CGST Rules Prescribing Time-Bound Submission Of Declaration Under TRAN-1 To Claim Transitional Credit Not Directory But Mandatory: Rajasthan HC

A division bench of Chief Justice Manindra Mohan Shrivastava and Justice Munnuri Laxman thus held that prescriptions under Section 117 of CGST Rules are mandatory in nature, and non-compliance thereof would lead to rejection of a trader/dealer's claim of transitional credit.

“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,” it observed.

Section 140 was couched to bridge the transitional phase on migration of traders/dealers to GST from VAT, Service Tax or Central Excise. It provides for transitional credit benefit qua goods held in stock just before the appointed day for enforcement of the CGST Act.

Rule 117 of CGST Rules provides that every registered person entitled to take credit of input tax under Section 140, shall submit a declaration in TRAN-1 within the stipulated period of ninety days, further extendable by ninety days, if there is unintentional failure to submit declaration within the stipulated period.

Petitioner herein, a trader dealing in automobiles, motorbikes and other vehicles, claimed that Rule 117 is not mandatory in nature and thus challenged the denial of transitional credit of excise duty over its failure to file declaration under TRAN-1.

Petitioner contended that once it fulfilled the statutorily prescribed eligibility conditions enumerated under Section 140, non-compliance with Rule 117 would not defeat its indefeasible statutory right to claim transitional credit.

It was contended that once eligibility to claim transitional credit under Section 140 of the CGST Act, 2017 is made out in terms of eligibility criteria provided under the statutes itself, the registered dealer could submit his claim for transitional credit at any point of time and not necessarily bound by limitation prescribed under the law.

It was further argued that requirement of submission of TRAN-1 declaration is not a substantive or mandatory provision, but merely processual or directory, violation of which cannot lead to rejection of claim.

Petitioner cited a notification dated 30.06.2017 issued by the Finance Ministry which it claimed did not specify any other actionable on the part of the trader/dealer for availment of transitional credit, except to file TRAN-3.

Revenue on the other hand claimed that the right to claim transitional credit, as provided under Section 140, is not absolute, but can be availed upon fulfillment of eligibility conditions prescribed in the statutes and also by submitting specific statutory declaration, as provided in TRAN-1, appended to the CGST Rules, 2017 and that too within the stipulated period.

It also cited a notification issued on 15.09.2017m subsequent to the notification cited by the Petitioner, mandating simultaneous filing of TRAN-1 and TRAN-3 where the trader/dealer sought to claim credit. It contended that the two notifications are to be read together; they are not distinct or disjoint.

At the outset, the High Court found that the expression “within such time and in such manner as may be prescribed” contained in Section 140 mandated the Rule Making Authority to make necessary provisions in this regard, which was done by the Central Government by framing the CGST Rules, 2017 and in particular, laying down complete procedure towards claim credit of eligible duties as input tax credit, under Rule 117.

It held, “The requirement of statutory declaration in the prescribed proforma TRAN-1 is not an empty formality or mere procedural aspect, as has been contended before us. It constitutes a statutory pre-condition because eligibility to claim transitional credit under sub-section (3) of Section 140 of the CGST Act, 2017, is based on certain conditions, which are statutorily prescribed. The law requires appropriate solemn declaration to be made by the claimant by submitting electronically the details in TRAN-1 on GST portal.”

It cited ALD Automotive Pvt. Ltd. Vs. Commercial Tax Officer Now Upgraded as the Assistant Commissioner (CT) & Ors. (2018) where the Supreme Court laid down that input tax credit facility is a concession, which can be availed only in accordance with the provisions of law and not dehors the same.

The bench also relied upon Jayam & Co. Vs. Assistant Commissioner & Anr. (2016), where it was laid down that when a concession is given by statute, the Legislature has power to make the provision stating the form and the manner in which such concession is to be allowed.

“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,” the High Court thus said.

The main purpose of Rule 117 requiring submission of timely declaration, the bench explained, is to ensure that all transitional credit claims are resolved and stale claims may not be allowed to be made after an inordinate delay as in those cases it may be difficult to verify the correctness of the claim.

Accordingly, the petition was dismissed holding that submission of statutory declaration in TRAN-1 within stipulated time was mandatory to claim transitional credit.

Appearance: Advocate Sharad Kothari for Petitioner; Advocate Rajvendra Saraswat for Respondent

Case title: Dharnia Motors v. UoI & Ors.

Case no.: Civil Writ Petition No. 9717/2018

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