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TMI Blog2018 (10) TMI 261X X X X Extracts X X X X X X X X Extracts X X X X ..... credit in the electronic credit ledger, available as on 30th June 2017 in terms of Section 140 [3] of the Central Goods and Services Tax Act, 2017 ["CGST Act" for short]. Similar direction is sought in connection with the carry forward of eligible credit of State tax ie., the Value Added Tax ["VAT" for short] available as on 30th June 2017. We may record that the petitioners have also in the prayer clause, included the challenge to the vires of Section 164 of the CGST Act. However, no contentions were raised with respect to this last challenge. We would, therefore, not elaborate on this aspect in the judgment. 2. The petitioners' prayers arise in the following background : 2.1 Petitioner no. 1 is a company registered under the Companies Act, 1956. The petitioner no. 2 is a Director of the company. The petitioner no. 1 is registered under the CGST as well as GGST Acts. Previously, the petitioner no. 1Company was registered under the Gujarat Value Added Tax Act, 2003 ["GVAT" for short]. With the advent of GST regime with effect from 1st July 2017, the company had to migrate to the new tax structure. The newly framed statutes for such purpose include transitional provisions, en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he time envisaged, tax credit would not be transferred to the GST regime; [ii] Second proviso to Section 140 [1] of the CGST Act is unconstitutional. This proviso limits the right of a dealer to claim carry forward of the tax credit in relation to interState sales as well as branch transfers or export sales, unless necessary declarations in FormsC, F & H are produced. [iii] Rules 117 of the CGST Rules and GGST Rules which prescribe the time for making a declaration of available tax credits as on 30th June 2017 are ultra vires the Act and the rule making powers of the authority. Such time limit in any case should be read as directory and not mandatory. 4. Appearing for the petitioners, learned counsel Shri Vinay Shraff raised the following contentions : [i] Second proviso to Section 140 [1] of the GGST Act is ultra vires the Constitution which imposes unreasonable restrictions on enjoyment of the petitioners' property rights. It creates hostile discrimination between two classes of dealers who form a homogeneous group. The assesses are saddled with liability to produce declarations from the purchasers, dealers and other agencies, failing which the benefit of reduced ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision in case of Eicher Motors Limited [Supra] had observed as under : "17. It is clear from these Rules, as we read them, that a manufacturer obtains credit for the excise duty paid on raw material to be used by him in the production of an excisable product immediately it makes the requisite declaration and obtains an acknowledgment thereof. It is entitled to use the credit at any time thereafter when making payment of excise duty on the excisable product. There is no provision in the Rules which provides for a reversal of the credit by the excise authorities except where it has been illegally or irregularly taken, in which event it stands cancelled or if utilized, has to be paid for. We are here really concerned with credit that has been validly taken, and its benefit is available to the manufacturer without any limitation in time or otherwise unless the manufacturer itself chooses not to use the raw material in its excisable product. The credit is, therefore, indefeasible. It should also be noted that there is no corelation of the raw material and the final product; that is to say, it is not as if credit can be taken only on a final product that is manufactured out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property without due recourse to law. 4.6 In the context of time limit provided in Rule 117 of the GGST Rules and CGST Rules, counsel vehemently contended that the said provision is ultra vires the Act and is also arbitrary and unreasonable, and therefore, ultra vires Article 14 of the Constitution of India. It was contended that the provisions contained in the parent Act pertaining to transfer of unutilized tax credits did not envisage any time limit for making a declaration for such purpose. Such time limit cannot be introduced through the rules unless specific powers for such purpose have been granted. Neither Section 140 of the parent Act nor the rule making powers envisage any authority in the delegated legislation to impose such condition. 4.7 In the alternative, it was contended that such time limit should be construed as directory and not mandatory. Any procedural provision which is framed for implementing the substantive provisions should ordinarily be directory in nature. By insisting on rigid time frame for making declaration, procedural provision is being given primary over substantive provision thereby a vested right is sought to be taken away merely because due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer or export sales. He drew our attention to the third proviso to Section 140 [1] and submitted that as and when such forms would be submitted by the dealer, the amount of excess tax would be refunded. Thus, all that this proviso does is to defer the right of a dealer to claim benefit of reduced tax till necessary declarations are produced before the authorities. This was also the situation in the earlier statutory scheme. Our attention was drawn to the provisions of the Central Sales Tax Act and the rules framed thereunder to highlight that in the earlier tax structure also, in absence of such forms, the dealer would suffer tax on the sale; as if it was an intraState sale. As and when such forms are produced; even during the course of assessment, the benefit of concessional rate of tax would be available. 5.1 With respect to challenge to the time limit provided under Rules 117 of the CGST and GGST Rules, it was contended that the said rules were framed in exercise of rule making powers and were in consonance with the scheme of Section 140 of the Act. Right to enjoy tax credit is a kind of concession. Such concession can always be made subject to conditions. Initial time lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been taken into consideration but the net purchase price after discount is to be the basis. If we were dealing with any other aspect de hors the issue of ITC as per section 19 of the VAT Act, possibly the arguments of Mr. Bagaria would have assumed some relevance. But, keeping in view the scope of the issue, such a plea is not admissible having regard to the plain language of sections of the VAT Act, read along with other provisions of the said Act, as referred to above." 5.3 In the case of State of Gujarat v. Reliance Industries Limited, reported in [2017] 16 SCC 28, in which, in the context of provisions contained in the Gujarat Value Added Tax Act reducing the tax credit that has to be availed by the dealer, it was observed that how much tax credit has to be given and under what circumstances is the domain of the legislature and the courts are not to linker with the same. The Court noted with approval, the observations in the case of Godrej & Boyce Mfg. Company Prvt. Limited vs. Commissioner of Sales Tax & Ors., reported in [1992] 3 SCC 624 to the effect that it is only by virtue of the rules that the assessee was entitled to a set off. It is really a concession and an ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court had upheld vires of Clause (iv) of subsection [3] of Section 140 of the CGST Act imposing a condition on the first stage dealers to avail tax credit, that such credit should be in relation to invoice which is dated not earlier then 12 months preceding the appointed day. We may, however, record that in case of Filco Trade Centre Private Limited vs. Union of India [SCA No. 18433 of 2017 with SCA 20185/2017 :: decided on 5th September 2018], the Gujarat High Court has taken a different view. 5.7 In case of R.K Garg v. Union of India & Ors., reported in [1981] 4 SCC 675 to contend that in the taxing statutes, the legislature enjoys greater latitude. 5.8 In the context of petitioners' grievance regarding technical glitches in the official portal preventing making of declaration, the Union of India has filed an additional affidavit of one Dr. Ashir Tyagi, Commissioner, CGST dated 11th September 2018. In such affidavit, it is stated that the Government of India has come out with a Circular dated 3rd April 2018 providing certain guidelines to see that genuine cases of difficulties faced are resolved. Thereafter, subrule 1A is inserted in Rule 117 by Notification dated 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In case of State of Jammu & Kashmir vs. Triloki Nath Khosa & Ors., reported in AIR 1974 SC 1, the Constitution Bench of the Supreme Court upheld the legislation classifying Assistant Engineers into Degreeholders and Diploma holders for the purpose of promotion. It was observed that there is a presumption of constitutionality of a statute and the burden is on one who canvasses that certain statute is unconstitutional to set out facts necessary to sustain the plea of discrimination and to adduce cogent and convincing evidence to prove those facts. 8. It is equally well settled that the presumption of constitutionality would touch even the subordinate legislation. However, the grounds on which a statute framed by the Parliament or the State legislature are limited, as compared to the subordinate legislation. While a legislation framed by the subordinate legislature can also be questioned on the ground that the same is ultra vires the Act, or is beyond the rule making powers of the authority or that the same is wholly arbitrary and unreasonable, the law framed by the Parliament and the State legislature, it was held and observed in the case of State of A.P vs. Mc Dowell & Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mind these principles, we may take closer look at the relevant provisions. As is well known, the GST statutes were activated w.e.f 1st July 2017. These statutes envisage uniform tax structure and subsume range of existing taxes such as Excise duty, Central Sales Tax and the Value Added Tax. Chapter 20 of the CGST Act pertains to transitional provisions. Section 139 contained in the said chapter envisages migration of registration of the persons who were registered under the existing laws. Section 140 pertains to transitional arrangements for input tax credits. Relevant portion of which reads as under : "140. (1) 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:- (i) where the said amount of credit is not admissible as input tax credit under this Act; or (ii) where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. (3) The amount of credit specified in the application in FORM GST TRAN-1 shall be credited to the electronic credit ledger of the applicant maintained in FORM GST PMT-2 on the common portal." 10. The GGST Act also contains Chapter 20 pertaining to "Transitional Provisions". Section 139 contained therein pertains to migration of existing taxpayers. Section 140 pertains to "transitional arrangements for input tax credit". Relevant portion of which reads as under : "140. Transitional arrangements for input tax credit. (1) 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 Value Added Tax, and Entry Tax, if any, 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 ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im under Section 3, sub section (30 of the section 5 Section 6 and 6A and sub section (8) of section 8 of the Central Sales Tax Act, 1956 made by the applicant; and (ii) the serial number and value of declaration in Form C or F and certificates in Forms E or H or Form I specified in Rule 12 of the Central Sales Tax (Registration and Turnover) Rules, 1957 submitted by the applicant in support of the claims referred to in sub Clause (I)." 12. In the background of such statutory provisions, we may first examine petitioners' challenge to the vires of second proviso to Section 140 [1] of the GGST Act. Under subsection [1] of Section 140, a registered person, other than a person opting to pay tax under Section of the Act, would be entitled to take, in his electronic credit ledger, credit of the amount of Value Added Tax and Entry Tax; if any, 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 the manner as may be prescribed. First proviso to subsection [1] of Section 140 lays down circumstances under which such credit shall not be allowed. A further proviso which is refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cription referred to in subsection (3), would be liable to pay tax, which shall be two per cent of his turnover, or at the rate applicable to the sale or purchase of such goods inside the appropriate State under the sale tax law of that State; whichever is lower. Subsection [4] of Section 8, however, provides that the provisions of subsection [1] shall not apply to any sale in the course of interState trade or commerce unless the dealer selling the goods furnishes to the prescribed authority in the prescribed manner, a declaration duly filled and signed by the registered dealer to whom goods are sold containing prescribed particulars in the prescribed form obtained from the prescribed authority. 15. In exercise of powers under subsection [1] of Section 13 of the CST Act, 1956, the Central Government has framed the Central Sales Tax [Registration and Turnover] Rules, 1957. Subrule (1) of Rule 12 contained therein provides that a declaration and the certificate referred to in subsection [4] of Section 8 shall be in Forms C and D respectively. Subrule (5) of Rule 12 provides that the declaration referred to in subsection (1) of Section 6A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had furnished the declaration before the order of assessment was made by the Sales Tax Officer. It was, therefore, held that the benefit of such declaration had to be given to the assessee. In the case of Yamaha Motor Escorts Limited v. State of Uttar Pradesh & Ors., [Supra], the High Court held that non production of FormC or D would not make the interState transaction illegal or void. It would only result in denying the manufacturer the benefit of reduced rate of tax. Thus, even in the erstwhile statutory provisions, the benefit of reduced rate of tax on interState sales, etc., was not taken away permanently for the failure of the dealer to produced necessary forms in the prescribed manner. The same was nevertheless delayed, till such forms and declarations were produced. The combined reading of subsection (1) of Section 7 and subsection (4) of Section 8 of the CST Act, 1956 and interpretation given to such provisions by the Courts ensured that even if such declarations were supplied at the later point of time, the benefit would not be denied permanently. 17. Effectively and essentially, this is what the present provisos of subsection [1] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of credit under subsections [3], [4] and [6] shall be calculated in such manner as may be prescribed. Counsel for the petitioners had compared the language used by the legislature in subsections [1] and [3] of Section 140 to argue that the expression "in such manner as may be prescribed" used in subsection [1] was missing in subsection [3]. 20. In his contention, therefore, the rules that the subordinate legislature framed could not have prescribed a time limit for making necessary declarations; as referred to under subsection [3] of Section 140. Rule 117 of the CGST Rules pertains to taxes or duty credit carried forward under any existing law or on goods held in stock on the appointed day. Subrule (1) of Rule 117 provides that every registered person entitled to take credit of the input tax under Section 140, shall within ninety days of the appointed day, submit a declaration electronically in the prescribed format, duly signed, on the common portal specifying separately the amount of input tax credit to which he is entitled under the provisions of the said section. Proviso to subrule [1] envisages extension of period for making the said declara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons, this proviso does not apply to all cases and its effect is local, to cover cases where a person is not in possession of an invoice or any other documents evidencing payment of duty in respect of inputs. 22. We can however not be oblivious to Section 164 of the CGST Act, which is the rule making power and reads as under : "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 subsection (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 comes into force. (4) Any rules made under subsection (1) of subsection (2) may provide that a contravention thereof shall be liable to a penalty not exceeding ten thousand rupees." 23. Under sub&sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit to six months from the date of issuance of the documents specified in the proviso. The contention that such amendment would take away an existing right was rejected. 26. While the entire tax structure within the country was thus being replaced by a new framework, it was necessary for the legislature to make transitional provisions. Section 140 of the CGST Act, which is a transitional provision, essentially preserves all taxes paid or suffered by a dealer. Credit thereof is to be given in electronic credit register under the new statute, only subject to making necessary declarations in prescribed format within the prescribed time. As noted, subsection [1] of Section 164 of the CGST Act authorizes the Government to make rules for carrying out the provisions of the Act on recommendations of the Council. Subsection [2] of Section 164 further provides that without prejudice to the generality of the provisions of subsection [1], the Government could also 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 the rules. Combined effect of the powers conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the NineJudge Bench of the Supreme Court. Before adverting to the majority opinion expressed by B.P Jeevan Reddy, J., we may note a short precursor to this judgment. In case of Sales Tax Officer, Banaras & Ors. vs. Kanhaiya Lal Mukundlal Saraf, [AIR 1959 SC 135], the Constitution Bench of the Supreme Court considered the term "mistake" used in Section 72 of the Contract Act, 1872 in the context of payment of tax. It was held and observed that true principle is that if one party under mistake - whether of fact or law, passed to another party money which is not due by contract or otherwise, that money must be repaid. The mistake lies in thinking that the money paid was due when in fact it was not due and that mistake if established entitles the party who paid the money to recover it back from the party receiving the same. It was further observed that once it is established that the payment; even though it be of the taxes has been made by the party labouring under a mistake of law, the party is entitled to recover the same and no distinction can be made in respect of the tax liability and other liabilities. Merely because the State has not retained the monies paid as Sales tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther before the commencement of the Central Excise and Customs Laws [Amendment] Act, 1991 or thereafter - by misinterpreting or misapplying the provisions of the Central Excises and Salt Act, 1944 read with Central Excise Tariff Act, 1985 or Customs Act, 1962 read with Customs Tarrif Act or by misinterpreting or misapplying any of the rules, regulations or notifications issued under the said enactments, such a claim has necessarily to be preferred under and in accordance with the provisions of the respective enactments before the authorities specified thereunder and within the period of limitation prescribed therein. No suit is maintainable in that behalf. While the jurisdiction of the High Courts under Article 226 - and of this Court under Article 32 - cannot be circumscribed by the provisions of the said enactments, they will certainly have due regard to the legislative intent evidenced by the provisions of the said Acts and would exercise their jurisdiction consistent with the provisions of the Act. The writ petition will be considered and disposed of the Act. The writ petition will be considered and disposed of in the light of and in accordance with the provisions of Section 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by virtue of the declaration contained in Article 265 of the Constitution of India and also by virtue of Section 72 of the Contract Act. In such cases, period of limitation would naturally be calculated taking into account the principle underlying clause (c) of subsection [1] of Section 17 of the Limitation Act, 1963. A refund claim in such a situation cannot be governed by the provisions of the Central Excises and Salt Act or the Customs Act, as the case may be, since the enactments do not contemplate any of their provisions being struck down and a refund claim arising on that account. In other words, a claim of this nature is not contemplated by the said enactments and is outside their purview. [iii] xx xx xx [iv] It is not open to any person to make a refund claim on the basis of a decision of a court or tribunal rendered in the case of another person. He cannot also claim that the decision of the Court/Tribunal in another person's case has led him to discover the mistake of law under which he has paid the tax nor can he claim that he is entitled to prefer a writ petition or to institute a suit within three years of such alleged discovery of mistake of law. A person, whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o proceedings are pending before any authority or Tribunal or Court as on this date. All pending matters shall, however, be governed by the law declared herein notwithstanding that the tax or duty has been refunded pending those proceedings, whether under the orders of an authority, Tribunal or Court or otherwise." 31. As per this decision, thus, the time limit provisions contained in the Central Excise and Customs laws for seeking refund of excess duty were held to be sacrosanct and were seen as constituting law within the meaning of Article 265 of the Constitution. Consequently, the tax collected, retained or not refunded in accordance with such provisions would be seen as collected, retained and not refunded under the authority of law. The view expressed by the Supreme Court in Trilokchand Motichand [Supra] was affirmed. It was emphatically stated that it was not open to any person to make refund claim on the basis of a decision of the Court or Tribunal rendered in case of another person. Such a person cannot claim that the decision of the Court or Tribunal in another person's case has led him to discover a mistake of law under which he had paid the tax. In this context, it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd any substance in the petitioners' challenge to rule 117 (1) of the CGST Rules as well as GGST Rules. 33. The contention of the counsel for the petitioners that the saving clause inserted in the Gujarat Value Added Tax Act would protect and preserve the tax credits of the past regime, after introduction of the Goods and Service tax is to be noted only for rejection. The saving clause provided that nothing done in the amendment of the Gujarat Value Added Tax Act shall affect any right, privilege, obligation or liability acquired, accrued or incurred under the Act prior to coming into force of the said amendment. Such saving has to be read and appreciated in tune with the specific provisions made in the CGST & GGST Acts. Any interpretation of such provisions cannot run counter to the express legislative intent of restricting or limiting enjoyment of the existing rules, or in other wise to make continuous enjoyment of the rights, subject to certain safe guards and conditions. 34. Before closing, we would refer to some of the judgments relied upon by counsel for the parties and which we felt must be explained. 35. In the case of Eicher Motors Ltd [Supra] and Dai Ichi Karkaria [Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the rules. The Supreme Court, however, did not proceed on this logic. The Court held that it was not necessary to go into this question, since subrules (2) and (3) of Rule 39A of the Mysore Sales Tax Rules, 1957 were wholly unreasonable, and therefore, cannot be sustained. Subrule (3) of Rule 39A provides that before a person is entitled to refund, he must have to make the refund application within the time before which he should have submitted his Salestax return. It was observed that in many States, the dealers have to submit quarterly returns. Under rule 18 of the Rules, the dealer would have to submit its annual return within 30 days from the end of Financial Year. Thus, if there be a sale in the course of interState trade has been made on 31st March of a year, the refund application will have to be made within 30 days from that date. The Supreme Court was therefore of the opinion that the said rule was merely an attempt to deny the dealers, the refund to which they are entitled under the law, or at any rate to make the enforcement of that right unduly difficult. 40. In case of Sales Tax Officer, Ponkannam & Anr. v. K.I. Abraham, reported in AIR 1967 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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