GST laws contain Transitional provisions inter alia Section 140 of CGST Act, 2017 (similar provision in State GST laws) enables the taxpayer to carry forward the unutilized input credit under the pre-GST regime and allow the credit of taxes paid on the stock as on 30.06.2017 as GST credit. For this, Rule 117 of CGST rules, 2017 as amended inter alia requires the taxpayers to file Form GST TRAN-1 electronically.
This was to ensure a smooth transition from old laws (Central Excise, service tax, VAT) into GST, avoid double taxation by way of cascading of taxes. The philosophy was that since the GST rate was calculated to consider the new tax rate and the tax credits under the earlier regime which needed also to be transited.
The plain reading of the provisions makes it clear that the provisions are designed with the stated objective of avoiding double taxation and ensuring the smooth transition. However, practically the aforesaid purpose & objective was not achieved specifically the filing of Form GST Tran-01. Various petitions had/are been/ being filed across the country and the Hon’ble High Courts have time & again directed the Government either to reopen the portal or to allow the manual filing of the forms. Some courts have suggested the Government to set up a redressal committee.
Setting up IT Redressal Committee:
In light of these developments and acknowledging the genuine problems faced by the Taxpayers, the Government had provided a window enabling the taxpayers to file the Form Tran-1 till 31.03.2019 and which was now extended till 31.03.2020. This facility is available only to the persons who have digital evidence to prove the technical glitches while filing their Form GST Tran-1 online. However, the Government has not given the opportunity to the taxpayers who could not file form Tran-01 for various other reasons such as:
All these categories of the taxpayers who lost out ITC do not have any option but to approach the High courts.
In recent times, the series of decisions are delivered by the various High courts most of the times, allowed the taxpayers to claim the Transitional Credit. The noted decisions are as follows:
And a host of many other. The summary of the decisions is given below:
It is important to note here that there are contrary decisions from some HC’s.
Retrospective amendment vide Finance Act, 2020:
Section 128 of Finance Act, 2020 amends section 140, ibid to insert the words ‘within such time’ (w.e.f 01.07.2017). Notification No. 43/2020- Central Tax dated 16.05.2020 was issued notifying the effect of aforesaid retrospective amendment though it was not warranted in terms of Section 2 of Finance Act, 2020. The consequence of the amendment is that the Government has the power to prescribe the time limit for claiming Transitional Credit through the rules. Earlier such delegation to prescribe rules was missing in the Parent Statute (CGST Act, 2017).
Retrospective amendment – valid?
When indirect tax reforms were undertaken about 5 years back FM made an announcement that no retrospective amendments would be made which impacted the tax payer. Unfortunately this EXCELLENT PRACTICE has not been followed and the PROMISE BY GOVERNMENT not kept up. We are gone back and followed very poor practices which increases the uncertainty of the law and unfair method of rectifying all the errors of drafting and just rights of the tax payer, objective of avoiding cascading thrown to the winds.
No doubt, the Government has the power to make the retrospective amendment though it is unfair and creates uncertainty. Sufficient to mention the retrospective amendments can be struck down if such amendment creating any unreasonable restrictions which violate the right to carry on business or the right to hold & dispose of the property. The instant case of the retrospective amendment shall pass through this judicial test.
Further, the Hon’ble SC in Eicher Motors Ltd v. UOI 1999 (106) E.L.T. 3 (S.C.); Jayam & CO. vs. Asst. Commr 2018 (19) G. S. T. L. 3 (SC) held that accrued ITC is vested right and cannot be taken by the Retrospective amendment. These decisions have been followed in the various HC decisions (cited supra) rendered in the context of Transitional Credit under GST.
Whether Retrospective amendment overcomes the above HC decisions?
Further, it is interesting to find out whether the present retrospective amendment annuls the rationale of the above cited decisions and restricts the transitional ITC particularly for the taxpayers who do not have the evidence to show the technical glitches on the common portal. In this regard, as seen from the rationale of the above cited HC decisions (summarised supra), the Hon’ble HC decisions are not merely based on legal infirmity that Rule 117, ibid lacks the power to prescribe time limit but various meritorious reasons. Thus, the Retrospective amendment would not overcome the above rationale of HC decisions and it attempts to cure the defect in the delegation alone. Therefore, in the view of the paper writers the taxpayers still have a chance to claim the Transitional Credit and rely on the above cited decisions.
Be that as it may, it is settled law that a retrospective amendment specifying the new law of limitation cannot suddenly extinguish the vested right of action by providing for a shorter period of limitation. Similarly, the retrospective operation should not be given to a statute to take away or impair an existing right. Based on this legal principle, the claims filed before 18.05.2020 (notifying the retrospective amendment) would not get impacted by such a retrospective amendment and stands in a better position compared to the claims made after 18.05.2020.
In the author’s view, the retrospective amendment merely validates the timelines prescribed u/r. 117 which was missing previously. It would be incorrect to give the effect of the retrospective amendment beyond this point and is insufficient to nullify the rationale of the above cited HC decisions, which would still hold the field. Therefore, the taxpayers who have missed claiming transitional credits even now can claim the same. The suggested course of action is as under:
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