2020 (5) TMI 171 - HC - GST

Court directs respondents to facilitate Form TRAN-1 filing by June 30, 2020, upholding taxpayers' vested input tax credit rights.

The court allowed the petitions, directing the respondents to enable the petitioners to file Form TRAN-1 electronically or manually by 30th June 2020. The ... Vested right to CENVAT credit - transitional entitlement under Section 140(1) - time limit in Rule 117 to be read as directory - arbitrariness of sub rule (1A) and restrictive notion of 'technical difficulties' - residuary limitation period of three years for transitionTransitional entitlement under Section 140(1) - time limit in Rule 117 to be read as directory - Whether petitioners who failed to file FORM GST TRAN 1 within the period prescribed by Rule 117 are nevertheless entitled to carry forward the CENVAT credit reflected as on the appointed day by filing TRAN 1 belatedly. - HELD THAT: - The Court held that Sub section (1) of Section 140 grants a substantive entitlement to carry forward CENVAT credit accrued and reflected in the return up to the day preceding the appointed day; the manner of transition was left to be prescribed. In absence of any consequence in Section 140 for delayed filing, the time limit introduced by Rule 117 must be treated as procedural. Applying principles that procedural provisions serve substantive rights and are not to operate as a forfeiture unless expressly provided, the Court read down Rule 117 so that the time-limit does not result in extinguishment of the vested right. The Court further concluded that, having regard to the transitional purpose and lack of specific limitation in the Act, the residuary period of three years (from the appointed date) is the maximum permissible period for availing the transitional credit. In view of this construction, petitioners who filed or attempted to file TRAN 1 within that three year period are entitled to avail the input tax credit and to file TRAN 1 by the date directed by the Court. [Paras 12, 17, 21, 22, 23]Rule 117's time limit is directory; petitioners permitted to file TRAN 1 and avail transitional CENVAT credit if filed within three years from the appointed date; petitioners directed to file TRAN 1 by 30.06.2020.Arbitrariness of sub rule (1A) and restrictive notion of 'technical difficulties' - time limit in Rule 117 to be read as directory - Whether sub rule (1A) to Rule 117, which permits extension only for registered persons who could not submit TRAN 1 on account of 'technical difficulties on the common portal' on recommendation of the Council, is tenable. - HELD THAT: - The Court found sub rule (1A)'s classification arbitrary and unduly narrow. 'Technical difficulty' is not limited to server side or GSTN logs and can include a range of difficulties faced by taxpayers (including inability to use the new online system, low bandwidth, lack of ability to record failed attempts, or other offline impediments). Limiting relief to cases evidenced by common portal logs or to those recommended by the Council results in an artificial distinction and is unreasonable under Article 14. The Court held that the objective of the transitory scheme is to protect accrued rights and the executive's patchwork exception does not justify depriving taxpayers of that protection. [Paras 14, 18, 19]Sub rule (1A), insofar as it confines relief only to cases demonstrable as 'technical difficulties on the common portal' and made contingent on Council recommendation, is arbitrary and cannot be applied to deny relief to bona fide taxpayers.Vested right to CENVAT credit - Article 300A protection of accrued credits - Whether the accumulated CENVAT credit standing in favour of an assessee on the appointed date is a vested proprietary right which cannot be extinguished by subordinate legislation prescribing a time limit. - HELD THAT: - The Court observed that the credit reflected in the CENVAT register on the appointed date had accrued and vested in favour of the assessees. Such accrued credit is property for the purposes of Article 300A and cannot be taken away except by authority of law. Since Section 140 confers the substantive entitlement to migrate the credit and does not itself prescribe a forfeiture consequence for belated filing, a subordinate rule cannot effect an extinguishment of that vested right. Accordingly, the Court treated the procedural rule as not permitting forfeiture of the vested credit. [Paras 16, 19, 21]The accumulated CENVAT credit as on the appointed date is a vested right (property) protected under Article 300A and cannot be extinguished by Rule 117; subordinate rules cannot curtail the substantive entitlement granted by Section 140.Final Conclusion: All petitions allowed. Petitioners (and similarly situated taxpayers) are permitted to file FORM GST TRAN 1 for transition of CENVAT credit reflected as on 30.06.2017 by 30.06.2020; respondents to enable electronic filing or accept manual TRAN 1 and process claims in accordance with law. Rule 117's time limit is to be read as directory; sub rule (1A) is arbitrary insofar as it confines relief to cases demonstrable solely as 'technical difficulties on the common portal'. The residuary limitation of three years from the appointed date is adopted as the outer limit for availing transitional credit. Issues Involved:1. Whether the petitioners are entitled to avail input tax credit by filing Form TRAN-1 beyond the stipulated period under the CGST Rules.2. The validity and constitutionality of Rule 117 of the CGST Rules imposing a time limit for carrying forward the CENVAT credit.3. Whether the delay in filing Form TRAN-1 was due to technical glitches or other reasons.4. Whether the right to input tax credit is a vested right and protected under Article 300A of the Constitution.Issue-Wise Detailed Analysis:1. Entitlement to Avail Input Tax Credit by Filing Form TRAN-1 Beyond the Stipulated Period:The petitioners sought relief to file Form TRAN-1 beyond the period provided under the CGST Rules to avail input tax credit of accumulated CENVAT credit as of 30th June 2017. The court noted that it had allowed numerous similar petitions in the past, where delays were attributed to technical glitches. Despite the respondents' objections that the delays in these cases were not due to technical glitches, the court found no significant difference in circumstances compared to previously decided cases. The court concluded that the petitioners should be given another opportunity to file their TRAN-1 forms belatedly.2. Validity and Constitutionality of Rule 117 of the CGST Rules:Petitioners challenged Rule 117 of the CGST Rules as arbitrary, unconstitutional, and violative of Article 14 to the extent it imposes a time limit for carrying forward the CENVAT credit. The court observed that the CGST Act does not prescribe a time limit for transitioning CENVAT credit, and the time limit under Rule 117 is procedural and directory, not mandatory. The court held that the period of 90 days prescribed by Rule 117 has no rationale and is arbitrary. The court read down Rule 117 to be directory in nature, allowing a period of three years from the appointed date for availing such credit.3. Delay Due to Technical Glitches or Other Reasons:The respondents argued that the delays in filing Form TRAN-1 were due to the petitioners' own technical difficulties and not glitches in the GSTN. The court acknowledged that the GST system was in a nascent 'trial and error' phase and faced several shortcomings and inadequacies. The court noted that taxpayers, including the petitioners, faced various technical difficulties, including low bandwidth and lack of computer skills. The court emphasized that 'technical difficulty' should not be narrowly interpreted and includes difficulties faced by taxpayers as well.4. Right to Input Tax Credit as a Vested Right:Petitioners argued that the accumulated CENVAT credit represents their property and a vested right, constitutionally protected under Article 300A. The court agreed, stating that the credit standing in favor of an assessee is 'property' and cannot be taken away without authority of law. The court emphasized that the right to carry forward CENVAT credit is a substantive right and cannot be curtailed by procedural rules. The court held that the time limit for filing TRAN-1 should not result in forfeiture of this vested right.Conclusion:The court allowed the petitions, directing the respondents to enable the petitioners to file Form TRAN-1 electronically or manually by 30th June 2020. The court also directed the respondents to publicize the judgment widely to allow other similarly situated taxpayers to avail the benefit. The court reiterated that the right to input tax credit is a vested right and procedural rules should not deprive taxpayers of this right. The judgment emphasized a fair and reasonable approach in transitioning to the GST regime, considering the technical and procedural challenges faced by taxpayers.