This is in reference to recent Delhi High Court ruling in the writ petitions filed before the court on the issue related to filing issues of Form Tran-1 by various petitioners. The below petitions covered in the said ruling are as follows:-
√ Brand Equity Treaties Ltd (WP (C) No.11040/2018)
√ Mircromax Informatics Ltd (WP (C) No.196/2019)
√ Developer Group India Pvt. Ltd (WP (C) No.8496/2019)
√ Reliance Elektrik Works (WP (C) No.13203/2019)
“In the absence of any specific provision under the CGST Act, residuary provision under the Limitation Act has to be referred whereby period of three years should be the guiding principle. Hence, time limit for filing of Tran-1 is three years from the appointed day which is valid till 30th June 2020”.
Brief facts of the case
- In the first case, the petitioner was having closing credit balance under Service tax return amounting to Rs. 72.80 lacs. Basis consultant advice, petitioner believed that refund can be claimed under section 142(3) of the CGST Act and filed online refund application. However, due to technical glitches, not able to file the said refund application. Finally, upon no movement on said application, this petition is being preferred before court of law
- In second case, petitioner could not file Form Tran-1 due to dependence on the group companies in order to finalize the workings as there involved multiple entities and tax compliance. Hence, could not file timely Form Tran-1;
- In third case, Form Tran-1 was filed within time limit. However, upon Tran-1 verification petitioner identified CENVAT credit amounting to Rs. 6,04,47,033/- which was not claimed in Original Tran-1 and missed to carry forward. Upon approaching with the tax authorities, there was no response till the time of filing of writ petition;
- In last case, the petitioner could not file Tran-1 but to error on the GST. Due to utter confusion and chaos being created which resulted into failure to upload Form Tran-1.
Relevant legal provisions
- Section 140 (1) of Central Good & Services Act “CGST Act
(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 he has not furnished all the returns required under the existing law for the period of six months immediately preceding the appointed date; or
iii. where the said amount of credit relates to goods manufactured and cleared under such exemption notifications as are notified by the Government.
- Rule 117 of the CGST Rules 2017
“117. Tax or duty credit carried forward under any existing law or on goods held in stock on the appointed day”
(1) Every registered person entitled to take credit of input tax under section 140 shall, within ninety days of the appointed day, submit a declaration electronically in FORM GST TRAN-1, duly signed, 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: Provided that the Commissioner may, on the recommendations of the Council, extend the period of ninety days by a further period not exceeding ninety days. Provided further that where the inputs have been received from an Export Oriented Unit or a unit located in Electronic Hardware Technology Park, the credit shall be allowed to the extent as provided in sub-rule (7) of rule 3 of the CENVAT Credit Rules, 2004.
(1A). Notwithstanding anything contained in sub-rule (1), the Commissioner may, on the recommendations of the Council, extend the date for submitting the declaration electronically in FORM GST TRAN-1 by a further period not beyond [31st December, 2019], in respect of registered persons who could not submit the said declaration by the due date on account of technical difficulties
Question of Law before the Honorable Court
- Whether vested rights of the assessee are being violated on account of failure to fulfill conditions which are procedural in nature?
Judgement pronounced
- The date prescribed for filing of the said Form Tran-1 was extended several times by way of orders issued from time to time, finally till 27th December, 2019;
- The technical difficulties faced by the taxpayer were acknowledged and an IT Grievance Redressal Committee was constituted and assigned the task of redressing the grievance of the taxpayers which were also brought to the notice of GST Council;
- There were several writ petitions being filled on this subject and majority of them were allowed in favour of the taxpayers whereby directions were issued to the respondents to permit filing of Tran-1 beyond extended date;
- It would also be worthwhile to note that in this period, the government also acknowledged that on account of technical difficulties, the taxpayers were indeed unable to file the statutory form within time and accordingly due date for filing of Tran-1 were extended through the various notifications
- Government also inserted rule 117 (1A) vide Notification no. 48/2018-Central Tax dated 10th September 2018 in order to permit Commissioner to extend the date for submission of Form Tran-1 where the taxpayers could not file due to technical difficulties on the common portal;
- The above insertion of rule demonstrates that the respondents recognize the fact that the registered persons were not able to upload GST TRAN-1 due to technical difficulties on the common portal;
- In earlier petitions before this court which are different in nature, there were bonafide errors on the part of the taxpayer and in others, the difficulty arose on account of lack of understanding of the complete overhaul of the indirect tax system. This Court has declined to make a differentiation and given the benefit of the doubt to the taxpayers.
- The benchmark, in our view, is that the online system brought into force by the GSTN Ltd. should be able to perform all functions and should have all flexibilities/options, which were available in the pre-GST regime. The problems on the GSTN cannot be wished away, and have to be resolved in the right earnest. This requires sensitivity on the part of the Government which has, unfortunately, not been exhibited in adequate measure;
- The arbitrary classification, introduced by way of sub Rule (1A), restricting the benefit only to taxpayers
whose cases are covered by “technical difficulties on common portal” subject to recommendations of the GST Council, is arbitrary, vague and unreasonable;
- There is no definition to this concept of “technical difficult on the common portal” and it is a broader team. Hence, cannot have a narrow interpretation. Further, technical difficulties cannot be restricted only to a difficulty faced by or on the part of the respondent. It would include within its purview any such technical difficulties faced by the taxpayers as well, which could also be a result of the respondent’s follies. Thus, the phrase “technical difficulty” is being given a restrictive meaning which is supplied by the GST system logs;
- The introduction of Sub rule (1A) in Rule 117 is a patchwork solution that does not recognise the entirety of the situation;
- Lastly, we also find merit in the submissions of the petitioners that Rule 117, whereby the mechanism for availing the credits has been prescribed, is procedural and directory, and cannot affect the substantive right of the registered taxpayer to avail of the existing / accrued and vested CENVAT credit.
- We, therefore, have no hesitation in reading down the said provision [Rule 117] as being directory in nature, insofar as it prescribes the time-limit for transitioning of credit and therefore, the same would not result in the forfeiture of the rights This however, does not mean that the availing of CENVAT credit can be in perpetuity;
- In absence of any specific provisions under the Act, we would have to hold that in terms of the residuary provisions of the Limitation Act, the period of three years should be the guiding principle and thus a period of three years from the appointed date would be the maximum period for availing of such credit
Key takeways
Unlike earlier rulings issued by various courts whereby only specific petitioners were given relief by directing IT redressal committee to open the Form Tran-1 or accept Form Tran-1 manually. This ruling is issued to provide benefit at large to the taxpayers in general who are facing issues while filing Form Tran-1 i.e. beyond technical glitches.
Case laws relied upon
2. Salem Advocates Bar Association v. Union of India AIR 2003 SC 189
3. Commissioner of Central Excise, Madras v Home Ashok Leyland (2007) 4 SCC 41 = 2007-TIOL-42-SC-CX
4. Siddharth Enterprises v. The Nodal Officer 2019-VIL-442-GUJ = 2019-TIOL-2068-HC-AHM-GST
5. Jakap Metind Pvt Ltd v Union of India 2019-VIL-556-GUJ = 2019-TIOL-2586-HC-AHM-GST
6. Indsur Global Ltd. v. Union of India 2014 (310) E.L.T. 833 (Gujarat)] = 2014-TIOL-2115-HC-AHM-CX
7. AB Pal Electricals Pvt. Ltd. vs. Union of India in W.P.(C) 6537/2019 = 2019-TIOL-2930-HC-DEL-GST
9. SARE Realty Projects Pvt. Limited vs. Union of India [W.P.(C) 1300/2018
10. Bhargava Motors vs. Union of India [W.P.(C) 1280/2019
11. Kusum Enterprises Pvt. Limited vs. Union of India [W.P.(C) 7423/2019
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