Delhi High Court has held that Rule 117 of CGST Rules, which prescribes 90 days for filing for transactional credits, is not mandatory in nature, but is merely directional. The period of three years, as prescribed in the Limitation Act, will now be considered as a reasonable period for availing such transactional credits.
The Division Bench of Justice Vipin Sanghi and Justice Sanjeev Narula noted that taxpayers cannot be robbed of their valuable rights on an unreasonable and unfounded basis of them not having filed TRAN-1 Form within 90 days, when civil rights can be enforced within a period of three years from the date of commencement of limitation under the Limitation Act, 1963.
The court said:
'The government cannot turn a blind eye, as if there were no errors on the GSTN portal. It cannot adopt different yardsticks while evaluating the conduct of the taxpayers, and its own conduct, acts and omissions. The extremely narrow interpretation that the respondents seek to advance, of the concept of "technical difficulties", in order to avail the benefit of Rule 117 (1A), is contrary to the statutory mechanism built in the transitory provisions of the CGST Act.'
Issue Before The Court
The Petitioners sought a writ of mandamus to be issued to the Union of India, directing it to permit the Petitioners to avail input tax credit of the accumulated CENVAT credit as of 30th June, 2017 by filing declaration Form TRAN-1 beyond the period provided under the Central Goods and Services Tax Rules, 2017.
Apart from this, the Petitioners had challenged the constitutionality of Rule 117 of the CGST Rules on the ground that it is arbitrary, unconstitutional and violative of Article 14 to the extent it imposes a time limit for carrying forward the CENVAT credit to the GST regime.
Petitioner contends that on 2nd January, 2018, based on the advice of its consultant, it was under the belief that it was eligible for refund under Section 142(3) of the CGST Act, and the consultant filed an online refund application. However due to technical glitch, an error appeared on the screen.
Thereafter, on 13th February, 2018, when Petitioners' consultant again tried to upload the refund application for CENVAT credit, yet again an error occurred and the message 'proxy error' was displayed on the screen. Petitioner's consultant visited the office of the Assistant Commissioner of
GST to enquire about the error and was informed that Petitioner was not eligible for the refund under Section 142 (3) of the Act.
On being apprised of this legal position, hard copy of Form TRAN-1 was filed on 24th August, 2018 along with supporting invoices before Deputy/Assistant Commissioner of Central Excise, GST East Division. Petitioner was informed that the application would be verified and it would be intimated about the outcome, but so far, Petitioner has received no information in this regard.
Arguments Advanced By Petitioners
Petitioners submitted that they form part of a bigger conglomerate and the tax operations are undertaken at group level. Owing to dependence at group level in the context of tax compliances and multiple entities involved, Petitioners were unable to file the declaration in Form TRAN-1 within the prescribed due date. As a result, they were deprived of taking forward the accumulated credit in the GST regime.
Petitioners also argued that since the GST system at the relevant point of time, and even presently, is in a nascent "trial and error" phase, Petitioners should not be made to suffer on account of inefficiency in the systems of the respondents; by denying them the credit of the accumulated CENVAT credit on the due date.
It was further contended by the Petitioners that the time limit specified in Rule 117 of CGST Rules is procedural in nature, and not a mandatory provision, and thus period provided therein cannot be enforced so as deprive the petitioners from availing their vested right.
Arguments Advanced By Respondents
Mr Amit Bansal, who appeared for the Union of India, argued that the Petitioners do not deserve any sympathy from this Court, as the facts of each case exhibit a casual approach on their part. He said:
'Petitioners' failure to file the declaration Form TRAN-1 within the due date is not attributable to any technical glitches while uploading the forms. The delay is a result of their follies and do not warrant relief similar to what has been granted by this Court in several other cases.'
Defending Rule 117 of the CGST Rules, Mr Bansal argued that the CGST Rules laid down by the Central Government, including the Rules impugned in the present petition, flow from the Act and are in consonance with the intention of the legislature.
Mr Bansal further submitted that benefit of taking credit is not a vested right of an assessee and certainly cannot be claimed in perpetuity. The same is subject to certain conditions, safeguards and limitations in such manner as may be prescribed.
Observations of the Court
The court observed that it would be an erroneous approach to attach undue importance to the concept of "technical glitch" only to that which occurs on the GST Common portal, as a pre-condition, for an assesee/tax payer to be granted the benefit of Sub Rule (1A) of Rule 117.
'It is unfair to create this distinction and restrict it to technical snags alone. In our view, there could be various different types of technical difficulties occurring on the common portal which may not be solely on account of the failure to upload the form. The access to the GST portal could be hindered for myriad reasons, sometimes not resulting in the creation of a GST log-in record. Further, the difficulties may also be offline, as a result of several other restrictive factors', the Bench noted.
The court also highlighted that the purpose of Rule 117 of the CGST Rules save and protect the rights of taxpayers to avail of the CENVAT credit lying in their account. The approach of the Government should be fair and reasonable. It cannot be arbitrary or discriminatory, if it has to pass the muster of Article 14 of the Constitution.
While reading down the directional nature of Rule 117, the court highlighted that the same does not mean that the availing of CENVAT credit can be in perpetuity.
Therefore, in terms of the residuary provisions of the Limitation Act, the period of three years should be the guiding principle and thus a period of three years from the appointed date would be the maximum period for availing of such credit.
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