GST TRAN-1: Delhi High Court Judgment is Nullified by Finance Act, 2020
May, 29th 2020
GST TRAN -1 is filed by those taxpayers who are eligible to claim the credit on the tax already paid in the pre-GST regime as per section 140 of the CGST Act, 2017 read with Rule 117 [CHAPTER – XIV- TRANSITIONAL PROVIISONS] of the CGST Rules, 2017. The credit can be by way of VAT/Service Tax/Excise Duty. In order to claim the complete amount as a credit, TRAN-1 is to be filed along with the particulars of stock carried forward.
All the persons registered under the Goods and Services Tax (GST) Acts who may or may not be registered under the pre-GST regime were permitted to file GST TRAN-1. It involves all those who migrated to GST and have an input ta credit [ITC] on closing stock. Taxpayers who do not have a VAT or excise invoice for stocks held by them on 30th June 2017, can use GST TRAN –2. However, certain classes of persons/taxpayers including the composition dealers under the GST need not claim the said credit.
As per Rule -117 of the GGST Rules, 2017 the taxpayers should have filed the application in TRAN-1/TRAN-2 within 90 days from 1st July 2017 [which was again extended from time to time up to 31st March 2020 for the persons who could not file the form due to technical glitches on the GST Portal]. However, a number of taxpayers could not file the same not only due to technical glitch on the portal but also owing to other technical difficulties at the end of the dealers. Consequently, a large number of taxpayers who could not furnish FORM TRAN -1 within the stipulated time either due to technical glitches on the GST portal or due to technical difficulties experienced by them. In many cases, the taxpayers could not even access the system to get uploaded the said application. However, the time limit for filing TRAN -1 was extended only for the persons who could prove technically that they have attempted to upload TRAN -1 within the prescribed time limit but failed to do so. Practically it is impossible for those taxpayers.
Under these compelling circumstances, a large number of taxpayers across the country had approached jurisdictional high courts challenging the time limit prescribed under Rule -117 of the GGST Rules, 2017 and almost all cases [except in one case where Hon’ble High Court of Bombay in NELCO Ltd. vs. UOI &Ors has upheld the validity of Rule 117 of the CGST Rules, 2017] are decided in favor of the taxpayers, the latest in the line being Judgment in Brand Equity Treaties Ltd Vs, The Union of India & Others in WP[C] No. 196/2019 & CM Appeal No. 965/2019 dated: 05-05-2020 in which it is held that “Accordingly since all the Petitioners have filed or attempted to file Form TRAN-1 within the aforesaid period of three years they shall be entitled to avail the Input Tax Credit accruing to them. They are thus, permitted to file relevant TRAN-1 Form on or before 30.06.2020. Respondents are directed to either open the online portal so as to enable the Petitioners to file declaration TRAN-1 electronically or to accept the same manually. Respondents shall thereafter process the claims in accordance with the law. We are also of the opinion that other taxpayers who are similarly situated should also be entitled to avail the benefit of this judgment. Therefore, Respondents are directed to publicize this judgment widely including by way of publishing the same on their website so that others who may not have been able to file TRAN-1 till date are permitted to do so on or before 30.06.2020”
As evident from the above para, the Hon’ble High Court of Delhi has ruled that the stipulation of a time limit in Rule -117 is a directory in nature since there are no supporting provisions in the CGST Act. In the absence of any specific provisions under the Act, the provisions of the Limitation Act is applicable and as such the period of three years [as prescribed in the Limitation Act, 1963] should be the guiding principle and thus a period of three years from 1st July 2017 would be the maximum period for availing of an input tax credit on opening stock. Therefore, the Hon’ble Court has allowed all taxpayers in the country to furnish fresh FORM GST TRAN-1 within 30th June 2020.
In most judgments delivered by various high courts, it was held that transitory credit is a vested right and any time limit cannot be fixed to avail that right. While so, to get over the said judgments, section 140 of the CGST Act, 2017 is amended through Finance Act, 2020 dated: 27th March 2020 with retrospective effect from 1st July 2017 and provided that transitory credit taken after due date will be disallowed. To facilitate this, the term “within such time” has been inserted among various provisions of Section 140 of the CGST Act, 2017. In fact, this amendment has been brought in with retrospective effect so as to nullify the judgments of various High Courts including one inBrand Equity Treaties Ltd Vs, The Union of India & Others passed by the Hon’ble High Court of Delhi.
This amendment may even affect those cases where the taxable person could not file GST TRAN-1 in time due to technical glitches with GSTN. In fact, this amendment would go against the specific promises given by the ruling party, those tax laws will not be amended with retrospective effect.
Thus, by an amendment in section 140 of the CGST Act through Finance Act, 2020 the effect of various High Court judgments allowing further time for filing GST TRAN 1 is nullified. However, it may give way to further litigation challenging the retrospective of the amended provision which will take much time and immense energy of the litigants across the bar to reach at finality in the matter, though it remains that the claim of the transitional credit is genuine. It can be noted that as per the judgment supra, the Hon’ble High Court of Delhi has allowed all taxpayers in the country to furnish fresh FORM GST TRAN-1 within 30th June 2020 online or through manually as the case may be. In the circumstances, this author suggests to all persons who have a genuine and eligible claim of transitional credit as on 1st July 2017 [but not availed the same yet] to file GST TRAN-1 afresh within 30th June 2020 as directed by the Hon’ble High Court of Delhi, since it is a fresh but the last opportunity to do so, even though the result is not predictable now.