transferred to new system without any hindrance and regardless of any deadline. Although it might be possible if the same had been the real actual intend of the law makers to enable tax payers to shift the CENVAT into the new system seamlessly and independent of any deadline, and if not then it is a classic example that how law got defeated just because of not selecting proper words at proper place within the section.

So if the literal construction is been made then it can be affirmed that it had not given any power to respondent to make rules with respect to time limit and if in absence of such power an attempt had been made then it became ultra vires to the Act itself.

It has also been judicially pronounced in various judgments by Apex court that rules cannot be in contravention or beyond the stipulation laid down by act or the legislature. Rules can't travel beyond the scope which a parent legislature decides.

Term "Prescribed Manner" cannot mean to a rule making power to prescribe a period of limitation. This phrase has judicially construed. The Supreme Court and various High Courts have construed the phrase "prescribed manner" as not to include the power to make rules imposing a time limit. After judicial pronouncement, if legislature later has used the same phrase, then it has the acquiescence as it is judicially interpretated. It shall be assumed that law makers understands the meaning of this phrase in the same manner, terms and way as it has been construed by Honorable courts.

So, if wherever the legislature wants to confer the rule making power to prescribe a time limit, then it will categorically and specifically so prescribe within the Act. Hence it is a uniform and settled legislative practice to use the phrase "prescribed manner" when the legislature does not intend to confer rule-making power to provide limitation.

There are various Honorable Supreme Court ruling in this context like

Sales Tax Officer Ponkunnam and Anr. Vs K.I. Abraham 1967 3 SCR 518
Bharat Barrel & Drum Mfg. Co. Ltd. Vs Employees State Insurance Corporation 1971 2 SCC 860
CIT Patiala Vs Shri Krishen Chand Charitable Trust 1975 98 ITR 387

Would like to envisage some part of Para 17 of the judgment as under:-

"On enactment of the CGST Act, no mechanism was provided for the refund of the credit that existed on the said date. 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. The manner and procedure to carry forward the said CENVAT credit under Sub-Section (1) of Section 140 was to be ‘prescribed'. The word ‘prescribed' has also been defined under Section 2(87) to mean "prescribed by Rules made under this act on the recommendation of the council".

This brings us to Rule 117 of CGST Rules, the relevant provision prescribing the manner in which the CENVAT credit has to be transitioned. Initially, the time limit prescribed under Rule 117 for transitioning was 90 days, as explained above, was extended from time to time. Evidently, there is no other provision in the Act prescribing time limit for the transition of the CENVAT credit, and the same has been introduced only by way of Rule 117.

This provision also contains a proviso, which vests power with the Commissioner to extend the period on the recommendations of the Council. Indeed, the Commissioner has exercised such power and time period which was initially to expire after 90 days, has been, as a matter of fact, extended till 29th December, 2017. In fact, as noticed above, under Sub-Rule (1A) of Rule 117, for a specific class of persons, the time limit has gone way beyond the period originally envisaged, and has still not expired. Thus, 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."

Honorable court observed that the initial time limit of 90 days as prescribed under Rule 117 (1) has been extended number of times and Commissioners were also entrusted with power to extend it further on recommendation of the Council, so nothing religious and rigid factor related to stringent time limits remains. If such time limit instrumented through a subordinate rule where the governing Act has not completely restricted the transition of CENVAT credit in the GST regime can be extended owing to inefficiency of the network then it wouldn't be superlative or detrimental to extend it further beyond the time limit mentioned in Rule 117(1A).

However honorable court is of opinion that such time limit may be subject to The law of limitations that is The Limitation Act 1963.

Honorable Delhi High Court in the context cited in Para 21 of its judgment that

"Section 140 (1) is categorical. It states that the registered person "shall be entitled to take, in his electronic credit ledger, the amount of CENVAT credit carried forward in the return relating to the period ending with the day immediately preceding the appointed day….".

Only the manner i.e. the procedure of carrying forward was left to be provided by use of the words "in such manner as may be prescribed". The limitation on the right to carry forward the CENVAT credit is substantively provided by the proviso to the said section. Those are the only limitations on the said statutory right. Under the garb of framing Rules - which are subordinate legislation, the width of those limitations could not have been expanded as is sought to be done by introduction of Rule (1A).

In absence of any consequence being provided under Section 140, to the delayed filing of TRAN-1 Form, Rule 117 has to be read and understood as directory and not mandatory."

"Further, even in ALD Automotive Pvt. Ltd. v Commercial Tax Officer(2019) 13 SCC 225, while dealing with the question of whether the provision prescribing time limit for claim of Input Tax Credit is directory or mandatory in nature, it was observed that "whether particular provision is mandatory or directory has to be determined on the basis of object of particular provision and design of the statute" and "such interpretation should not be put which may promote the public mischief and cause public inconvenience and defeat the main object of the statute". Therefore, in the present cases, the purport of the transitory provisions is to allow a smooth migration from the erstwhile service tax regime to the new GST regime and the interpretation must be in consonance with the said purpose."

From the above cited commentary Honorable Court had emphasized on following points to decide that the said rule is directive in nature :-

Under section 140 no consequence for delayed carrying forward the CENVAT Credit to electronic credit ledger under new system has been mentioned. Whether such CENVAT credit will lapse or will be refunded to the tax payer nothing has been conspicuously expounded in the law. So when no such consequence mentioned that means legislature is of the intension that the tax payer should not be deprived off from the legitimate entitlement of CENVAT Credit to his account. Therefore when main legislature is quiescent for the repercussion which one may face in case of delay while transferring the CENVAT into the new system then how a subordinate legislature can make a stringent condition to restrict the tax payer from transferring the CENVAT credit by imposing a deadline ? Hence court ruled out that such subordinate legislature should be understood only as directive or guiding in nature meaning thereby that the time limit mentioned over there is suggestive in nature and not mandatory.

In order to substantiate the above stand Honorable Court further gave its reasoning that "whether particular provision is mandatory or directory has to be determined on the basis of object of particular provision and design of the statute" and "such interpretation should not be put which may promote the public mischief and cause public inconvenience and defeat the main object of the statute".

Once it is well established that the main statue that is section 140 is nowhere of the intension to deprive the tax payer from carry forwarding the CENVAT Credit then interpretation to subordinate provision should not be given otherwise. Interpretation should not be made which will be in disinterest or raise a chaos in public at large.

Therefore the rules/subordinate legislature made with respect of the main law/legislature/statue should not be construed or interpretated in a manner which is in disapprobation to the objective of the law/legislature/statute/Act.

Honorable court thereby ruled out that Rule 117 is directive and not mandatory in nature as being a subservient legislature to main legislature it cannot travel beyond the main legislature or statute hence "it can not affect the substantive right of registered taxpayer to avail existing or accrued and vested CENVAT Credit. The Procedure could not run contrary to the substantive right vested under sub section (1) of Section 140"

Honorable court also referred the Apex Court judgment in case of "Salem Advocates Bar Association vs Union of India AIR 2003 SC 189"

Where in Supreme Court ruled out that "time limit for filling written statement is directory in nature and not mandatory, and that procedural law is not to be tyrant but a servant, not an obstruction, but an aid to justice."

Conclusion:

Honorable Delhi High Court ruled out that Rule 117 should be understood as directive in nature and shall not be a mandatory provision as far as the deadline is concerned, otherwise it will defeat the objective of the Section 140 directly. To put the story short that the time limit specified within said rule left with no relevance and one is not bound with such time limit specified therein.

Rule 117 (1A) of CGST Rules 2017, is arbitrary, unconstitutional and violative to Article 14 of the constitution

Article 14 of constitution ensures "Right of Equality" it states that "State shall not deny to any person equality before the law or the equal protection of the laws with in the territory of India"

From the analysis of the judgment it seems that the sovereignty of Article 14 gets endangered by following two reasons primarily viz.

That the vested CENVAT Credit standing in Credit ledger on appointed date not allowed to be migrated into the new system in case where there is a failure on the part the tax payer by not filing TRAN-1 on or before the date specified in Rule 117 sub rule (1A).

So if a credit under the previous regime (Excise duty/Service tax/VAT) in every sense stood accumulated, acquired and vested on appointed date under the authority of previous laws and reflecting well in the credit register maintained under previous laws then how now it can be taken away from the new tax regime? just because of the reason that the tax payer couldn't file TRAN-1 on time. When the tax payer already had declared his CENVAT credit through prescribed return filing methodology under the previous law then why same could not be integrated and automated into the new GSTN system.

Denying the legitimate Credit accumulated under the existing laws into the new law is not the act of protection of law as articulated in Article -14 of the constitution.

Discrimination between the tax payers based on the classification that one who had faced "technical difficulty" while filing TRAN - 1 owing to which it consequently not been able to file it successfully and rest ones who could not file it by any reason other than "technical difficulty".

Those who faced technical difficulty has been granted a remedy under sub rule (1A) of rule 117.

The Honorable Delhi High Court questioned the scope of the term "Technical difficulty" and thus gave a wider range to this term by aggrandizing it to offline difficulties.

Para 18 & 19 of the judgment is significant in this regard which is as follows :-

Para - 18

"In above noted circumstances, the arbitrary classification, introduced by way of sub Rule (1A), restricting the benefit only to taxpayers whose cases are covered by "technical difficulties on common portal" subject to recommendations of the GST Council, is arbitrary, vague and unreasonable.

What does the phrase "technical difficulty on the common portal" imply? There is no definition to this concept and the respondent seems to contend that it should be restricted only to "technical glitches on the common portal". We, however, do not concur with this understanding. "Technical difficulty" is too broad a term and cannot have a narrow interpretation, or application. Further, technical difficulties cannot be restricted only to a difficulty faced by or on the part of the respondent. It would include within its purview any such technical difficulties faced by the taxpayers as well, which could also be a result of the respondent's follies. After all, a completely new system of accounting; reporting of turnover; claiming credit of prepaid taxes; and, payment of taxes was introduced with the implementation of the GST regime. 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 GST regime heralded the system of seamless input tax credits. The successful migration to the new system was a formidable and unprecedented task. The fractures in the system, after its launch, became visible as taxpayers started logging in closer to the deadline. They encountered trouble filing the returns. Petitioners who are large and mega corporations - despite the aid of experts in the field, could not collate the humongous data required for submission of the statutory forms. Courts cannot be oblivious to the fact that a large population of this country does not have access to the Internet and the filing of TRAN-1 was entirely shifted to electronic means. The Nodal Officers often reach to the conclusion that respondents cannot adopt different standards - one for themselves, and another for the taxpayers. The GST regime heralded the system of seamless input tax credits. The successful migration to the new system was a formidable and unprecedented task. The fractures in the system, after its launch, became visible as taxpayers started logging in closer to the deadline. They encountered trouble filing the returns. Petitioners who are large and mega corporations - despite the aid of experts in the field, could not collate the humongous data required for submission of the statutory forms. Courts cannot be oblivious to the fact that a large population of this country does not have access to the Internet and the filing of TRAN-1 was entirely shifted to electronic means. The Nodal Officers often reach to the conclusion that there is no technical glitch as per their GST system laws, as there is no information stored/logged that would indicate that the taxpayers attempted to save/submit the filing of Form GST TRAN-1. Thus, the phrase "technical difficulty" is being given a restrictive meaning which is supplied by the GST system logs. Conscious of the circumstances that are prevailing, we feel that taxpayers cannot 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 can be enforced within a period of three years from the date of commencement of limitation under the Limitation Act, 1963."

Para - 19

"The introduction of Sub rule (1A) in Rule 117 is a patchwork solution that does not recognise the entirety of the situation. It sneaks in an exception, without addressing situations taken note of by us. This exception, as worded, is an artificial construction of technical difficulties, limiting it to those existing on the common portal. It is unfair to create this distinction and restrict it to technical snags alone. In our view, there could be various different types of technical difficulties occurring on the common portal which may not be solely on account of the failure to upload the form. The access to the GST portal could be hindered for myriad reasons, sometimes not resulting in the creation of a GST log-in record. Further, the difficulties may also be offline, as a result of several other restrictive factors. It would be an erroneous approach to attach undue importance to the concept of "technical glitch" only to that which occurs on the GST Common portal, as a pre-condition, for an assesee/tax payer to be granted the benefit of Sub-Rule (1A) of Rule 117. The purpose for which Sub-Rule (1A) to Rule 117 has been introduced has to be understood in the right perspective by focusing on the purpose which it is intended to serve. The purpose was to save and protect the rights of taxpayers to avail of the CENVAT credit lying in their account. That objective should also serve other taxpayers, such as the petitioners. The approach of the Government should be fair and reasonable. It cannot be arbitrary or discriminatory, if it has to pass the muster of Article 14 of the Constitution. The government cannot turn a blind eye, as if there were no errors on the GSTN portal. It cannot adopt different yardsticks while evaluating the conduct of the taxpayers, and its own conduct, acts and omissions. The extremely narrow interpretation that the respondents seek to advance, of the concept of "technical difficulties", in order to avail the benefit of Sub Rule (1A), is contrary to the statutory mechanism built in the transitory provisions of the CGST Act. The legislature has recognized such existing rights and has protected the same by allowing migration thereof in the new regime under the aforesaid provision. In order to avail the benefit, no restriction has been put under any provisions of the Act in terms of the time period for transition. The time limit prescribed for availing the input tax credit with respect to the purchase of goods and services made in the pre-GST regime, cannot be discriminatory and unreasonable. There has to be a rationale forthcoming and, in absence thereof, it would be violative of Article 14 of the Constitution. Further, we are also of the view that the CENVAT credit which stood accrued and vested is the property of the assessee, and is a constitutional right under Article 300A of the Constitution. The same cannot be taken away merely by way of delegated legislation by framing rules, without there being any overarching provision in the GST Act. We have, in our judgment in A.B. Pal Electricals (supra) emphasized that the credit standing in favour of the assessee is a vested property right under Article 300A of the Constitution and cannot be taken away by prescribing a time-limit for availing the same."

Para 18 & 19 of the judgment is self explanatory it talks about not to understand "technical difficulty" in narrow sense, it talks about the purpose of sub rule (1A) of Rule 117 which is to save and protect the right of tax payers to avail the CENVAT credit lying in their account and it talked about constitution right under Article 300A.

Article 300A of constitution provides for "Persons not to be deprived of property save by authority of law". Unutilized CENVAT Credit laying the credit register is property of tax payer and it cannot be taken away by specifying a time limit for availing the same.

So if one segment of taxpayers given benefit in name of technical difficulties faced on GST Portal and another segment has been deprived off to claim their constitutionally protected property by framing a rule which itself is not entitled to be made in a manner to embody or incorporate any deadline within it then it is a clear cut discrimination by law, hence no ambiguity left over to determine that it is a violation of Article 14 of the constitution.

Inefficiency of GSTN System

The Honorable court even lambasted the Central Government for not implementing adequate and proper measures to refine the GSTN system. It also alleged the government for not adopting an egalitarian approach and having different scale of standards.

Para 15 & 19 of the judgment in this regard is significant which is as follows :-

Para - 15

"In some of the cases that came up before this Court, the petitioners cited difficulties in filing the TRAN-1Form which were of a different nature. In some cases, there were bonafide errors on the part of the taxpayer and in others, the difficulty arose on account of lack of understanding of the complete overhaul of the indirect tax system; or complicated filing procedure and the statutory forms resulting in erroneous information being stated therein. Even in such cases, to note a few, this Court has declined to make a differentiation and given the benefit of the doubt to the taxpayers, realizing that Respondent's network and system, and the change, had posed multifarious problems that require a reasonable approach. One such petition has been preferred by the Sales Tax Bar Association [W.P (c) No. 9575/2017] narrating scores of technical problems being faced on the portal. We adopted a proactive approach in the said matter and have endeavoured to identify root cause for failure of the network to work seamlessly. In the said proceedings, we had also held a special hearing inviting the senior officials from the GSTN network as well as the officers of the Council and the policy makers. As a result of such deliberations, some headway has been made and recently we were informed that the respondents have revamped the GST redressal mechanism so as to address the problems at a grass-root level. The upshot of this experience is that the GSTN network, indeed, is riddled with shortcomings and inadequacies. This is palpably evident from the sheer number of cases being presented before us, in relation to such technical difficulties and inadequacies. The benchmark, in our view, is that the online system brought into force by the GSTN Ltd. should be able to perform all functions and should have all flexibilities/options, which were available in the pre-GST regime. The problems on the GSTN cannot be wished away, and have to be resolved in the right earnest. This requires sensitivity on the part of the Government which has, unfortunately, not been exhibited in adequate measure."

Para - 19

"The government cannot turn a blind eye, as if there were no errors on the GSTN portal. It cannot adopt different yardsticks while evaluating the conduct of the taxpayers, and its own conduct, acts and omissions."

In nutshell Honorable Court have been lenient in its approach towards petitioners and extended them benefit owing to the chaos cause because of GST role out.

Honorable Court at various places in its order quoted about the situation of scrum and bewilderment at the time of introduction of GST regime owing to which taxpayers were in state of confusion. It cited also that it is wrong to assume that taxpayers are fully geared to deal with the new system at day one.

Analysis of Honorable Bombay High Court Judgment in Case of Nelco Limited

Honorable Bombay High Court pronounced a verdict against the petitioner in similar case of Nelco Limited. Similar question of law regarding the validity of Rule 117 as against Article 14 of the constitution, its ultra vires nature as against section 140 of the Act and meaning of the phrase "Technical difficulty" under Rule 117(1A) were raised but the Honorable court could not be convinced on the narratives which petitioner believed.

Honorable court in this case examined the validity of Rule 117 after previewing section 140 and Rule 117 from the angle that both these two provisions are part of the Transitionary provisions between two regimes of taxation, and hence the validity of Rule 117 to be examined in that context only.

It also emphasized on general rule making power under section 164 of the Act as the respondent in this case primarily relied on this section, that section 164 is the general rule making power. Section 164 empowers the Government to makes rules on the recommendations of the Council for carrying out the provisions of the Act. Without prejudice to the generality of the provisions, it also confers powers on the Government to make rules for all or any of the matters which by this Act are required to be, or may be, prescribed or in respect of which provisions are to be or may be made by rules.

Also with the aid of various case laws and ruling by Honorable Supreme Court and by Various High court it declared the CENVAT as a Concession and not a vested right. Once it conceded CENVAT credit a concession then infringement of Article 300A of the constitution automatically get away.

However in the personal opinion of the author there are various flaws in this judgment of Honorable Bombay High Court, based on which sustainability of the verdict at Apex court is highly volatile. There is ample scope of review and argument in the verdict which may possibly turnaround the judgment at next higher bench of Honorable Supreme Court.

Some of the points which have potential to be re-cogitated and subject to further arguments have been discussed one after one :-

Whether Rule 117 is ultra vires to Section 140 of the Act

Honorable court pronounced that Rule 117 is not ultra vires to section 140 of the Act, and for driving at this conclusion it had taken up following arguments in consideration viz.

Reliance was given on general rule making section 164 of the Act. It emphasized that Rule 117 governed by Section 164 rather than Section 140, hence the claim that Rule 117 is ultra vires to section 140 naturally nullified.

This argument that Rule 117 is governed by Section 164 is full of impeach by simple reason that when the law has conferred rule making power within the section 140 to specify manner in which the unutilized CENVAT Credit will be transmitted to new system then it is very obvious that if any rule in this context of transferring/shifting unutilized CENVAT Credit will be made then it will by ethos be governed by the same law to which it most directly relates, in present case that is section 140.

Section 140 comes under chapter XX Transitionary Provisions and later in chronology Section 164 under chapter XXI Miscellaneous Provisions comes into the picture.

While determining whether a particular rule has been made under a particular parent section of an Act then one has to analyze chapters/sections of the Act in a proper chronology following a right sequence or order that is starting in an ascending order right picking from chapter first to last. It is not open to any body to go in opposite direction and analyzing in vise versa order.

Therefore parent section of a particular Rule must be decided to which it relates the most and specific most under the chronology.

Without any shadow of doubt Rule 117 related and governed by Section 140 as it comes first in chronology with most specific association of the subject matter.

This matter is highly debatable in light of the above cross objection cited.

Reliance was made on the judgment of Honorable Gujrat High Court in case of "Willowood Chemical Ltd. Vs Union of India " (2014) 306 ELT 551.

This judgment of Willowood Chemical has been a controversial ruling as it did not heed the ratio decidendi from Apex Court's judgment in case of "Sales Tax Officer, Ponkunnam & Anr. Vs K.I. Abraham" AIR 1967 SC 1823. Under K.I. Abraham verdict Honorable Supreme Court held that imposition of time limit could not be referred to the general rule making power.

Thus it is not possible that section 164 which is general rule making section can empower to make rule imposing the time limit, unless it is conspicuously written within the section.

On the plan reading of section 164 no where it appears that it confers the power to frame rule with respect of time limitation.

(Section 164 has been cited at the bottom of the article)

This principle emerged from K.I. Abraham case was one of the decisive factor and Honorable Gujrat High Court not relying on it in case of Willowwood laid a foundation in the case which drifted the end result which otherwise could have been in favor of petitioner.

Honorable Bombay High Court had interpretated Section 140 from the heading of Chapter XX of the Act - "Transitional Provision"

The Honorable court in this case referred to chapter XX of the Act, which deals with transitional provisions & section 140 laid down within this chapter. Court had tried to make an interpretation from the Heading of said chapter and heading of section 140.

Would like to cite here the Para 28 of the judgment as under:-

"The heading of Chapter XX is 'Transitional provisions'.

The heading of S.140 is 'Transitional Arrangements for Input Tax Credit'. The words used provide a clue to the nature of this provision. The word 'arrangement' means action, process, plan.

'Transition' means a process or period changing from one state or condition to another. Thus, the plain language understanding of these two phrases, juxtaposed, is a process of regulating the change from one position to another. Under this Chapter, the legislature has devised an arrangement during the transitional period from the earlier tax system to GST regime. This transitionary provision is a unique legislative provision and merits different approach by the Courts."

Later on it tried to justify the wide ambit of rule making power of section 164 by stating in para 34 (last paragraph of para 34) that "In none of the decisions cited before us by the Petitioner, including that of K.I. Abraham, wide ambit of rule making power as in Section 164 and that too to deal with transitional provisions of two tax regimes, has been considered"

Now this is well settled form one's acumen understanding that if there is a separate chapter available in the Act dealing for Transition provisions to evolutes from one tax regime to another new tax regime then all related laws and provisions for transition must be stipulated within that chapter only.

So in the said assertion of the honorable court that a rule which relates to transition governed by Section 164 of chapter XXI "Miscellaneous Provisions" rather than a Chapter (Chapter XX 'Transitional provisions') which specifically & categorically has been designed for dealing such matters related to transition does not make any logical sense. Such logic is debatable as this is quite nebulous and indigestible thus needs further introspection.

Comparing & refereeing Section 16 (4) of the Act to justify the time limit for transitioning the CENVAT credit as on 30.06.2017

Section 16(4) specifies the time limit with in which the input tax credit under the GST regime can be availed.

(Section 16(4) of the Act has been given in the Appendix)

By quoting section 16(4) it had made an attempt to justify that when under GST regime Input Tax Credit is not without any time limit then prescribing time limit under Rule 117 is not contrary to the objectives of the Act.

Availing Input Tax Credit under a tax regime is an another aspect and carrying forward such accumulated Input Tax Credit which has accumulated after availing it in the books in accordance and within the time line of prevailing law is an different aspect.

Once an Input Tax Credit legitimately taken into the system, within the time line of erstwhile tax regime, then such Input Tax Credit become the right of the taxpayer to be utilized for discharging the tax liability. As this accumulation of input tax credit has taken place after following the procedures in place specified within the erstwhile law, therefore such accumulated credit has to migrate to the new system either through automation or through a process.

If such input credit could not be automated by the government and process defined in conjunction is clouded with apprehensions or difficulties then why the Taxpayer should suffer despite of the fact that he already had complied and filed such accumulated Input Tax Credit into the system under the erstwhile law.

Whether Rule 117 is voilative to Article 14 of the constitution

In order to justify that Rule 117 is not voilative to Article 14 of the constitution Honorable Court relied on the judgment of its bench (Bombay High Court) in case if "JCB India Ltd. Vs Union of India".

Under the case if JCB India it was ruled out that input tax credit is concession and it is not a right therefore it does not harm Article 14 and 300A of the constitution.

Relying on JCB India limited case is utterly flabbergasting as this is a case which deals the issue of credit admissibility and not migration of credit from old tax regime to GST regime.

Under this case section 140 (3)(IV) was challenged which deals to abstain from transferring Input Credit with respect of those inputs which in relation of which Invoice or any other prescribed document is older than 12 months.

Below is the synopsis of sub section (3) of section 140 of the Act.

"(3) A registered person, who was not liable to be registered under the existing law, or who was engaged in the manufacture of exempted goods or provision of exempted services, or who was providing works contract service and was availing of the benefit of notification No. 26/2012 Service Tax, dated the 20th June, 2012 or a first stage dealer or a second stage dealer or a registered importer or a depot of a manufacturer, shall be entitled to take, in his electronic credit ledger, credit of eligible duties in respect of inputs held in stock and inputs contained in semi finished or finished goods held in stock on the appointed day subject to the following conditions, namely:-

……..
………
the said registered person is in possession of invoice or other prescribed documents evidencing payment of duty under the existing law in respect of such inputs;
such invoices or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day; and
the supplier of services is not eligible for any abatement under this Act

Provided that where a registered person, other than a manufacturer or a supplier of services, is not in possession of an invoice or any other documents evidencing payment of duty in respect of inputs, then, such registered person shall, subject to such conditions, limitations and safeguards as may be prescribed, including that the said taxable person shall pass on the benefit of such credit by way of reduced prices to the recipient, be allowed to take credit at such rate and in such manner as may be prescribed."

Under the erstwhile law CENVAT Credit Rules 2004 were notified and within these Rules there was restriction to take input tax credit for those inputs which have supporting Invoice or any other prescribed document in support older than 12 months. In other words credit can be taken within 12 months from the day on which invoice, bill or Challan is received. Fifth Proviso to sub rule (7) of Rule 4 of the CENVAT Credit Rules 2004 is worth to note in this context.

Section 140(3)(iv) has embodied the same provision related to credit availment exercise to be under taken within 12 months as it was provided in erstwhile law "CENVAT Credit Rules 2004", this is simply a doctrine of estoppels followed between the two tax regimes pertaining to indirect Taxes.

In the instant case of JCB India Limited, petitioner claimed that the Input credit for which supporting documents like Invoice/Bill are older than 12 months even then such input credit is their vested right.

The judgment has nicely elaborated what is vested right, in para 50 of the judgment states "Ordinarily, the expression "accrued right" means a matured right, a right that is ripe for enforcement (as through) {See: the Advanced Law Lexicon by P. Ramanatha Aiyar.}. The expression "vested right" means an absolute or indefeasible right."

So input tax credit becomes vested right when it is been taken within the terms and condition of the relevant provision; failing to comply with such term and condition will not make it vested right. Law imposed restriction of 12 months through CENVAT Credit Rules 2004 and if such credit could not be taken with in such period then it did not accrue so it never becomes the vested right.

Seeking for such credit which has not been accrued as right on account of being failed to be availed to the satisfaction of the stipulation or conditions of the governing law has become a matter of concession or relaxation.

Meaning thereby in the JCB India Ltd case term concession came in the context of the scenario where an attempt had been made to take input credit beyond the time limit which has been specified in the governing provision, so how could it can be used to treat CENVAT Credit standing in the books or credit register as on 30.06.2017 as concession?

Conceptually CENVAT Credit standing in the credit register is a vested right which has been taken by satisfying the stipulation or terms & Conditions specified in the CENVAT Credit Rule 2004.

Hence applying principles emerging from JCB India Ltd which is totally different on facts and objectivity to the case of Nelco Limited is not reasonable and therefore will not be tenable at Apex Court.

Whether Term "Technical difficulties" to have limited scope

Unlike the case of Brand Equity Treaties honorable Bombay High Court accepted the ambit of "Technical difficulties" to the common portal of the GST.

It relied on Grievance Redressal Mechanism details and system logs.

It quoted in the judgment -

"Petitioner then contends that the phrase `technical difficulty' in Rule 117(1A) has to be broadly construed. It is not possible to do so. Rule 117(1A) refers to Technical difficulties in online submission of TRAN-1 Form on the common portal. These technical difficulties are not the ones faced in general but on the common portal of the GST. The meaning of the phrase `technical difficulty' is, thus clear that is the technical difficulties are those which arise at the common portal of GST."

Conclusion

Two contradictory ruling by two different Honorable High Courts has defiantly raised the confusion in the Industry.

This confusion either will be ended up if Central Government inserts an Explanation to Section 140 (1) or the Honorable Supreme Court finally rules out something in this regard.

However by the time Honorable Supreme Court comes up with any conclusion then possibility 30th June 2020 will lapse.

As explained before that the Honorable Delhi High Court judgment in case of Brand Equity Treaties Ltd is more tenable and confirmable in Apex Court as it follows law of natural justice extending fair benefit in interest of taxpayers, therefore it should be followed.

If GSTN portal allows filing TRAN-1 then well and good otherwise go ahead with manual submission with the Jurisdictional officer.

Also in authors personal opinion in addition of filing TRAN-1 manually in case where GSTN portal does not allow it, credit shall be availed through GSTR - 3B keeping its utilization pending till the Central Government or the Honorable Supreme Court gets into some concrete conclusion.

In case if ruling does not come in favor then such credit taken shall be revised and if it comes in favor then it should be utilized to pay off the liabilities.

Appendix

Section 140 of Central Goods and Service Tax Act 2017

Sub Section (1) of Section 140 as follows

Provided that the registered person shall not be allowed to take credit in the following circumstances, namely:

where the said amount of credit is not admissible as input tax credit under this Act; or
where he has not furnished all the returns required under the existing law for the period of six months immediately preceding the appointed date; or
where the said amount of credit relates to goods manufactured and cleared under such exemption notifications as are notified by the Government."

Rule 117 of Central Goods and Service Tax Rules 2017

"Tax or duty credit carried forward under any existing law or on goods held in stock on the appointed day.-

Every registered person entitled to take credit of input tax under section 140 shall, within ninety days of the appointed day, submit a declaration electronically in FORM GST TRAN-1, duly signed, on the common portal specifying therein, separately, the amount of input tax credit of eligible duties and taxes, as defined in Explanation 2 to section 140, to which he is entitled under the provisions of the said section:

Provided that the Commissioner may, on the recommendations of the Council, extend the period of ninety days by a further period not exceeding ninety days.

Provided further that where the inputs have been received from an Export Oriented Unit or a unit located in Electronic Hardware Technology Park, the credit shall be allowed to the extent as provided in sub-rule (7) of rule 3 of the CENVAT Credit Rules, 2004.

(1A) Notwithstanding anything contained in sub-rule (1), the Commissioner may, on the recommendations of the Council, extend the date for submitting the declaration electronically in FORM GST TRAN-1 by a further period not beyond [31st December, 2019], in respect of registered persons who could not submit the said declaration by the due date on account of technical difficulties on the common portal and in respect of whom the Council has made a recommendation for such extension.

(Inserted vide Notification No. 48/2018 - CT Dated 10th September 2018)

(2) Every declaration under sub-rule (1) shall-

(a) in the case of a claim under sub-section (2) of section 140, specify separately the following particulars in respect of every item of capital goods as on the appointed day-

(i) the amount of tax or duty availed or utilized by way of input tax credit under each of the existing laws till the appointed day; and

(ii) the amount of tax or duty yet to be availed or utilized by way of input tax credit under each of the existing laws till the appointed day;

(b) in the case of a claim under sub-section (3) or clause (b) of sub-section (4) or sub-section (6) or sub-section (8) of section 140, specify separately the details of stock held on the appointed day;

furnish the following details, namely:

the name of the supplier, serial number and date of issue of the invoice by the supplier or any document on the basis of which credit of input tax was admissible under the existing law;

the description and value of the goods or services;

the quantity in case of goods and the unit or unit quantity code thereof;

the amount of eligible taxes and duties or, as the case may be, the value added tax [or entry tax] charged by the supplier in respect of the goods or services; and

the date on which the receipt of goods or services is entered in the books of account of the recipient."

Section 164 of the Central Goods and Service Tax Act 2017

164 Power of Government to Make Rules

(1) The Government may, on the recommendations of the Council, by notification, make rules for carrying out the provisions of this Act.

(2) Without prejudice to the generality of the provisions of sub-section (1), the Government may make rules for all or any of the matters which by this Act are required to be, or may be, prescribed or in respect of which provisions are to be or may be made by rules.

(3) The power to make rules conferred by this section shall include the power to give retrospective effect to the rules or any of them from a date not earlier than the date on which the provisions of this Act come into force.

(4) Any rules made under sub-section (1) or sub-section (2) may provide that a contravention thereof shall be liable to a penalty not exceeding ten thousand rupees."

Section 16(4) of the Central Goods and Service Tax Act 2017

"Section 16(4) :- A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under Section 39 for the month of September following the end of financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier".