2024 (12) TMI 266 - HC - GST

Transitional credit entitlement for excise duty via CTD without TRAN-1 rejected; TRAN-1 filing held mandatory to claim credit.

Transitional credit of excise duty claimed via Credit Transfer Document was denied where statutory conditions for claiming credit were unmet; the HC held ... Entitlement to transitional credit of excise duty made through Credit Transfer Document - filing TRAN-3 without insisting on submission of TRAN-1 declaration within the time stipulated under Rule 117 of the Central Goods and Services Tax Rules, 2017 - the petitioner’s argument is that the requirement of submission of TRAN-1 declaration, as provided under Rule 117 of the CGST Rules, 2017, is not a substantive or mandatory provision, but merely processual or directory, violation of which cannot lead to rejection of claim - HELD THAT:- The petitioner, admittedly being registered person, who was not liable to be registered under the existing laws just before the appointed day i.e. 01.07.2017, could claim input tax credit for eligible duties in respect of inputs held in stock and inputs contained in semi finished or finished goods held in stock on the appointed day - it is relevant to notice that substantive provision contained in sub-section (3) of Section 140 of the CGST Act, 2017, clearly mandates that entitlement to take credit of eligible duties would be available within such time and in such manner, as may be prescribed, subject to conditions as laid down. Rule 117 of the CGST Rules, 2017 requires the registered person entitled to take credit of input tax under Section 140 of the CGST Act, 2017, to submit declaration electronically in Form GST TRAN-1, duly signed, on the common portal specifying therein, separately, the amount of input tax credit of eligible duties and taxes, as defined in Explanation 2 to section 140, to which he is entitled under the provisions of the said section - the prescription of time limit is not merely a provision of Rule framed by the Rule Making Authority in exercise of rule making power conferred on it under the CGST Act, 2017, but is also a statutory mandate, as contained in sub-section (3) of Section 140 of the CGST Act, 2017, that such claim has to be made within the prescribed time and in such manner, as may be prescribed. Therefore, the Rule Making Authority had no option but to prescribe the time limit for making appropriate declaration consistent with the eligibility conditions contained in the law itself. In the case of Jayam & Co. Vs. Assistant Commissioner & Anr. [2016 (9) TMI 408 - SUPREME COURT], it was authoritatively laid down that when a concession is given by the statute, the Legislature has power to make the provision stating the form and the manner in which such concession is to be allowed. There was no right, inherent or otherwise, vested with the dealer to claim the benefit of input tax credit except in accordance with the provisions of law. The submission that provision under Rule 117 of the CGST Rules, 2017, requiring submission of declaration in TRAN-1, is merely processual and not a substantive provision and, therefore, not mandatory, cannot be accepted. Firstly, the provision under Rule 117(2) of the CGST Rules, 2017, requiring submission of statutory declaration in form TRAN-1, is not by virtue of rule making power alone. Such a requirement is mandated under the substantive provision contained in sub-section (3) of Section 140 of the CGST Act, 2017 - it was absolutely mandatory for the Rule Making Authority to prescribe the period of limitation for submitting statutory declaration. As to what should be the period within which such submission should be made and whether there should be a provision for further extension, and if so, in what circumstances and in what matter, was left by the legislature to be provided by the Rule Making Authority. Such a provision in a fiscal statute providing for time limit within which statutory limitation to avail credit is made, is not merely procedural but not only substantive but mandatory also. The submission of statutory declaration in TRAN-1 is not a mere formality, but has a purpose. While the legislature intended to extend benefit of transitional credit to eligible persons, the rule framed by the Rule Making Authority seeks to ensure smooth and hassle free operation of the mechanism of availment of input tax credit. The requirement of submission of declaration is a requirement of enabling provision contained in Section 140 of the CGST Act, 2017. It is not a mere submission of certain details dehors the eligibility criteria prescribed under the law. The declaration bind the claimant to solemnly declare as to how and in what manner, he is eligible - The Rule clearly provides that initially ninety days period is allowed, which could be extended for a further period of ninety days. Not only this, even beyond this, if a case is made out, on the recommendation of the GST Council, the period could be further extended. There is no merit in the writ petition and the same is accordingly dismissed. Issues Involved:1. Entitlement to transitional credit of excise duty through Credit Transfer Document (CTD) without submission of TRAN-1.2. Interpretation of statutory requirements under Section 140 of the CGST Act, 2017, and Rule 117 of the CGST Rules, 2017.3. The nature of input tax credit as a vested right versus a statutory concession.4. Validity and interpretation of procedural requirements for claiming transitional credit.5. The mandatory versus directory nature of procedural compliance under GST laws.Issue-wise Analysis:1. Entitlement to Transitional Credit through CTD Without TRAN-1 Submission:The petitioner claimed entitlement to transitional credit of excise duty using CTD by filing TRAN-3, arguing that the requirement to submit TRAN-1 within the stipulated period was merely procedural. The petitioner contended that the statutory right to claim transitional credit under Section 140(3) of the CGST Act, 2017, could not be defeated by procedural lapses. The respondents argued that the right to claim transitional credit is contingent upon fulfilling statutory conditions, including submission of TRAN-1 within the prescribed period.2. Interpretation of Statutory Requirements:The court examined the statutory framework, noting that Section 140(3) of the CGST Act, 2017, mandates that entitlement to credit is subject to conditions and must be claimed within the prescribed time and manner. Rule 117 of the CGST Rules, 2017, prescribes the procedure for claiming transitional credit, including the submission of TRAN-1. The court emphasized that the prescription of a time limit is not merely a procedural requirement but a statutory mandate.3. Nature of Input Tax Credit:The petitioner argued that the right to input tax credit is a vested right, citing precedents where the courts have held that once credit is validly taken, it becomes indefeasible. However, the court distinguished these cases, noting that input tax credit is a statutory concession, not an inherent right, and must be availed in accordance with statutory provisions.4. Validity and Interpretation of Procedural Requirements:The court addressed the petitioner's challenge to the procedural requirements, asserting that the requirement for timely submission of TRAN-1 is not merely processual but substantive and mandatory. The court held that the rule-making authority was within its power to prescribe time limits for submission of claims, consistent with the statutory framework.5. Mandatory Versus Directory Nature of Compliance:The court concluded that the requirement to submit TRAN-1 within the prescribed period is mandatory, not directory. The court reasoned that allowing claims without adherence to statutory timelines would lead to stale claims and verification difficulties. The court emphasized that fiscal laws require strict compliance, and the legislative intent was to settle transitional credit claims within a reasonable time frame.Conclusion:The court dismissed the petition, affirming that the requirement to submit TRAN-1 within the stipulated period is a mandatory statutory provision under the CGST Act, 2017, and the CGST Rules, 2017. The court held that input tax credit is a statutory concession, not a vested right, and must be claimed in accordance with the prescribed procedures. The court's decision underscores the importance of adhering to procedural requirements in fiscal statutes and the legislative intent to avoid stale claims and ensure timely resolution of transitional credit issues.