2018 (4) TMI 585 - HC - GST

Court upholds transitional provisions in GST Act, rejects challenges based on accrued rights and promissory estoppel

The court dismissed the petitions challenging Clause (iv) of Section 140(3) of the Central Goods and Services Tax Act. It held that the transitional ... Transitional input tax credit - accrued and vested rights - reasonableness and arbitrariness under Article 14 - freedom to practise profession or trade under Article 19(1)(g) - promissory estoppel against the State - saving of rights under repeal provisionTransitional input tax credit - reasonableness and arbitrariness under Article 14 - freedom to practise profession or trade under Article 19(1)(g) - Validity of Clause (iv) of Section 140(3) of the CGST Act imposing a twelve month cut off for possessing invoices/prescribed documents to transition input tax credit - HELD THAT: - The Court held that transitional input tax credit under Section 140 is a statutory concession granted subject to conditions. Clause (iv) merely requires that invoices or other prescribed documents evidencing payment of duty under the existing law be issued not earlier than twelve months immediately preceding the appointed day. The Registrar/Rules under the existing regime already subjected availment of CENVAT credit to conditions and time limits; accordingly, the impugned condition is consistent with the scheme of conditional credit and with existing rules. Economic and fiscal measures attract a wide legislative discretion and courts will not substitute their policy choice where the classification or temporal restriction is not palpably arbitrary. Applying established precedents, the Court found no arbitrariness or denial of reasonable classification under Article 14 nor any unlawful restriction of Article 19(1)(g). The transitional restriction has a clear nexus with the object of preventing misuse during migration to the new regime and ensuring smooth transition; it therefore falls within legislative competence and is not unconstitutional. [Paras 56, 57, 66, 67]Clause (iv) of Section 140(3) is not arbitrary or violative of Articles 14 or 19(1)(g); the temporal cut off for transitional credit is constitutionally valid.Accrued and vested rights - saving of rights under repeal provision - Whether petitioners had an accrued or vested right under the existing CENVAT regime which precluded imposition of the transitional twelve month condition, including applicability of Section 174 saving provision - HELD THAT: - The Court examined Section 174 (saving on repeal) and the character of rights under the erstwhile CENVAT/central excise rules. It reiterated that rights to avail CENVAT credit under the existing law were themselves conditional and subject to provisos and time limits. Where the existing law conferred a concession subject to conditions, the new Act may save those rights only within the scope of those conditions. There was no indefeasible or absolute vested right to transition credit free of conditions; hence Section 174 does not operate to invalidate the temporal condition in Section 140(3)(iv). Pre existing conditional or non absolute concessions cannot be read as creating an unconditional vested right removed by the transitional provision. [Paras 49, 50, 56, 57]No indefeasible or vested right existed that nullifies the twelve month transitional condition; Section 174 does not save an unconditional right to transitional credit beyond the conditions in the new Act.Promissory estoppel against the State - Applicability of promissory estoppel to prevent enforcement of the transitional restriction - HELD THAT: - The Court held that promissory estoppel cannot be invoked to override a statutory provision or to create a right against the State in exercise of legislative power. There was no unequivocal, unconditional promise by the State that would bar the imposition of transitional conditions; even where administrative assurances exist, estoppel yields to statutory power and public interest. Given the conditional nature of the concession under the existing law and the public interest in orderly transition, promissory estoppel does not apply to invalidate Clause (iv). [Paras 65]Promissory estoppel does not bar application of the twelve month transitional condition.Final Conclusion: All writ petitions challenging Clause (iv) of Section 140(3) of the CGST Act were dismissed. The Court found the twelve month cut off in the transitional provision to be a permissible, non arbitrary legislative restriction, not violative of Articles 14 or 19(1)(g), and not negated by claims of vested rights or promissory estoppel; Rule discharged, no order as to costs. Issues Involved:1. Challenge to Clause (iv) of Section 140(3) of the Central Goods and Services Tax Act, 2017 (CGST Act).2. Discrimination and inequality in availing input tax credit under the GST regime.3. Violation of Articles 14 and 19(1)(g) of the Constitution of India.4. Doctrine of promissory estoppel.5. Retrospective application of fiscal statutes and vested rights.Detailed Analysis:1. Challenge to Clause (iv) of Section 140(3) of the CGST Act:The petitioners challenged Clause (iv) of Section 140(3) of the CGST Act, which stipulates that input tax credit can only be availed if the invoices or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day. The petitioners argued that this clause is arbitrary and discriminatory as it prohibits the availment of CENVAT credit for stock lying in the warehouse with invoices dated earlier than twelve months preceding the appointed day.2. Discrimination and Inequality in Availing Input Tax Credit:The petitioners contended that the CGST Act causes discrimination between manufacturers and depot/traders regarding the stock on the appointed day, putting the latter at a disadvantageous position. They argued that the transitional provisions of the CGST Act should ensure a seamless flow of credit to eliminate the cascading effect of taxes. The petitioners emphasized that the arbitrary cutoff date of goods lying in stock for less than one year is unreasonable and causes double taxation.3. Violation of Articles 14 and 19(1)(g) of the Constitution of India:The petitioners claimed that the impugned provisions violate Articles 14 (right to equality) and 19(1)(g) (right to practice any profession) of the Constitution of India. They argued that the arbitrary barrier of stock of goods being less than a year old for claiming credit fails to achieve the object of eliminating the cascading effect of taxes, thereby inflicting tax cascading effect on depot/traders while extending full credit to registered manufacturers.4. Doctrine of Promissory Estoppel:The petitioners argued that the impugned provisions are hit by the doctrine of promissory estoppel. They claimed that there was an entitlement to transfer the credit of all goods purchased by the petitioner from time to time once registered under the Central Excise Law. If this right is taken away only on the strength of the transitional provision, the principle of promissory estoppel would come into play.5. Retrospective Application of Fiscal Statutes and Vested Rights:The petitioners contended that the right to avail CENVAT credit is a vested right accrued under the repealed Central Excise Act, 1944. They argued that the new enactment or repeal of the old Act cannot debar or disentitle the petitioner of the accrued right, which would be violative of Article 300A of the Constitution of India.Judgment:The court held that the CENVAT credit is a mere concession and cannot be claimed as a matter of right. The court observed that the CENVAT Credit Rules under the existing legislation themselves stipulate and provide for conditions for availment of that credit, making it a restricted or conditional right. The court found that the impugned condition in Clause (iv) of Section 140(3) is consistent with the conditions imposed under the existing law and does not defeat any accrued or vested right. The court also held that the transitional provisions have a clear nexus with the object sought to be achieved by the CGST Act and cannot be termed as arbitrary or unreasonable.Regarding the doctrine of promissory estoppel, the court noted that there cannot be an estoppel against a statute. The court found no absolute and unconditional promise from inception that has been breached or resiled by the Executive or the State. The court emphasized that the concession or right was extended with conditions, and the new regime has taken over with transitional arrangements that are consistent with the conditions under the existing law.The court also addressed the argument of retrospective application of fiscal statutes, stating that the right to avail input tax credit under the GST is not unconditional or without any restriction. The court concluded that the challenge to the impugned condition must fail as there is nothing indefeasible or absolute in the right claimed under the existing law or in the transitional arrangements set out in the CGST Act.Conclusion:The court dismissed the petitions, holding that the challenge to Clause (iv) of Section 140(3) of the CGST Act is devoid of merits. The court found that the transitional provisions have a clear nexus with the object sought to be achieved and are not arbitrary or unreasonable. The court also held that the doctrine of promissory estoppel and the argument of retrospective application of fiscal statutes do not apply in this case. The petitions were dismissed without any order as to costs.