Gujarat HC held the time-limit for availing transitional credit u/r 117 as ‘procedural’ and ‘not mandatory’

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Synopsis: The Hon’ble Gujarat High Court in the matter of Siddharth Enterprises vs. Nodal Officer has allowed the Petitioner to file declaration in form GST TRAN-1 and GST TRAN-2 and held that, the due date contemplated under Rule 117 of the CGST Rules for the purposes of claiming transitional credit is procedural in nature and thus should not be construed as a mandatory provision.

Facts:

M/s Siddharth Enterprises (“the Petitioner”) is a partnership firm engaged in the business of import-export and distributor of branded houseware. The Petitioner could not file Form GST TRAN-1 on account of the technical glitches in terms of poor net connectivity and other technical difficulties on the common portal.

Accordingly, they had to physically lodge their claim of transitional credit on stock in Form GST TRAN-1 and GST TRAN-2 respectively with their Jurisdictional Officer. The office of the Nodal Officer reached to the conclusion that the writ-applicants had neither tried for saving/submitting or filing the Form GST TRAN-1 as per the GST System Logs.

Being aggrieved, the Petitioner has filed writ petition before the Hon’ble Gujarat High Court on behalf of four applicants for issuing appropriate writ, order or direction to allow filing of declaration in Form GST TRAN-1 and GST TRAN-2 in terms of Section 140(3) of the CGST Act, 2017 (“CGST Act”) and declare the due date contemplated under Rule 117 of CGST Rules, 2017 (“CGST Rules”) as procedural in nature and thus merely directory and not a mandatory provision.

Issue involved:

Whether the due date contemplated under Rule 117 of CGST Rules for availing transitional credit is merely directory and not a mandatory provision?

Petitioner’s Contention:

The transitional credit was allowed because the intention of the Government was not to collect tax twice on the same goods. It is pointed out that in such cases, it was provided that the credit of the duty/tax paid earlier would be admissible as credit.

Further, in the absence of the meaning of the phrase “technical difficulties on the common portal” in the CGST Act or Rules, the same should be given a liberal interpretation because it is a settled principle of law that an interpretation unduly restricting the scope of a beneficial provision should be avoided so that it may not take away with one hand what the policy gives with the other.

Held:

The Hon’ble Gujarat High Court in R/Special Civil Application No. 5758, 5759, 5760 and 5762 dated September 06, 2017observed as under:

  • Section 140(3) of the CGST Act provides for a substantive right which cannot be curtailed or defeated on account of the procedural lapses.
  • The entitlement of the credit of carry forward of the eligible duties is a vested right and, therefore, it cannot be taken away by virtue of Rule 117 of the CGST Rules, with retrospective effect for failure to file the form GST Tran-1 within the due date, i.e. December 27, 2017. The provision for facility of credit is as good as the tax paid till the tax is adjusted and, therefore, the right to the credit had become absolute under the Central Excise Act and, therefore, the credit is indefeasible and the same cannot be taken away.
  • The rights accrued under the existing law have been saved by the CGST Act under Section 174(2)(c) of the CGST Act and, therefore, it cannot be allowed to lapse under Rule 117 of the CGST Rules, for failure to file declaration form GST Tran-1 within the due date.
  • The Objects and Reasons of the Constitution 122nd Amendment Bill, 2014 clearly set out that it is intended to remove the cascading effect of taxes and to bring out a nationwide taxation system.
  • It is arbitrary, irrational and unreasonable to discriminate in terms of the time limit to allow the availment of the input tax credit with respect to the purchase of the goods and services made in the pre-GST regime and post-GST regime and the same could be termed as violative of Article 14 of the Constitution of India.
  • It is legitimate for a going concern to expect that it will be allowed to carry forward and utilise the CENVAT credit after satisfying all the conditions as mentioned in the Central Excise Law and, therefore, disallowing such vested right is offensive against Article 14 of the Constitution.
  • By not allowing the right to carry forward the CENVAT credit for not being able to file the Form GST TRAN-1 within the due date would definitely have a serious impact on the working capital of the writ-applicants and such action could be termed as violative of Article 19(1)(g) of the Constitution of India.
  • The liability to pay GST on sale of stock carried forward from the previous tax regime without corresponding input tax credit would lead to double taxation on the same subject matter.
  • The action could be also termed as violative of Article 300A of the Constitution of India which states that, no person shall be deprived of property saved by authority of law. While right to the property is no longer a fundamental right but it is still a constitutional right.

In terms of supra observations made, Hon’ble Gujarat High Court allowed all the four writ-applications and directed the respondents to allow filing of declaration in Form GST TRAN-1 and GST TRAN-2 so as to enable them to claim transitional credit of the eligible duties in respect of the inputs held in stock on the appointed day in terms of Section 140(3) of the Act. It is further held that the due date contemplated under Rule 117 of the CGST Rules for the purposes of claiming transitional credit is procedural in nature and thus should not be construed as a mandatory provision.

Citation: [TS-684-HC-2019(GUJ)-NT]

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