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July 27, 2020
All Articles by: Mr. M. GOVINDARAJAN       View Profile
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Transitional credit

GST was introduced with effect from 01.07.2017.  The Central Goods and Services Tax Act, 2017 (‘Act’ for short) provides for the transition of input tax credit available with the assessee in the erstwhile indirect regime to the new GST regime under section 140Section 140 (1) provides that 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 within such time and in such manner as may be prescribed.

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.

Section 140 stipulates that the registered person is required to submit a return, within such time, and in such manner as may be prescribed for purposes of availing Transitional input tax credit. The words within such time were not originally a part of Section 140(1) and were introduced by the Finance Act, 2020 under Notification No.43/2020 dated 16.05.2020 with retrospective effect from July 1, 2017.

Rule 167 provides that a registered person is required to submit a declaration, electronically, in Form GST TRAN-1 on the common portal within 90 days or, if applicable, the extended period not exceeding 180 days from the appointed date in order to make a claim for Transitional input tax credit.  Due to technical glitches prevailing in GST portal most of the registered persons could not file GST TRAN – 1.  The last date was extended on 27.12.2017.  The said last date was extended further to 31.03.2020. 

Writ petitions

Many a registered person filed writ petitions before various High Courts with the prayer directing the Revenue to allow the registered persons to file the  GST TRAN -1 return without any difficulty.   The High Courts also issued necessary directions to the GST portal to open the portal so as to enable the registered persons to file the said return without any difficulty or to accept the return manually by the Authorities and allow the input tax credit in the GST regime. 

Time limit – mandatory or directory

In ‘Brand Equity Treaties Limited, Micromax Informatives Limited, Developer Group India Private Limited v. Union of Indian and others’ – 2020 (5) TMI 171 – Delhi High Court the High Court held that the time limit is a directory and mandatory.  In this case the High Court held that 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 extensions have been granted by the Government from time to time, largely on account of its inefficient network.   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, 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.  The High Court held that there is no hesitation in reading down the said provision [ Rule 117] as being directory in nature, insofar as it prescribes the time-limit for transitioning of credit and therefore, the same would not result in the forfeiture of the rights, in case the credit is not availed within the period prescribed.

            In the following case the Madras High Court held the time limit for the transition of input tax credit from the erstwhile indirect tax regime to GST regime is mandatory-

            In P.R. Mani Electronics v. Union of India and 3 others’  - 2020 (7) TMI 443- Madras High Court (decided on 13.07.2020), the petitioner is a proprietary concern involved in the retail trade of mobile phones, electrical, electronic, and other items.   The petitioner registered in the erstwhile VAT regime and after the introduction of GST with effect from 01.07.2017 took registrations under GST laws.  He was having balance of input tax credit in the erstwhile regime and he wished to transfer the same into new GST era an amount to the tune of ₹ 4,62,496/- towards Central Tax and ₹ 7512/- towards State tax.  Due to the technical glitches prevailing in the GST portal the petitioner could not able to file GST TRAN – 1 in the GST portal within the extended last dated 27.12.2017.  Therefore he filed a manual return with the Authorities and received acknowledgement for the same.  Since the said credit has not been transferred into electronic credit ledger the petitioner filed the present writ petition before the High Court.

The petitioner submitted the following before the High Court-

  • Input tax credit is in the nature of the Petitioner's property.
  • The petitioner cannot be deprived of its property merely because the requisite form could not be submitted within the prescribed time limit.
  • The prescription of such time limit in Rule 117 is ultra vires Section 140 and violates Article 14 and 300-A of the Constitution of India in as much as it deprives the Petitioner of its property by way of ITC. At a minimum, the said Rule 117 should be read as a directory or permissive provision and not as a mandatory or peremptory provision.
  • The tax authorities were fully cognizant of the fact that registered persons were unable to submit the on line declaration within the prescribed period on account of technical glitches.
  • This is evident from the fact that the time limit was subsequently extended by inserting Sub Rule 1-A in Rule 117 whereby the Commissioner was permitted, subject to the recommendation of the GST Council, to extend the date for submitting the declaration electronically by a further period up to 31.03.2020. 
  • The said provision itself states that it is introduced so as to enable the submission of the declaration by persons who could not submit the same within the previously prescribed time limit on account of technical difficulties in the common portal.
  • It clearly indicates that the provision is intended to be directory and not mandatory notwithstanding the use of the word ‘shall’ in Rule 117(1).

The petitioner relied on the judgment in Micromax Informatics Ltd. v. Union of India, WP(C) No.196 of 2019 (Micromax Informatics), wherein Rule 117 was construed as directory and not mandatory.

The Revenue submitted the following before the High Court-

  • Input Tax Credit is in the nature of a concession granted to registered persons and, therefore any conditions, including time limits, subject to which such concessions are granted should be enforced strictly. In other words, concessions cannot be availed of unless the conditions relating thereto are fully complied with.
  • Input Tax Credit is a concession and not a vested right. 

The Revenue relied on the following judgments in which it was held that input tax credit is a concession-

With regard to the judgment of the Division Bench of the Delhi High Court, the Revenue pointed out that the operation of the said judgment was stayed by the Supreme Court and that there was a judgment of the Division Bench of the Bombay High Court to the contrary.

The High Court considered the submissions put forth by both the parties.  The High Court analyzed the provisions relating to transitional credit in the Act and rules and also the amendments carried out extending the last date till 31.03.2020 and also analyzed various judgments relied on by the petitioner and the Revenue.

In ‘Jayam and Company’ (supra) the Supreme Court held that the input tax credit is a form of concession provided by the legislature and that it can only be availed of by satisfying prescribed conditions.   It is not the right of the ‘dealers’ to get the benefit of input tax credit but it is a concession granted by virtue of Section 19. As a fortiori, conditions specified in Section 10 must be fulfilled.

The judgment in ALD Automotive (supra) dealt with the question whether the time limit in Section 19(11) of TNVAT is mandatory or directory.   The Supreme Court, in this case, considered whether particular provision is mandatory or directory has to be determined on the basis of the object of the particular provision and design of the statute. The period of 10 days in submitting the report of the public analyst was held to be directory for the reason that on the negligence of those to whom public duties are entrusted no one should suffer. Such interpretation should not be put which may promote the public mischief and cause public inconvenience and defeat the main object of the statute.  The time period as provided in Section 19(11) is mandatory.

The High Court analyzed the judgments of High Court which held that the time limit is directory and not mandatory.  The High Court observed that the said judgments were delivered before the amendment of section 140 of the Act.  The power to prescribe a time limit is expressly incorporated in Section 140, which deals with Transitional ITC, and Rule 117 fixes such a time limit, we are unable to subscribe to this view. The fact that such time limit may be extended under circumstances specified in Rule 117, including Rule 117A, does not lead to the sequitur that there is no time limit for transitioning credit.

The relevant factors that are to  be determined whether a provision is directory or mandatory-

  • the use of peremptory or negative language, which raises a rebuttable presumption that the provision is mandatory;
  • the object and purpose of the statute and the provision concerned;
  •  the stipulation or otherwise of the consequences of non-compliance;
  • whether substantive rights are affected by non-compliance;
  • whether the time limits are in relation to the exercise of rights or availing of concessions; or
  •  whether they relate to the performance of statutory duties.

In this case, the peremptory word ‘shall’ is used. The relevant rule deals with the time limit for availing Transitional input tax credit by carrying it forward from the credit balance under tax legislations which have been repealed and replaced by the CGST Act. Thus, the object and purpose of Section 140 clearly warrants the necessity to be finite. Input tax credit has been held to be a concession and not a vested right. In effect, it is a time limit relating to the availing of a concession or benefit. If construed as mandatory, the substantive rights of the assessees would be impacted; equally, if construed as directory, it would adversely impact the Government's revenue interest, including the predictability thereof. On weighing all the relevant factors, which may not be conclusive in isolation, in the balance, the High Court concluded that the time limit is mandatory and not directory.


Though three years have been passed the stakeholders are struggling in availing the transitional credit due to glitches in the portal system which leads to filing writ petitions before the High Court.  The order of Delhi High Court (discussed supra) holding that the time limit in this case is directory and not mandatory has been stayed by the Supreme Court.  It is not known whether the petitioner is going for appeal against the order of the Madras High Court before Supreme Court.  The Supreme Court is to put a full stop to this issue.  Still the glitches in the system are continuing by which the stakeholders are facing troubles in filing various returns in time.  The last dates have been postponed from time to time.  The Government is to settle the issue at the earliest possible to lesser the pains of the stakeholders and allow them to do the business in the easy of way.


By: Mr. M. GOVINDARAJAN - July 27, 2020



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