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

Willowood Chemicals Pvt. Ltd. Versus Union Of India

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 ... Constitutional Validity of second proviso to Section 140[1] of the Gujarat Goods and Services Tax Act, 2017 - vires of Rule 117 of the Central Goods and Services Tax Rules, 2017 and Rule 117 of the Gujarat Goods and Service Tax Rules, 2017 - transitional credit - migration to GST Regime - carry forward of CENVAT credit in the electronic credit ledger, available as on 30th June 2017 in terms of Section 140[3] of the Central Goods and Services Tax Act, 2017 - carry forward of eligible credit of State tax ie., the Value Added Tax available as on 30th June 2017 - time limit to make declaration of available tax credits. Case of the petitioners is that in terms of Rule 117 of the CGST Rules, the petitioners tried to upload the declaration in TRAN­1 on the official portal on 27.12.2017, however, due to technical glitches in the portal, the petitioners could not upload the declaration - The petitioners, therefore, approached the concerned authorities on 28.12.2017 and submitted physical declaration in the proper format. The authorities, however, conveyed that they have no power to accept physical declarations. Held that:- It is well settled that the presumption of constitutionality would touch even the subordinate legislation. However, the grounds on which a statute framed by the Parliament or the State legislature are limited, as compared to the subordinate legislation. While a legislation framed by the subordinate legislature can also be questioned on the ground that the same is ultra vires the Act, or is beyond the rule making powers of the authority or that the same is wholly arbitrary and unreasonable, the law framed by the Parliament and the State legislature, could be struck down only on two grounds viz., lack of legislative competence, or violation of the fundamental rights or any other constitutional provisions. It was further observed that no enactment can be struck down by just saying that it is arbitrary or unreasonable. Vires of second proviso to Section 140 [1] of the GGST Act - Held that:- As per the main provision, credit would be available on the amount of Value Added Tax and Entry Tax carried forward in the return. As per the further proviso or the second proviso, such credit to that extent would not be transferred when necessary declarations are not furnished by the dealer. The proviso thereafter however ensures that as and when declarations are filed, the amount equivalent to credit specified in the second schedule would be refunded to the dealer. We do not find any major change in the effect of late production of the forms by a dealer in the present statutory provisions; as compared to the earlier position, nor the statutory provisions deny the benefit of such credit, even where necessary declarations are furnished. Thus, no existing or vested right can be said to have been taken away - We do not think Section 140 [c] is a charging provision or that for want of mechanism for computing such charge, the provision itself would fail. The provision is in the nature of enabling the dealers to take credit of existing taxes paid by them but not utilized for discharging their tax liabilities. It contains conditions subject to which the benefit can be enjoyed. Petitioners’ challenge to rule 117 of the CGST Rules and GGST Rules - As per the petitioners, the prescription of time limit per se is ultra vires the provisions of the Act and the Constitution of India - Held that:- It is in exercise of this rule making power, the Government has framed the CGST Rules, 2017 in which; as noted, sub­rule (1) of Rule 117 has prescribed, besides other things, the time limit for making declaration in the prescribed form for every dealer entitled to take credit of input tax under Section 140. Sub­rule [1] of Rule 117 thus applies to all cases of credits which may be claimed by a registered person under section 140 of the Act and is not confined to sub­section [3]. This plenary prescription of time limit within which necessary declarations must be made is, in our opinion, neither without authority nor unreasonable. Merely because the rule in question prescribes a time frame for making a declaration, such provision cannot necessarily be held to be directory in nature and must depend on the context of the statutory scheme. In the economic matters of such vast scale, the wider considerations of the State exchequer, while interpreting a statutory provisions cannot be kept out of purview. Quite apart from independently finding that the time limit provisions contained in sub­rule (1) of Rule 117 of the CGST Rules is not ultra vires the Act or the powers of the rule making authority, interpreting such powers as merely directory would give rise to unending claims of transfer of credit of tax on inputs and such other claims from old to the new regime. Under the new GST laws, the existing tax structure was being replaced by the new set of statutes, through an exercise which was unprecedented in the Indian context. The claims of carry forward of the existing duties and credits during the period of migration, therefore, had to be within the prescribed time. Doing away with the time limit for making declarations could give rise to multiple large­scale claims trickling in for years together, after the new tax structure is put in place - there is no substance in the petitioners’ challenge to rule 117 (1) of the CGST Rules as well as GGST Rules. The contention of the counsel for the petitioners that the saving clause inserted in the Gujarat Value Added Tax Act would protect and preserve the tax credits of the past regime, after introduction of the Goods and Service tax is to be noted only for rejection. Petition dismissed - decided against petitioner. 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.