Case Law Details
P.R. Mani Electronics Vs Union of India (Madras High Court)
Section 140 of the CGST Act read with Rule 117 of the CGST Rules enables a registered person to carry forward the accumulated ITC under erstwhile tax legislations and claim the same under the CGST Act. In effect, it is a transitional provision as is evident both from Section 140 and Rule 117. In light of the judgment of the Supreme Court in Jayam, the contention of the learned counsel for the Petitioner to the effect that ITC is the property of the Petitioner cannot be countenanced and ITC has to be construed as a concession. In addition, it is evident that ITC cannot be availed of without complying with the conditions prescribed in relation thereto. Prior to the amendment to Section 140 of the CGST Act, the power to frame rules fixing a time limit was arguably not traceable to the unamended Section 140 of the CGST Act, which contained the words “in such manner as may be prescribed”, because such words have been construed by the Supreme Court in cases such as Sales Tax Officer Ponkuppam v. K.I. Abraham [(1967) 3 SCR 518] as not conferring the power to prescribe a time limit. Nevertheless, in our view, it was and continues to be traceable to Section 164, which is widely worded and imposes no fetters on rule making powers except that such rules should be for the purpose of giving effect to the provisions of the CGST Act. A fortiori, upon amendment of Section 140 by introducing the words “within such time”, the power to frame rules fixing time limits to avail Transitional ITC is settled conclusively. In SKH Sheet Metals, the Delhi High Court concluded, in paragraph 26, that the statute had not fixed a time limit for transitioning credit by also referring to the repeated extensions of time. Given the fact that the power to prescribe a time limit is expressly incorporated in Section 140, which deals with Transitional ITC, and Rule 117 fixes such a time limit, we are unable to subscribe to this view. The fact that such time limit may be extended under circumstances specified in Rule 117, including Rule 117A, does not lead to the sequitur that there is no time limit for transitioning credit. In this context, reference may be made to Section 16(4) of the CGST Act which provides as follows:
“Section 16(4): A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under Section 39 for the month of September following the end of the financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier.”
The above provision is indicative of the legislative intent to impose time limits for availing ITC. Besides, Section 19(3)(d) of the TNVAT Act itself imposed a time limit for availing ITC and further provided that it would lapse upon expiry of such time limit. In our view, keeping the above statutory backdrop in mind, in the context of Transitional ITC, the case for a time limit is compelling and disregarding the time limit and permitting a party to avail Transitional ITC, in perpetuity, would render the provision unworkable. In this regard, we concur with the conclusion of the Bombay High Court in Nelco that both ITC and Transitional ITC cannot be availed of except within the stipulated time limit. Such time limits may, however, be extended through statutory intervention. As stated earlier, in SKH Sheet Metals, the Delhi High Court observed that ITC is the heart and soul of GST legislations in as much as such legislations are designed to prevent the cascading of taxes. There can be no quarrel with this conceptual position; however, it is not a logical corollary thereof that time limits for availing ITC and, in particular, Transitional ITC, are inimical to the object and purpose of the statute.
In judgments such as Union of India A.K. Pandey [(2009) 10 SCC 552] and Bachhan Devi v. Nagar Nigam [(2008) 12 SCC 372], the Supreme Court held that the use of words such as “shall” or “may” are not conclusive or determinative of the mandatory or permissive nature of a provision. In C. Bright v. The District Collector, [2019 SCC Online Mad 2460], after considering a number of judgments of the Supreme Court, a Division Bench of this Court captured the relevant factors to determine whether a provision is directory or mandatory, illustratively, in paragraph 20. In summary, those factors are: the use of peremptory or negative language, which raises a rebuttable presumption that the provision is mandatory; the object and purpose of the statute and the provision concerned; the stipulation or otherwise of the consequences of non-compliance; whether substantive rights are affected by non-compliance; whether the time limits are in relation to the exercise of rights or availing of concessions; or whether they relate to the performance of statutory duties. In this case, the peremptory word “shall” is used. The relevant rule deals with the time limit for availing Transitional ITC by carrying it forward from the credit balance under tax legislations which have been repealed and replaced by the CGST Act. Thus, the object and purpose of Section 140 clearly warrants the necessity to be finite. ITC has been held to be a concession and not a vested right. In effect, it is a time limit relating to the availing of a concession or benefit. If construed as mandatory, the substantive rights of the assessees would be impacted; equally, if construed as directory, it would adversely impact the Government’s revenue interest, including the predictability thereof. On weighing all the relevant factors, which may be not be conclusive in isolation, in the balance, we conclude that the time limit is mandatory and not directory.
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