Transitional credit can’t be denied for mere non filing of form Tran 1 / Tran 2: HC

By Editor4 Goods and Services Tax Judiciary , Trending September 6, 2019 5 comments

TaxGuru Citation: 2019 taxguru.in 1500
Case Name: M/S Siddharth Enterprises Vs NODAL Officer (Gujarat High Court)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Courts: All High Courts, Gujarat High Court

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M/s. Siddharth Enterprises Vs NODAL Officer (Gujarat High Court)

Hon’ble High Court held that Transitional credit can’t be denied only because form Tran 1/ Tran 2 couldn’t not be filed. Requirement of filing of Trans 1 and Trans 2 returns is procedural in nature and not mandatory and therefore right of transitional credit can not be denied to those taxpayers who could not file such returns. Procedure provided cannot overtake law.

Due date contemplated u/r 117 of the CGST Rules, 2017 is procedural in nature and hence not mandatory

Writ applicant had sought issuance of a writ of mandamus to allow filing of declaration in form GST TRAN-1 and GST TRAN-2 to enable it to claim transitional credit of eligible duties in respect of inputs held in stock on the appointed day in terms of Section 140(3) of the CGST Act; to issue a writ of declaration for declaration of the due date contemplated u/r 117 of the Rules to claim transitional credit as being procedural in nature and thus merely directory and not a mandatory provision; grant ad interim reliefs and award costs.

The Hon’ble High Court held as under

Section 140(3) of the Act allows carry forward of the eligible duties in respect of inputs held in stock subject to fulfilment of conditions (i) to (v) as mentioned therein – Section 140(3) of the Act is a complete Code in itself and the substantive right conferred by the Act cannot be curtailed by way of rules – entitlement of credit of eligible duties on the purchases made in the pre-GST regime as per the then existing CENVAT Credit Rules is a vested right and, therefore, it cannot be taken away by virtue of Rule 117 of the CGST Rules with retrospective effect for failure to file form GST TRAN-1 within the due date i.e. 27.12.2017 – provision for facility of credit is as good as the tax paid till the tax is adjusted and, therefore, the right to credit had become absolute under the CEA and, therefore, the credit is indefeasible and the same cannot be taken away

– right to carry forward credit is a right or privilege acquired and accrued under the repealed CEA, 1944 and it has been saved u/s 174(2)(c) of the CGST Act, 2017 and, therefore, it cannot be allowed to lapse u/r 117 of the Rules for failure to file declaration in form GST TRAN-1 within the due date i.e. 27.12.2017 – right to carry forward CENVAT credit for not being able to file the form GST TRAN1 within the due date offends the policy of the Government to remove the cascading effect of tax by allowing the Input Tax Credit as mentioned in the Objects and Reasons of the Constitution 122 and Amendment Bill, 2014, and which clearly sets out that it is intended to remove the cascading effect of taxes and bring out a nationwide taxation system – Denial of carry forward of tax paid on stock on the appointed day may lead to cascading effect of tax because the GST will again have to be paid on the Central Excise duty already suffered on the stock –

– It is an established principle of law that it is necessary to look into the mischief against which the statute is directed, other statutes in pari materia and the state of law at the time –

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 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 of India

– Section 16 of the Act allows the entitlement to take input tax credit in respect of post-GST purchase of goods or services within return to be filed u/s 39 for the month of September following the end of the 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 ITC with respect to the purchase of goods and services made in the pre-GST regime and post-GST regime – as this discrimination does not have any rationale, therefore, it is violative of Article 14 of the
Constitution

– 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 CEX law and, therefore, disallowing such vested right is offensive against Article 14 as it goes against the essence of doctrine of legitimate expectation

– 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 businessand such action violates the mandate of Article 19(1)(g) of the Constitution

– liability to pay GST on sale of stock carried forward from the previous tax regime without corresponding input tax credit would lead to double taxation on the same subject matter and is, therefore, arbitrary and irrational;

– CBEC GST Flyer no. 20 dated 01.01.2018 refers – CENVAT credit earned under the erstwhile Central Excise law is the property of the writ-applicants and it cannot be appropriated for merely failing to file declaration in the absence of law in this respect (Article 300A refers)

– It could have been appropriated by the government by providing for the same in the CGST Act but it cannot be taken away by virtue of merely framing Rules in this regard

– All four writ-applications succeed and are allowed – 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 inputs held in stock on the appointed day in terms of s.140(3) of the Act – Furthermore, it is declared that the due date contemplated u/r 117 of the CGST Rules, 2017 is procedural in nature and thus should not be construed as a mandatory provision.