Micromax Informatics Ltd (Petitioner) who is seeking the benefit of Transitional Credit has filed the current petition by challenging the retrospective amendment brought forth vide Notification No. 43/2020 – Central Tax dated May 16, 2020 which notified changes made vide Section 128 of the Finance Act, 2020 in the Section 140 of the Central Goods and Services Tax Act, 2017 (CGST Act) by prescribing time limit for taking the Input Tax Credit (ITC).
Section 140 of the CGST Act mentions provisions relating to Transitional Arrangements from Central Value Added Tax (“CENVAT”) regime to the current regime of Goods and Services Tax (“GST”) to avail ITC. A detailed judgment in WP(C) No. 196/2019 dated May 5, 2020, the petition of which was filed by the Petitioner in the current petition held Rule 117 of Central Goods and Services Tax Rules, 2017 (“CGST Rules”) which prescribes a time limit of 90 days to avail ITC which can be extended further for a period not exceeding 90 days- is directory in nature. A Special Leave Petition SLP (C) No.7425-7428/2020 against this judgment is pending before the Hon’ble Supreme Court on the ground of the judgment being negated by the amendment in Section 140 of the CGST Act.
The Petitioner relies on the judgment of SKH Sheet Metals Components vs. UOI [2020 (38) GSTL 592] wherein the Hon’ble Delhi High Court held that neither the CGST Act nor CGST Rules provides any consequence in case of non-compliance of Section 140 f the CGST Act as well as Rule 117 of the CGST Rules. Since there is no indication to that effect, the provisions are to be seen as directory and not mandatory.
The Hon’ble Delhi High Court in the current matter acknowledged the judgment of SKH Sheet Metals Components (supra) provided in support of the arguments by Petitioner by holding that this judgment covers the issue in hand.
Held, the amendment of Section 140 of the CGST Act does not affect the right of Petitioner to claim transitional credit and it would be unnecessary to deal with the Constitutional challenge to it. Further, noted the Petitioner is at the liberty to apply for Transitional Credit subject to the further order from the Hon’ble Supreme Court in SLP (C) No.7425-7428/2020 (supra).
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. By way of present petition, the petitioner has challenged the retrospective amendment dated 18.05.2020 by which the provision of Section 128 of the Finance Act, 2020 has been inserted with effect from 1 st July, 2017 to Section 140 of the Central Goods and Service Tax Act, 2017 by prescribing a time limit for taking the input tax credit. The petitioner has also sought the benefit of transitional credit of Rs.6,04,47,033/-.
2. By a detailed judgment dated 5th May, 2020 in WP(C) No.196/2019 in the case of petitioner itself, this Court held that Rule 117 which prescribed a time limit for taking the input tax credit is directory in nature. This Court further held that a period of three years from the appointed date would be the maximum period for availing of such credit. By the present amendment dated 18th May, 2020, this judgment is being negated. A Special Leave Petition against the judgment of this Court is pen ding before the Hon ’ble Supreme Court in SLP (C) No.7425-7428/2020.
3. Mr. Tarun Gulati, learned senior counsel submits that the issue in hand is covered by the judgment of this Court in SKH Sheet Metals Components vs. UOI reported at 2020 (38) GSTL 592 wherein this Court after noticing the amendment dated 18th May, 2020 held as under:
“20. Nevertheless, all things considered, in spite of the amendment, we can say without hesitation that the said decision is not entirely resting on the fact that statute (CGST Act) did not prescribe for any time limit for availing the transition of the input tax credit. There are several other grounds and reasons enumerated in the said decision and discussed hereinafter, that continue to apply with full rigour even today, regardless of amendment to Section 140 of the CGST Act.
25. ……… After the retrospective amendment of Section 140, we can interpret that the power to fix the timeline and its extension has been prescribed to the Central Government which was done vide Rule 117. This Rule provides for a time period of 90 days and also stipulates that the same can be extended for a further period not exceeding 90 days. However, under Rule 117(1A), multiple extensions beyond 180 days have been granted for taxpayers who faced “technical difficulties” on common portal. Yet, deserving ‘non technical cases’ like the present one have been ignored and this exclusion is arbitrary and irrational. Moreover, if were to look for a provision in the statute that would stipulate a consequence for failure to adhere to the timelines, we would find none. Rule 117 of the CGST Rules also does not indicate any consequence for non compliance of the condition. Both the Act and Rules does not provide any specific consequence on failure to adhere to the timelines. Since the consequences for non consequences are not indicated, the provisions has to be seen as directory. Pertinently, non observance of the time lines would prejudice only one party the registered person/tax payer. If we interpret the timelines to be mandatory, the failure to fulfil the obligation of filing TRAN-1 within the stipulated period, would seriously prejudice the tax payers, for whose benefit Section 140 has been provided by the legislature. In view of the above discussion, interpreting the procedural timelines to be mandatory would run counter to the intention of the legislature and defeat the purpose for which the transitionary provisions have been provided and have to be construed as directory and not mandatory.”
4. The case of the petitioner is also covered by the judgment of this Court in Gillette India Ltd. & Anr. Vs. UOI & Ors. in WP(C) No.2697/2018 dated 21st November, 2019 in as much as it is a case of revision of Trans-1 and not a fresh filing of Trans-1.
5. After hearing both the sides, we find the judgment of SKH Sheet Metals Components (supra) covers the issue in hand. In view of the above observations made by this Court, the amendment does not affect the right of the petitioner to claim transitional credit and it would be unnecessary to deal with the Constitutional challenge to it. Further, the petitioner is at liberty to apply for the transitional credit of Rs.6,04,47, 033/- which shall be dealt with by the department and disposed of by the department in accordance with law and subject to the further order of the Hon’ble Supreme Court in SLP (C) No.7425-7428/2020.
6. Accordingly, the Writ Petition is disposed of.