Tran-1 Opening – Delhi HC says Brand Equity judgment to apply despite retrospective amendment to Sec 140

Tran-1 Opening – Delhi HC says Brand Equity judgment to apply despite retrospective amendment to Sec 140

The Finance (Amendment) Act, 2020 and its impact; Judgment in Brand Equity (supra)

18. To deny the Petitioner relief sought by them, only explanation alluded to in the counter affidavit is that benefit of the judgment of this Court in Brand Equity (supra) is no longer available. It is argued that in view of retrospective amendment to Section 140 of the CGST Act, 2017, introduced by the Finance (Amendment) Act, 2020, there has been a relevant change in circumstancesand thus the above-said decision is no longer valid. The power to prescribe a time limit for filing TRAN-1 has been provided by the insertion of words “within such time” in Section 140 with retrospective effect from 1st July, 2017. It has been argued that now that the amendment specifically provides for prescribing a time limit for filing TRAN-1 Form, the period so provided under Rule 117 would have legal sanctity and therefore the factor which weighed with this Court to hold that the limitation period provided under Rule 117 for filing TRAN-1 is merely directory and not mandatory, no longer holds good.

19. The above amendment to Section 140 came to be notified on 18th May 2020, vide notification No. 43/2020 dated 16th May 2020. Thus, the said amendment came into force after the date of the decision in Brand Equity (Supra). The said amendment was also not cited before the Court to contest the petitions. With that being said, since, there is no specific challenge to the amendment introduced by Section 128 of the Finance (Amendment) Act, 2020, we do not want to venture into legality of the said provision viz-a-viz the judgment of Brand Equity (Supra).

20. Nevertheless, all things considered, in spite of the amendment, we can say without hesitation that the said decision is not entirely resting on the fact that statute [CGST Act] did not prescribe for any time limit for availing the transition of the input tax credit. There are several other grounds and reasons enumerated in the said decision and discussed hereinafter, that continue to apply with full rigour even today, regardless of amendment to Section 140 of the CGST Act.

Arbitrary distinction of timelines under Rules 117 & 117 (IA)

21. Petitioner‟s case has been rejected on the ground of being “non- technical” human error and the benefit of Rule 117 (1A) has not been given. Let us elaborate on this aspect and note some of the relevant provisions. Here, we are concerned only with sub-section (1) of section 140 and Rule 117 and 117(1A). The same are extracted below:

“Amended Section 140 of the CGST Act

140. (1) A registered person, other than a person opting to pay tax under section 10, shall be entitled to take, in his electronic credit ledger, the amount of CENVAT credit carried forward in the return relating to the period ending with the day immediately preceding the appointed day, furnished by him under the existing law within such time and in such manner as may be prescribed: 

Rule 117 and Rule 117 (1A)

117. Tax or duty credit carried forward under any existing law or on goods held in stock on the appointed day.-(1) Every registered person entitled to take credit of input tax under section 140 shall, within ninety days of the appointed day, submit a 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:

Provided that the Commissioner may, on the recommendations of the Council, extend the period of ninety days by a further period not exceeding ninety days.

Provided further that where the inputs have been received from an Export Oriented Unit or a unit located in Electronic Hardware Technology Park, the credit shall be allowed to the extent as provided in sub-rule (7) of rule 3 of the CENVAT Credit Rules, 2004.

[(1A) Notwithstanding anything contained in sub-rule (1), the Commissioner may, on the recommendations of the Council, extend the date for submitting the declaration electronically in FORM GST TRAN-1 by a further period not beyond [31st December, 2019], in respect of registered persons who could not submit the said declaration by the due date on account of technical difficulties on the common portal and in respect of whom the Council has made a recommendation for such extension.]”

22. The first proviso of Rule 117, stipulates that the Commissioner on the recommendations of the Council can extend the period of ninety days for filing TRAN-1, by a further period, not exceeding ninety days. As also noticed in Brand Equity (supra), the Government amended the rules and introduced Sub-rule (1A) empowering the Commissioner to extend the date for submitting the declaration electronically in Form GST TRAN-I by a further period (not beyond 31.12.2019). This sub-rule is applicable to registered persons who could not submit the said declaration by the due date on account of technical difficulties on the common portal and in respect of whom the GST Council had made a recommendation for such extension. This Sub-rule (1A) begins with a non-obstante clause – “notwithstanding anything contained in Sub Rule (1)”. Thus, by introducing the said provision, notwithstanding the embargo introduced under Rule 117 (1) of the CGST Rules, the Government opened a narrow window for registered persons who faced technical difficulties on the common portal while filing Form TRAN-1. The Central Government has been consistently extending the time period for filing the Form TRAN-1 even beyond 31.12.2019 for those taxpayers who are covered by Rule 117 (1A). Recently in view of the order No. 01/2020-GST dated 7th February, 2020 issued by Government of India, Ministry of Finance, the period was extended upto 31st March 2020. Thus, when we contrast the time limit stipulated under Rule 117 (1) and Rule 117(1A), we find that the time limit of 90 days is not sacrosanct. In Brand Equity (supra), that court has observed that the government has not ascribed any meaning to the words “technical difficulties on the common portal” and it cannot be interpreted in a restrictive manner. The relevant portion is extracted herein below:

“18. In above noted circumstances, the arbitrary classification, introduced by way of sub Rule (1A), restricting the benefit only to taxpayers whose cases are covered by “technical difficulties on common portal” subject to recommendations of the GST Council, is arbitrary, vague and unreasonable. What does the phrase “technical difficulty on the common portal” imply? There is no definition to this concept and the respondent seems to contend that it should be restricted only to “technical glitches on the common portal”. We, however, do not concur with this understanding. “Technical difficulty” is too broad a term and cannot have a narrow interpretation, or application. Further, technical difficulties cannot be restricted only to a difficulty faced by or on the part of the respondent. It would include within its purview any such technical difficulties faced by the taxpayers as well, which could also be a result of the respondent‟s follies. After all, a completely new system of accounting; reporting of turnover; claiming credit of prepaid taxes; and, payment of taxes was introduced with the implementation of the GST regime. A basket of Central and State taxes were merged into a single tax. New forms were introduced and, as aforesaid, all of them were not even operationalised. Just like the respondents, even the taxpayers required time to adapt to the new systems, which was introduced as a completely online system. Apart from the shortcomings in the system developed by GSTN Ltd., the assessees also faced the challenges posed by low bandwidth and lack of computer knowledge and skill to operate the system. It is very unfair on the part of the respondents, in these circumstances, to expect that the taxpayers should have been fully geared to deal with the new system on day-one, when they themselves were completely ill-prepared, which led to creation of a complete mess. The respondents cannot adopt different standards – one for themselves, and another for the taxpayers. The GST regime heralded the system of seamless input tax credits. The successful migration to the new system was a formidable and unprecedented task. The fractures in the system, after its launch, became visible as taxpayers started logging in closer to the deadline. They encountered trouble filing the returns. Petitioners who are large and mega corporations – despite the aid of experts in the field, could not collate the humongous data required for submission of the statutory forms. Courts cannot be oblivious to the fact that a large population of this country does not have access to the Internet and the filing of TRAN-1 was entirely shifted to electronic means. The Nodal Officers often reach to the conclusion that there is no technical glitch as per their GST system laws, as there is no information stored/logged that would indicate that the taxpayers attempted to save/submit the filing of Form GST TRAN-1. Thus, the phrase “technical difficulty” is being given a restrictive meaning which is supplied by the GST system logs. Conscious of the circumstances that are prevailing, we feel 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.

19. The introduction of Sub rule (1A) in Rule 117 is a patchwork solution that does not recognise the entirety of the situation. It sneaks in an exception, without addressing situations taken note of by us. This exception, as worded, is an artificial construction of technical difficulties, limiting it to those existing on the common portal. 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. 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 SubRule (1A) of Rule 117. The purpose for which Sub-Rule (1A) to Rule 117 has been introduced has to be understood in the right perspective by focusing on the purpose which it is intended to serve. The purpose was to save and protect the rights of taxpayers to avail of the CENVAT credit lying in their account. That objective should also serve other taxpayers, such as the petitioners. 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. 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 Sub Rule (1A), is contrary to the statutory mechanism built in the transitory provisions of the CGST Act. The legislature has recognized such existing rights and has protected the same by allowing migration thereof in the new regime under the aforesaid provision. In order to avail the benefit, no restriction has been put under any provisions of the Act in terms of the time period for transition. The time limit prescribed for availing the input tax credit with respect to the purchase of goods and services made in the pre-GST regime, cannot be discriminatory and unreasonable. There has to be a rationale forthcoming and, in absence thereof, it would be violative of Article 14 of the Constitution. Further, we are also of the view that the CENVAT credit which stood accrued and vested is the property of the assessee, and is a constitutional right under Article 300A of the Constitution. The same cannot be taken away merely by way of delegated legislation by framing rules, without there being any overarching provision in the GST Act. We have, in our judgment in A.B. Pal Electricals (supra) emphasized that the credit standing in favour of the assessee is a vested property right under Article 300A of the Constitution and cannot be taken away by prescribing a time-limit for availing the same. ”.

23. The aforesaid reasoning still holds good. Additionally, we would like to observe that the rule suffers from the vice of vagueness and concept of “technical difficulty on common portal” and its applicability has not been adequately defined anywhere. Because of absence of any defining words, there is no predictability about the application of this Rule for the class of cases to which it would apply, as is demonstrated in the case in hand. In absence of a criteria, the application of the provision would suffer from arbitrariness. It would be apposite to note that the GST Council in its 32nd meeting expanded the mandate of ITGRC to include those cases where the taxpayers who had been victims of the system failure, whether technical or otherwise. This becomes evident from the office memorandum of GST Council, dated 19th February 2019, relevant portion whereof is extracted herein below:

“In 32nd GST Council Meeting, it was decided that the ITGRC shall also consider certain nontechnical issues viz. errors apparent on the face of record, where the following conditions are satisfied:

i. TRAN-1, including revision thereof, has been filed on or before 27th December, 2017 and there is an error apparent on the face of the record (such cases of error apparent on the face of the record will not cover instances where there is a mistake like wrong entry of an amount e.g. Rs. 10,000 /- entered for Rs.1,00,000/- ); and

ii. The case has been recommended to the ITGRC through GSTN by the concerned jurisdictional Commissioner or an officer authorised by him in this behalf in case of credit of Central taxes/duties, by the Central authorities and in the case of credit of State taxes, the State authorities, notwithstanding the fact that the taxpayer is allotted to the Central or the State authority).”

(Emphasis Supplied)

This indicates that the GST Council recognized that there could be errors apparent on the face of the record that could be non-technical in nature and merit leniency. In line with the spirit of the decision of the GST Council and the blurring thin line between technical and non-technical difficulty, keeping in view that entire filing is electronic, we find the restrictive applicability of Rule 117 (1A) to be arbitrary, as is demonstrated in the facts of the present case.

Concept of ITC and its significance; Whether procedural timelines for TRAN-1 are directory and mandatory?

24. We must not lose sight of the real intention of the Legislature that emerges by reading the scheme of the CGST, especially the transitional provisions and those dealing with ITC. GST seeks to consolidate multiple taxes into one, and thus it is imperative to have provisions to ensure that the transition to the GST regime is very smooth and hassle-free and no ITC (Input Tax Credit)/benefits earned in the existing regime are lost. In fact, an uninterrupted and seamless chain of ITC is the heart and soul of Goods and Services Tax. This mechanism is built-in to avoid cascading of taxes. Respondents themselves claim „one of the most important features of the GST system is that the entire supply chain would be subject to GST to be levied by Central and State Government concurrently. As the tax charged by the Central or the State Governments would be part of the same tax regime, credit of tax paid at every stage would be available as set-off for payment of tax at every subsequent stage.‟( Ref: GST Flyer; CBIC Website) Significantly, for the cases covered under Section 140 (1) of the CGST act, ITC under the existing laws is a vested right. This credit stood vested in favour of the taxpayer and would have been utilized for payment of outgoing taxes under the respective legislations, but for the repeal of the existing laws. In order to claim this credit, declaration in form GST TRAN-1 is required to be furnished on the common portal within ninety days from the appointed day i.e. 1st July, 2017 or within such extended time. Thus, the closing balance of the CENVAT credit /VAT in the last returns filed under the existing law can be taken as credit in electronic credit ledger. Such credit would be available only when returns for the previous last six months have been filed under the existing laws. Thus, on analysis of the provisions of Central Goods and Service Tax Act and the Rules framed thereunder, the mind of the legislature on input tax credit becomes clear. The transitional provisions and the language of section 140 of the Act in particular, even after amendment, manifests the intention behind the said provision is to save the accrued and vested ITC under the existing law. If the legislature has provided for saving the same by allowing a migration under the new tax regime, we have to interpret the rules keeping this objective in focus. This is the reason courts have held that CENVAT credit which stood accrued to the Petitioner is a vested right and is protected under Article 300A of the Constitution of India and could not be taken away by the Respondents, without authority of law, on frivolous grounds which are untenable.

25. Now, when we examine the timelines framed by the Central Government, we must remain focused on the importance of the aforenoted provisions, in relation to the object that is intended to be achieved. At the same time, we also have to examine the consequences that would follow if we construe a provision to be directory and not mandatory. The purpose of the timelines prescribed is just to hasten the migration of taxes from the erstwhile regime to the new GST laws and for swift streamlining of the ITC. The timeline introduced by Rule 117 is purely procedural and as discussed above the same was not treated as sacrosanct. The Central Government has continuously extended the same, by carving out an exception under Rule 117 (1A). Moreover, under none of the provisions of the Act, we can infer the intention of the legislature to create this distinction by way of subordinate legislation. We also cannot decipher any intent to deny extension of time to deserving cases where delay in filing was on account of human error. This interpretation would run counter to the object sought to be achieved under Section 140 of the Act which is the governing provision and exhibits the true legislative intent. The situation before us is not where the statute fixes any timelines for transitioning of credit. After the retrospective amendment of Section 140, we can interpret that the power to fix the timeline and its extension has been prescribed to the Central Government which was done vide Rule 117. This Rule provides for a time period of 90 days and also stipulates that the same can be extended for a further period not exceeding 90 days. However, under Rule 117 (1A), multiple extensions beyond 180 days have been granted for taxpayers who faced “technical difficulties on common portal”. Yet, deserving „non- technical‟ cases like the present one have been ignored and this exclusion is arbitrary and irrational. Moreover, if we were to look for a provision in the statute that would stipulate a consequence for failure to adhere to the timelines, we would find none. Rule 117 of the CGST rules also does not indicate any consequence for non-compliance of the condition. Both the Act and Rules do not provide any specific consequence on failure to adhere to the timelines. Since the consequences for non-consequence are not indicated, the provision has to be seen as directory. Pertinently, non- observance of the timelines would prejudice only one party- the registered person/taxpayer. If we interpret the timelines to be mandatory, the failure to fulfil the obligation of filing TRAN-1 within the stipulated period, would seriously prejudice the taxpayers, for whose benefit section 140 has been provided by the legislature. In view of the above discussion, interpreting the procedural timelines to be mandatory would run counter to the intention of the legislature and defeat the purpose for which the transitionary provisions have been provided and have to be construed as directory and not mandatory.

The Form was originally filed well within the prescribed time limit

26. There is another factor that persuades us to come to the aid of the Petitioner. In the instant case, the Form TRAN-1 was filed promptly, within the stipulated period. Immediately, when the Petitioner noticed that the entire credit had not been transitioned, it started corresponding with the Respondent with the hope that the matter would be resolved and the mistake would be rectified. The facts narrated above recount various representations and efforts made by the Petitioner in this direction. It saw a glimmer of hope when Respondents recognized that taxpayers had faced technical glitches on the GSTN portal and created an IT Grievance Redressal Committee to redress such issues. However, Petitioner was not extended the benefit. Thereafter, when another representation was submitted, pursuant to the Bombay High Court order, Petitioner‟s case was differentiated. It is contended that since Petitioner faced no technical glitch at the stage of filing of the Form, the case does not qualify for any relaxation. The decision of ITGRC is contrary to the decision of the 32nd meeting of GST Council and the office memorandum dated 19th February 2019 referred above. GST Council categorically expanded the mandate of ITGRC and observed that it would also look into cases where “there is an error apparent on the face of the record (such cases of error apparent on the face of the record will not cover instances where there is a mistake like wrong entry of an amount e.g. Rs. 10,000 /- entered for Rs.1,00,000/- ). The facts before us meet the above criteria. Visibly there is an error apparent on the face of record. The ITC reflected in the returns has been shown as „blocked credit‟ and is not a mistake in the entry of figures. Yet, before us, Respondents determinedly defend their action. They continue to deny full credit, by further arguing that the mistake is because of human error and revision is time barred and should be treated as a case of fresh-filing. This contention is wholly misplaced. TRAN-1 Form was filed within the stipulated period and revision thereof , to correct an error, will relate back to the said date of filing. We do not see any convincing reason to hold that as on date, the revision of the said return, will be time-barred and treated to be a fresh return. The revised data can be easily verified and correlated with the tax returns filed in the erstwhile regime. In fact, Rule 120A of CGST Rules is an enabling provision that can be resorted to, by the taxpayers to revise the Form GST TRAN-1 on the common portal within the time specified in the rules or such further period as may be extended by the Commissioner. In the present case, the mistake was clerical in nature. It is the Respondents who have, for specious reasons, denied this opportunity to the Petitioner. Therefore, the revision cannot be treated as a fresh filing , especially, keeping in view the spirit of the spirit of 32nd meeting of GST Council, referred above

Non-disclosure of reasons for denying claim of the Petitioner and arbitrariness in rejection.

27. There is yet another reason that entitles the Petitioner to the relief sought in the present petition. Petitioner‟s case was considered and rejected by the IT Grievance Redressal Committee, despite the recommendation of the Jurisdictional Commissionerate. It is also pertinent to note that the Respondents had given an undertaking before the Bombay High Court in Writ Petition No. 712/2019 that the grievance of the Petitioner will be redressed and its case will not be thrown out only on the ground that it was received beyond the cut-off date. Armed with the order of the Court, when the Petitioner submitted a fresh representation, Respondents, without giving any cogent reasoning, as is evident from the letter dated 12th July, 2019, reproduced in para 9 above, rejected the same. The said letter also exhibits complete non-application of mind. For the last three years, Petitioner has made countless complaints and representations. Respondents have consistently denied the Petitioner an opportunity to revise the return without disclosing the reasons for arriving at this decision except for a cryptic one- line rejection order. Petitioner has called upon the Respondents time and again to intimate specific reasons for rejection of its case. It also filed an RTI application in this regard. However, the Respondents have resolutely held on to their stand. For some mysterious reason, the grounds for rejection are being withheld, as if, the same are some guarded secret. The approach of the Respondents is grossly unjust and disappointing and we disapprove the same. Petitioner, as a matter of right, should know the specific reasons for the rejection of his case so that it can assail the same. Respondents had an opportunity to disclose such reasons in the counter affidavit, and we are surprised to note that despite that, they have chosen to remain silent on the main issue. Instead, they have relied upon the amendment to Section 140 to prevail upon us that we should not grant the benefit to the Petitioner in terms of our decision in Brand Equity (supra).

28. The stand taken today runs counter to the assurance given before Bombay High Court and is also not borne out, from the record. It has been argued that the discrepancy in the figures has crept in because of human error and there is no provision in the Act or the rules that can be relied upon by the Petitioner to reclaim the shortfall. The restriction that prevents the Petitioner from taking the entire credit by revising the return, based on the footing of a “human error” and not “technical difficulty on common portal” is thus wholly unreasonable, being irrational and arbitrary and therefore, violative of Article 14 of the Constitution. One-line, non-speaking order relied upon to justify the rejection cannot be countenanced. Viewed from another angle, one can construe Petitioner‟s difficulty as technical in nature, as the short credit is reflected as blocked credit on the portal, with no provision to rectify the same electronically. In absence of any clause defining “technical difficulty on common portal”, as discussed above, Petitioner‟s case would even be covered by Rule 117 (1A) of the CGST Rules. GST laws required taxpayers to embrace transformative new ways. The use of technology can be daunting for many taxpayers who hitherto before, were largely dependent on conventional manual filings of returns. In order to overcome the resistance to change and encourage transformation and remodeling of the entire accounting structure at taxpayers‟ end, the electronic mode should be user friendly. Sadly, the Respondents have not helped the situation, despite all the good intentions they may have. They have further compounded the problems for the taxpayers by being adamant about their stand and exhibited no flexibility in approach. The exactness required in compliance of tax provisions should not be construed so rigidly that permissible flexibility is completely disregarded. In effect, the ITC has been expropriated without any lawful sanction. The ITC that was shown in the returns under the existing laws were taxes that stood paid to the respective Governments for goods or services and were available for adjustment or utilization in accordance with law. Now, on account of a clerical mistake the said taxes paid are being appropriated, without cause, putting the Petitioner in serious jeopardy by subjecting it to further taxation under GST without the benefit of ITC. The case before us demonstrates how the tax department has miserably fallen short of the expectation. It is regrettable that Respondents have failed to address the basic and fundamental problem faced by the Petitioner that occurred while filing a Form, seemingly on account of a bona fide or inadvertent mistake. Instead of offering a restitutive solution they have stonewalled all the attempts made by the Petitioner The injustice and prejudice caused to the Petitioner is profound and it‟s disillusionment and despair is evident. Therefore, we cannot uphold the stand of the respondent which is founded on some illogical understanding of the Rules. We have time and again made adverse remarks on the procedural working of the GST system in several decisions. We may just add that we do not derive any pleasure when we make such observations, as comments of the Court affect the reputation of the administration in the country. Such remarks are made only when we are constrained to do so. The case before us is one where there is a complete lack of understanding and fairness on the part of the Tax Department.The fact that Respondents have done nothing to solve the problem faced by the Petitioner, fueled with the adamant stand before us, contributes to skepticism of GST technical infrastructure, which we feel should and can be easily avoided. Only if Respondents were to engage with the taxpayers with a genuine intention to solve the problems, confidence in the system can be built up and such matters would not reach courts.

29. For the aforegoing reasons, the Petition deserves to be allowed. Petitioner is permitted to revise TRAN-1 Form on or before 30.06.2020 and transition the entire ITC, subject to verification by the Respondents. We issue a writ mandamus to the Respondents to either open the online portal so as to enable the Petitioner to file revised declaration TRAN-1 electronically, or to accept the same manually. Respondents shall thereafter process the claims in accordance with law

30. The petition is allowed in above terms.

Read Order

The post Tran-1 Opening – Delhi HC says Brand Equity judgment to apply despite retrospective amendment to Sec 140 appeared first on Studycafe.

from Studycafe https://ift.tt/3hHzoRv