Input Tax Credit Is A Form Of Concession Not A Right; Bombay HC upholds Vires Of Time Limit U/Rule 117 of GST Rules [Read Judgment]

The Bombay High Court recently held that the time limit prescribed under Rule 117 of the Goods and Services Rules for filing TRAN-1 form in order to claim input tax credit from the previous regime is not ultra vires to the Central Goods and Services Tax Act.

Division bench of Justice Nitin Jamdar and Justice MS Karnik dismissed the writ petition filed by Nelco Limited after concluding that input tax credit is a form of concession not a right.

Case Background

The Goods and Services Tax Act was brought into force from July 1, 2017. This tax replaced and subsumed various indirect taxes in India. For the transition between the old and new regimes, the Act provides for utilization of Input Tax Credit accumulated under the earlier tax laws upon certain conditions. The Goods and Services Tax Rules framed under the Act provide for filing of a form known as GST TRAN-1 for availing of such input tax credit. The Rules provide for a time limit within which the TRAN-1 Form has to be filed.

According to the petitioner company, they had accumulated CENVAT Credit during its activities and payment of taxes. However, when it attempted to file a TRAN-1 Form on December 27, 2017. The same could not be filed, as there were problems on the Goods and Services Tax Network. Then an email was sent to the official complaint portal of respondents but no response was received.

Moreover, when the petitioner tried to file TRAN-1 Form again, the portal did not permit an option for filing of the said form.

After several extensions, the deadline for filing TRAN-1 Form was extended till January 31, 2019 for persons facing technical difficulties. This deadline has now been extended to March 31 for the persons specified in Rule 117(1A).

Submissions

Senior Advocate V Sridharan appeared on behalf of Nelco Limited, Additional Solicitor General Anil Singh along with Senior Advocate Pradeep Jetly appeared on behalf of the respondent authorities and Shruti Vyas for the State of Maharashtra.

Sridharan relied on several judgements of the Supreme Court and a judgement of the Madras High Court in order to contend that the term "prescribed manner", which is in the Rules, has been construed as not to include within its ambit a rulemaking power to prescribe a time limit.

He submitted that the right to input credit may not be a common law right, but the statute confers it under Section 140, and the same, thus, cannot be abridged by the executive through a rule-making power. Relying on the decision of the Supreme Court in the case of Bharat Barrel and Drum Mfg. Co. Ltd. v. Employees State Insurance Corporation, he contended that where substantive rights are affected, the power of prescribing limitation is kept by the Legislation to itself. Thus, substantive rights can be done away only by the Parliament and not by its subordinates, Sridharan submitted.

On the other hand, ASG Anil Singh argued that the general rule making power under Section 164 empowers the Government to make rules on the recommendations of the Council for carrying out the provisions of the CGST Act. He further contended that input tax credit, which is in the nature of exemption, is not a matter of right.

Judgment

At the outset, Court noted-

"Section 16(4) provides that a registered person shall not be entitled to take input tax credit regarding any invoice or debit note for supply of goods or services after the due date of furnishing of the return under section 39 for the month of September following the end of the financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier. Thus under the GST regime, also Input Tax Credit is not without time limit."

Thereafter, the bench examined two separate judgments, one of the Bombay High Court in JCB India Ltd. vs Union of India and another of the Gujarat High Court in Willowood Chemicals Ltd. v/s. Union of India.

Court observed-

"The ratio laid down by the Division Bench in JCB India Ltd. interpreting the Transitional Provisions and distinguishing the other decisions, is unequivocal. The Petitioner has sought to distinguish the decisions in Willowood and JCB India Ltd. contending that the Division Bench was not considering Section 140(1) and the right under different subsections of section 140 are different and operate in different fields and what is relevant for one class cannot be made applicable to another class.

We do not think these decisions can be distinguished in this manner. The decisions in JCB India Ltd. and Willowood have laid down a general principle of law. The question of credit in a transitional provision being a concession or a right was argued and has been considered. We have not been shown any decision of this Court to the contrary. As a matter of judicial discipline, we will have to follow the dicta laid down by the Division Bench of this Court in JCB India Ltd."

Furthermore, Court concluded that the time limit stipulated under Rule 117 of the Rules is not ultra vires of the Act-

"With the advent of an entirely new tax regime, the earlier credit could have lapsed, but as and by way of concession it is permitted to be carried forward for a limited time. Thus, going by the scheme of the Act, under Section 140(1), the reference to Input Tax Credit is not by way of a right, but as a concession.

Thus the time limit in Rule 117(1) is traceable to the rule-making power conferred in Section 164(2). The credit envisaged under Section 140(1) being a concession, it can be regulated by placing a time limit. Therefore, the time limit under Rule 117(1) is not ultra-vires of the Act."

As regards the technical difficulties that the petitioner company claimed to face, Court determined that the IT Grievance Redressal Cell was set up by the GST Council to examine the existence of technical difficulties on the common portal.

Dismissing the petition, Court said-

"Those registered persons who could not submit the declaration by the due date because of technical difficulties on the common portal as can be evidenced from the system logs are given an extension on the recommendation of the Council. Where no such evidence is forthcoming, no recommendation is made. In the Petitioner's case, no such proof emerges and, therefore, no direction as sought for can be issued."

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