By K.Rengaraj, Advocate
Introduction: At the time of implementation of GST in order to eliminate double taxation, a transitional provision was made available for businessmen having carry over of Cenvat credit and Input VAT credit which was eligible Cenvat/Input Credit (ITC) in the earlier regime of GST. The Cenvat credit including Service Tax would be carried forward as CGST Input Tax credit and VAT including entry tax will be made available as SGST Input tax credit. Form GST TRAN-1 is a form to be filed by the registered taxable person to claim such transitional credit to be eligible ITC in GST regime. The tax payers were required to fill the relevant tables of Form GST TRAN-1 as applicable to their business. Section 140 of the CGST Act, 2017 and Rule 117 of CGST Rules, 2017 were framed to claim the following credit of the existing law that prevailed before GST.
- Unavailed Cenvat credit including capital goods and
- Tax credit on closing stock as on 30.06.2017 would be relevant for most of the businesses which purchased the taxable stocks within one year.
- Carry forward of VAT, entry tax in the relevant returns
Initially the GST TRAN 1 was to be filed electronically within 90 days from the appointed day. But the dealers faced many problems in submitting the TRAN 1 and finally the CBIC extended various dates for those who could not file the Return on 27th December 2017 due to technical glitches. The metaphor “Pandora’s Box” is suitable for TRAN1 being the source of endless complications or trouble in claiming the eligible Credit.
The following is the chart of various dates fixed for filing TRAN 1.
The extension and relaxation of filing TRAN 1 was only extended to persosn who could not file the Return on technical glitches. Various High Couts have intervened in the matter and finally and recently the Delhi High Court has delivered a landmark judgment that may have a severe impact on both state and Central government revenues, as the Delhi High court in the case of BRAND EQUITY TREATIES LTD Vs THE UNION OF INDIA & ORS has allowed all taxpayers to claim transitional credit accumulated before the implementation of the GST by June 30, 2020.
The Hon’ble Delhi High Court held that period of 90 days for claiming input tax credit is directory and therefore, period of limitation of three years under the Limitation Act would apply.
The taxpayers argued:
“Failure to file form TRAN-1 was due to reasons like multiple group entities, technical glitches in the GST portal, inadvertent errors or omissions in the form or lack of response from tax authorities.
Accumulated tax credit is a ‘property’ and vested right which is guaranteed under the Indian Constitution. As such, it cannot be taken away through CGST Rules which are subordinate in nature.
GST systems continue to operate in a “trial and error” phase. Taxpayers have been suffering due to glitches preventing them from filing TRAN-1.
To this, the GST department argued that
Courts have provided relief only if the delay in filing TRAN-1 can be attributed to a technical glitch in the GST portal. However, in the present case, the delay by taxpayers was due to their own technical difficulties. The companies followed a “casual approach”.
The rules are issued under the Central Goods and Services Tax Act in accordance with the intention of the government.
The High Court dismissed the Government’s arguments and ruled:
Several taxpayers could not file TRAN-1 due to issues like low bandwidth and other issues in the GST portal. Several extensions reflect that the government was aware of such issues.
Input tax credit accumulated prior to July 2017 is a vested right of the taxpayer. As such, the time limit prescribed under CGST Rules cannot take it away.
Transitory provisions were introduced for smooth transition into the GST regime. The Act does not prescribe any consequence for delay in filing the forms. Accordingly, the provisions are “directory” and not mandatory in nature.
Period of three years provided under the Limitation Act will be the maximum time for availing the credit as the CGST Act is silent about any particular timeline.
The Court has directed the revenue department to allow all assessees to claim input tax credit by June 30, 2020. The order would apply to all taxpayers who could not file TRAN-1 and claim input tax credit.
This is a significant judgment on two accounts. One, it extended the period for claiming input credit from 90 days to three years. Second, the judgment is applicable to all taxpayers and not just the petitioner.
This landmark judgment gives a blanket benefit to all taxpayers.
Conclusion: Now we have to wait and see what the Government is going to do in this case as to whether it would reopen the tran 1 submission and allow all tax payers to avail the eligible credit or it would contest the case to the Apex Court.
The author is a director in Ms Lore Tax Professionals Private Ltd., Coimbatore and can be reached at renga42002@yahoo.co.in
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