In a Writ Petition filed by Brand Equity Treaties Limited before Hon'ble Delhi High Court in matter of TRANSITIONAL CREDIT u/s 140 of CGST Act, 2017

[Rachit Agarwal]

BRAND EQUITY TREATIES LIMITED, MICROMAX INFORMATICS LTD., DEVELOPER GROUP INDIA PRIVATE LIMITED, RELIANCE ELEKTRIK WORKS VERSUS THE UNION OF INDIA AND ORS. [2020 (5) TMI 171 - DELHI HIGH COURT]

In a Writ Petition filed by Brand Equity Treaties Limited before Hon'ble Delhi High Court in matter of TRANSITIONAL CREDIT u/s 140 of CGST Act, 2017

[Para 18]- Technical Difficulties- "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. Just like the respondents, even the taxpayers required time to adapt to the new systems, which was introduced as a completely online system. The respondents cannot adopt different standards - one for themselves, and another for the taxpayers.

 [Para 19 & 21]- Substantive Vested Right- Rule 117, whereby the mechanism for availing the credits has been prescribed, is procedural and directory, and cannot affect the substantive right of the registered taxpayer to avail of the existing / accrued and vested CENVAT credit. The procedure could not run contrary to the substantive right vested under Sub section (1) of Section 140. 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

[Para 21]- Mechanism for Transitional Credit is Procedural and Directory- the mechanism for availing the credits has been prescribed, is procedural and directory, and cannot affect the substantive right of the registered taxpayer to avail of the existing / accrued and vested CENVAT credit. The procedure could not run contrary to the substantive right vested under Sub Section (1) of Section 140. ). There is no consequence provided in Rule 117 of GST Rules on account of failure to file GST TRAN-1. 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

 [Para 20]- Right ACCRUED to Assessee- Since the statute did not give any indication w.r.t extension of time for claim of input tax credit, the period could have been extended by authority. However, in the instant cases, the input tax credit had been claimed in the erstwhile regime and was being reflected in the CENVAT credit ledger. This credit, under the Section 140(1), has to be carried forward and in that sense, the vested right of the property of the petitioner stood accrued and the same cannot be taken away by the respondents by way of Rules.

 [Para 18 & 22]- ]Right to avail Transitional Credit cannot be in Perpetuity- Limitation Act- 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.

Right to avail Transitional Credit is given in Rule 117 cannot be allowed in perpetuity. In absence of any specific provisions under the Act, we would have to hold that in terms of the residuary provisions of the Limitation Act, the period of three years should be the guiding principle and thus a period of three years from the appointed date would be the maximum period for availing of such credit.