2018 (10) TMI 261 - HC - GST

Gujarat GST Act Section 140(1) second proviso and Rule 117 time limits for transitional credit declarations upheld as constitutional

The Gujarat HC upheld the constitutional validity of the second proviso to Section 140(1) of the Gujarat GST Act, 2017 and Rule 117 of the CGST/GGST ... Transitional arrangements for input tax credit - carry forward of tax credit on migration to GST - condition precedent of furnishing prescribed declarations (Forms C/F/H) for concessional treatment - delegated legislation and rule making power to prescribe procedure and time limits - presumption of constitutionality and test of manifest arbitrariness under Article 14 - finality and fiscal administration considerations in large scale tax migrationCondition precedent of furnishing prescribed declarations (Forms C/F/H) for concessional treatment - transitional arrangements for input tax credit - Validity of the second proviso to Section 140(1) of the GGST Act which conditions carry forward of certain VAT/CST-related credit on substantiation in prescribed forms - HELD THAT: - The Court held that the further proviso and the proviso following it operate to defer, not permanently extinguish, the benefit of credit in cases where declarations under the Registration & Turnover Rules are not produced. The statutory scheme mirrors the earlier CST regime where concessional inter state treatment depended on prescribed forms and the benefit could be allowed upon later production. The proviso therefore does not take away any vested right or operate as a charging provision without machinery; it imposes conditions on an indulgence (tax concession) and provides for refund when the prescribed proofs are later furnished. The saving clause in the earlier VAT statute cannot be read to override the express transitional scheme enacted in the CGST/GGST Acts. Applying principles of legislative competence and precedent, the proviso is within legislative power and not unconstitutional or arbitrary. [Paras 13, 16, 17, 33]Second proviso to Section 140(1) of the GGST Act is not unconstitutional and is intra vires; it defers transfer of credit until prescribed declarations are produced and provides for refund thereafter.Delegated legislation and rule making power to prescribe procedure and time limits - finality and fiscal administration considerations in large scale tax migration - Validity of Rule 117(1) of the CGST/GGST Rules prescribing a time limit for filing FORM GST TRAN 1 for carry forward of credits and whether that time limit is mandatory or directory - HELD THAT: - Having regard to the wide rule making powers under Section 164(1)-(2) of the CGST Act to make rules for carrying out the Act and matters required or permitted to be prescribed, the Court held that Rule 117(1) prescribing the time limit for electronic declaration is within the subordinate legislature's authority. The Court distinguished authorities holding procedural time limits to be directory where the statutory context differed, and emphasized the need for finality and manageable administration when an entire tax regime is restructured. Allowing unlimited belated claims would impede matching of credits, affect revenue estimates and invite prolonged litigation; thus the time limit is not merely technical and cannot be treated as freely directory. The Court noted the remedial amendment (insertion of sub rule 1A) authorizing limited extension up to 31 March 2019 for genuine portal related difficulties, which addresses the grievance about technical glitches. [Paras 22, 24, 25, 26, 32]Rule 117(1) of the CGST/GGST Rules prescribing the time limit for submission of FORM GST TRAN 1 is intra vires the Act and not arbitrary; the time limit is not to be read as freely directory in the context of the migration to GST, subject to limited extensions as provided by the rules (including sub rule 1A).Final Conclusion: The writ petition is dismissed. The challenge to the second proviso to Section 140(1) GGST Act and to Rule 117(1) of the CGST/GGST Rules fails; portal related genuine difficulties are addressable under the rule permitting limited extension (sub rule 1A), but the statutory scheme and time limits for migration of credits are upheld. Issues Involved:1. Constitutionality of the second proviso to Section 140(1) of the Gujarat Goods and Services Tax Act, 2017 (GGST Act).2. Vires of Rule 117 of the Central Goods and Services Tax Rules, 2017 (CGST Rules) and Rule 117 of the Gujarat Goods and Service Tax Rules, 2017 (GGST Rules).3. Direction to allow the petitioners to carry forward CENVAT credit in the electronic credit ledger.4. Challenge to the vires of Section 164 of the CGST Act (not elaborated).Issue-wise Detailed Analysis:1. Constitutionality of the second proviso to Section 140(1) of the GGST Act:The petitioners argued that the second proviso to Section 140(1) of the GGST Act is unconstitutional as it imposes unreasonable restrictions on the enjoyment of property rights and creates hostile discrimination between two classes of dealers. They contended that the tax credit available as of 30th June 2017 is an accrued or vested right that cannot be taken away by imposing restrictions through the said proviso. The respondents argued that the proviso merely imposes a condition for the transfer of existing tax credit from the old regime to the new regime, requiring necessary forms to establish inter-State sales, branch transfers, or export sales. The Court held that the combined effect of the proviso and the following proviso ensures that credit related to inter-State sales, branch transfers, or export sales would not be available until necessary declarations are furnished, but the amount would be refunded once the declarations are submitted. The Court found no major change in the effect of late production of forms compared to the earlier statutory provisions and held that no existing or vested right is taken away.2. Vires of Rule 117 of the CGST Rules and GGST Rules:The petitioners challenged the time limit prescribed in Rule 117 for making declarations of available tax credits, arguing that it is ultra vires the Act and the rule-making powers of the authority. They contended that the time limit should be read as directory and not mandatory. The respondents argued that the rule was framed in exercise of rule-making powers and was in consonance with the scheme of Section 140 of the Act. The Court held that Section 164 of the CGST Act grants the Government wide rule-making powers to carry out the provisions of the Act, including prescribing time limits. The Court found that the prescription of time limits is neither without authority nor unreasonable and is necessary for the effective implementation of the new tax structure. The Court rejected the petitioners' challenge to Rule 117, holding that the time limit provisions are not ultra vires the Act or the Constitution.3. Direction to allow the petitioners to carry forward CENVAT credit in the electronic credit ledger:The petitioners argued that due to technical glitches in the Government portal, they could not upload the declaration in TRAN-1 within the extended time, resulting in the loss of tax credit. The respondents provided that the Government has amended Rule 117 by inserting sub-rule (1A), which allows the Commissioner to extend the date for submitting the declaration electronically in genuine cases of technical difficulties. The Court held that the petitioners' grievance of not being able to file the declaration due to technical glitches could be addressed under this rule, thus taking care of one of the petitioners' grievances.4. Challenge to the vires of Section 164 of the CGST Act:The Court did not elaborate on this aspect as no contentions were raised with respect to this challenge.Conclusion:The Court dismissed the petition, upholding the constitutionality of the second proviso to Section 140(1) of the GGST Act and the vires of Rule 117 of the CGST Rules and GGST Rules. The Court found that the time limit provisions are necessary for the effective implementation of the new tax structure and are within the rule-making powers granted by the Act. The petitioners' grievance regarding technical glitches was addressed by the amended Rule 117, allowing for an extension in genuine cases.