COURTS REVIVE CREDIT ON GST TRANSITION

[Dr. Sanjiv Agarwal]

Whenever a tax existing law is replaced by a new tax law and assessee’s migrate to a new tax regime, there have to be certain transitional provisions for smooth transition of tax assets and liabilities. Which could be in the form of unavailed credits carried forward, outstanding demands, refunds claims etc.

Why Transition provisions in GST

Transition aspects in GST law mainly deal with:

• Input Tax Credit of the erstwhile tax regime (i.e., excise duty, service tax) that taxpayer want to claim in the new regime (report in TRAN-1)
• Avoiding any disruption to material sent to job workers (report in TRAN-1)
• Reporting agent principal dealing and dispatch of goods, works contracts (report in TRAN -1)
• Tax refunds and claims under the old regime (not reportable in TRAN -1 or TRAN -2)

Transition in relation to input tax credit

The provisions in relation to transition are contained in Section 139 to 142 of CGST Act, 2017 read with Rules 117 to 120A of CGST Rules, 2017. Section 140 deals with transitional arrangements for input tax credit (ITC).

The relevant extract of section 140 of CGST Act, 2017 is 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.

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

1. where the said amount of credit is not admissible as input tax credit under this Act; or
2. 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
3. where the said amount of credit relates to goods manufactured and cleared under such exemption notifications as are notified by the Government.”

  Tax or duty credit carried forward

  Further, for tax or duty credit carried forward under any existing law or on goods held in stock on the appointed day, as per Rule 117 of CGST Rules, 2017, 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, to which he is entitled.

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.

According to Rule 117 (1) of CGST Rules, 2017, TRAN-1 was required to be filed by 27.12.2017 which was further extended upto 31.12.2019 (for those who could not file TRAN-1 due to technical glitches).

Revision of declaration in FORM GST TRAN-1(Rule 120A of CGST Rules, 2017)

Every registered person who has submitted a declaration electronically in FORM GST TRAN-1 within the time period specified in rule 117, rule 118, rule 119 and rule 120 may revise such declaration once and submit the revised declaration in FORM GST TRAN- 1 electronically on the common portal within the time period specified in the said rules or such further period as may be extended by the Commissioner in this behalf.

Points to be noted in transition

While filling relevant transition forms, it must be noted that :

• Transition forms must be filed for each GSTIN separately.
• Any credit that one want to carry forward from the old regime must be eligible credit under GST as well.
• Accumulated credits of old regime can be taken to GST. This is allowed only when taxpayer had filed past six months returns under the old regime. So one must file old returns of VAT/ Excise/ Service Tax properly.
• Any central taxes and duties such as Excise and Service tax to be carried forward as CGST.
• Any state taxes such as VAT to be carried forward as SGST.

Transition – Problem and Judicial Orders

It is a fact that there have been large number of defaults in filing of TRAN-1 due to many reasons, most important being technical glitches because of which taxpayers could not file the Form TRAN-1 in time thereby, losing their substantial credit entitlements.

This issue has also become subject matter of litigation in various courts of law. The Courts have generally been liberal in granting time for filing of TRAN-1 and directing the Government (CBIC) to ensure that tax payers do not suffer any hardship on this amount.

To cite a few, following pronouncements are relevant :

• Siddharth Enterprises v. The Nodal Officer [2019 (9) TMI 319 - GUJARAT HIGH COURT]

Respondents were directed to permit writ-applicants to allow filing of declaration in form GST TRAN-1 and GST TRAN-2 so as to enable them to claim transitional credit of eligible duties in respect of inputs held in stock on appointed day in terms of section 140(3) and it was further declared that due date contemplated under Rule 117 of CGST Rules for purposes of claiming transitional credit is procedural in nature and, thus, should not be construed as a mandatory provision.

It was also held that denial of credit of tax/duty paid under existing acts would amount to violation of Article 14 and 300A of Constitution of India. Unutilized credit has been recognized as vested right and property in terms of Article 300A of the Constitution of India. The High Court held and observed as follows:

"33. In our opinion, it is arbitrary, irrational and unreasonable to discriminate in terms of the time-limit to allow the availment of the input tax credit with respect to the purchase of goods and services made in the pre-GST regime and post-GST regime and, therefore, it is violative of Article 14 of the Constitution.

34. Section 16 of the CGST Act allows the entitlement to take input tax credit in respect of the post-GST purchase of goods or services within return to be filed under Section 39 for the month of September following the end of financial year to such purchase or furnishing of the relevant annual return, whichever is earlier. Whereas, Rule 117 allows time-limit only up to 27th December 2017 to claim transitional credit on pre-GST purchases. Therefore, it is arbitrary and unreasonable to discriminate in terms of the time-limit to allow the availment of the input tax credit with respect to the purchase of goods and services made in pre-GST regime and post-GST regime. This discrimination does not have any rationale and, therefore, it is violative of Article 14 of the Constitution.

36. It is legitimate for a going concern to expect that it will be allowed to carry forward and utilise the CENVAT credit after satisfying all the conditions as mentioned in the Central Excise Law and, therefore, disallowing such vested right is offensive against Article 14 of the Constitution as it goes against the essence of doctrine of legitimate expectation.

38. By not allowing the right to carry forward the CENVAT credit for not being able to file the form GST Tran-1 within the due date may severely dent the writ-applicants working capital and may diminish their ability to continue with the business. Such action violates the mandate of Article 19(1)(g) of the Constitution of India.”

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The respondents are directed to permit the writ applicants to allow filing of declaration in form GST TRAN-1 and GST TRAN-2 so as to enable them to claim transitional credit of the eligible duties in respect of the inputs held in stock on the appointed day in terms of Section 140(3) of the Act. It is further declared that the due date contemplated under Rule 117 of the CGST Rules for the purposes of claiming transitional credit is procedural in nature and thus should not be construed as a mandatory provision."

• Krish Authomotors Pvt. Ltd. v. Union of India [2019 (9) TMI 817 - DELHI HIGH COURT]

Where assessee was unable to file Form GST TRAN-1 within the time limit extended till 27-12-2017, the Court was satisfied that the assessee was unable to file Form GST TRAN-1 on account of bona fide difficulties. Therefore, it was held that the assessee should be afforded one more opportunity to do so. In view of the aforesaid, a direction is issued to the GST Authorities to permit the assessee to either submit Form GST TRAN-1 electronically by opening the electronic portal for that purpose or allow the assessee to tender said form manually. 

Accordingly, a direction was issued to the Respondents to permit the Petitioner to either submit the TRAN-1 form electronically by opening the electronic portal for that purpose or allow the Petitioner to tender said form manually on or before 15th October, 2019 and thereafter, process the Petitioner's claim for ITC in accordance with law.

• Adfert Technologies (P.) Ltd. v. Union of India [2019 (11) TMI 282 - PUNJAB AND HARYANA HIGH COURT]

Based on the following emphasis in the case,

• A registered person to carry forward or avail credit of duty/tax paid on inputs and capital goods under old taxation statutes was required to file TRAN-I;
• Certain restrictions are prescribed in proviso to Section 140(1) but restriction in terms of time frame is prescribed under Rule 117 (1) of the Rules;
• As per Rule 117 (1), TRAN-1 was required to be filed by due date which was declared 27.12.2017. There is no power under Rule 117 (1) to extend last date beyond 27.12.2017; however, Rule 117(1A) was inserted w.e.f. 10.9.2018 by which last date was extended upto 31.12.2019.
• The last date i.e. 27.12.2017 prescribed under Rule 117(1) was extended upto 31.12.2019 where TRAN-I could not be filed due to technical glitches. In other words a registered person who is able to establish that he has failed to file TRAN-I by 27.12.2017 due to technical glitches was entitled to file TRAN-I upto 31.12.2019.
• There is no provision to permit filing of TRAN-1 at subsequent stage who failed to furnish evidence of attempt to file by 27.12.2017.
• As per Rule 120A, one time amendment is permitted within time prescribed under Rule 117, 118, 119 or 120 or within the time period as may be extended by the Commissioner.
• The Court held that the introduction of Rule 117(1A) & Rule 120A and absence of any time period prescribed under Section 140 of the Act indicate that there was no intention of government to deny carry forward of unutilized credit of duty/tax already paid on the ground of time limit.
• GST is an electronic based tax regime and most of people of India are not well conversant with electronic mechanism. Most of us are not able to load simple forms electronically whereas there were a number of steps and columns in TRAN-1 forms thus possibility of mistake cannot be ruled out.
• The Respondent (CBIC / GST Department) cannot deprive Petitioners from their valuable right of credit, the High Court vide Order dated 04.11.2019 in CWP No.30949 of 2018(O&M) disposing 102 petitions directed Goods and Services (GST) Department to allow filing or revising Form TRAN-1 either electronically or manually. It held that the due date contemplated under Rule 117 of the CGST Rules for the purposes of claiming transitional credit is procedural in nature and thus should not be construed as a mandatory provision. It further directed the Government / GST Department to permit the Petitioners to file or revise where already filed incorrect TRAN-1 either electronically or manually statutory Form(s) TRAN-1 on or before 30th November, 2019. However, the Department will be at liberty to verify the genuineness of claim of Petitioners but nobody shall be denied to carry forward the legitimate claim of CENVAT / ITC on the ground of non-filing of TRAN-I by 27.12.2017.

Conclusion

Based on the aforementioned judgments and various other decisions, it is opined that unavailed credits of the old regime on the appointed day i.e., 01.07.2017 cannot be denied merely because the assessee could not file or correctly file the relevant TRAN-I or TRAN-2 forms. It is a certain law that procedures cannot override the law as procedure is only a delegated legislation.

It may therefore, be advisable for the taxpayers to take benefit of this opportunity provided by courts and approach the respective adjudicating authorities.