GST UPDATE ON HOW FAIR IS THE PRACTISE OF NULLIFYING THE DECISION OF COURT BY WAY OF RETROSPECTIVE AMENDMENT? 52/2020-21

GST UPDATE ON HOW FAIR IS THE PRACTISE OF NULLIFYING THE DECISION OF COURT BY WAY OF RETROSPECTIVE AMENDMENT?

The assessee may win the battle of dispute if there is lacunae in provisions of law but the ultimate winner is the law making authority who is vested with the power of rectifying the mistakes in law by using the tool of retrospective amendment. Inspite of promise made by the government that there will not be retrospective amendment, the practise is continued in GST era as well. In this present update, we make an attempt to discuss the reasonableness of retrospective amendment in law and will ponder on the question that whether retrospective amendment can be made even to implement a provision which was never intended by the law.
The two major retrospective amendments made in the GST law have become the major concerns of the assessee which are discussed briefly as follows:-
AAP & COMPANY VERSUS UNION OF INDIA:-The Hon’ble Gujarat High Court held that GSTR-3B is not a return under section 39 of the CGST Act, 2017 as GSTR-3 is the return to be filed under section 39 of the CGST Act, 2017 which is not operational till date. Therefore, the time limit for availing input tax credit under section 16(4) of the CGST Act, 2017 is the due date of filing of annual return. Thereafter, retrospective amendment was made in Rule 61(5) of the CGST Rules, 2017 vide notification no. 49/2019-Central Tax dated 09.10.2019 wherein it was stated that GSTR-3B is return under section 39(1) and where GSTR-3B is required to be furnished, then such person shall not be required to furnish return in GSTR-3.

BRAND EQUITY TREATIES LIMITED:- The hon’ble Delhi High Court granted relief to all assessees who could not file TRAN-1 within the stipulated period by giving them one time option till 30^th June, 2020 to file the said TRAN-1 either online or manually by declaring the provision contained in Rule 117 prescribing the time limit for carry forward of transitional credit in GST regime as arbitrary and ultra vires. The Hon’ble High Court held that the right to carry forward transitional credit is vested right under Article 300A of the Constitution which cannot be taken away for non-filing of TRAN-1 within stipulated period. Consequent to this decision, notification no. 43/2020-Central Tax dated 16^th May, 2020 was passed prescribing the date of implementation of retrospective amendment in section 140 of the CGST Act, 2017 as proposed in the Finance Act, 2020 as 18^th May, 2020.

It is to be noted that the above cited retrospective amendments have taken away the benefit granted by the High Court to the assessee. Now, we seek to discuss the appropriateness of the retrospective amendment done by the government in both the cases. In this context, it is pertinent to refer to certain judicial pronouncements rendered with respect to power of the government to carry out retrospective amendments in law:-

KHYERBARI TEA COMPANY LIMITED AND ANOTHER V STATE OF ASSAM – [1964 AIR(SC) 925]

It was held that the power to make a law necessarily includes the power to make the provisions of the law retrospective. Therefore, if the legislature felt that the infirmity in the earlier Act could be cured, it cannot be said that such law passed is void, because the legislature has thereby attempted to recover taxes which could not be recovered under the earlier Act owing to the constitutional infirmity in the said Act.

STATE OF TAMIL NADU V MESSRS AROORAN SUGARS LIMITED – [1997 AIR(SC) 1815]

It is open to the legislature to remove the defect pointed out by the court or to amend the definition or any other provision of the Act in question retrospectively.In this process it cannot be said that there has been an encroachment by the legislature over the power of the judiciary.

In light of the above cited decisions, we may conclude that the legislature has the power to remove the defect noticed by the court and amend the provision of the Act retrospectively to cure such defect. Consequently, the retrospective amendment in section 140 of the CGST Act, 2017 could be considered as reasonable because the original section did not indicate that benefit of transitional credit was to be granted within specified time limit. However, at this juncture, we wish to point that the Hon’ble Delhi High Court granted the benefit to file TRAN-1 till 30^th June, 2020 by considering other factors such as credit is verted right of the assessee and Rule 117 cannot specify an arbitrary time limit when the GST portal itself was not ready. We are not going into the fate of the decision of the Hon’ble Delhi High Court as the same has already been discussed in detail in our GST Update 45/2020-21. Instead, we are only conveying that since Rule 117 prescribed time limit, the action of amending section 140 of the CGST Act, 2017 retrospectively can be considered as removal of drafting defect by the government in view of above cited decisions of Supreme Court.

Our concern is regarding retrospective amendment made in Rule 61(5) of the CGST Rules, 2017 declaring GSTR-3B as return under section 39(1) of CGST Act, 2017 and dispensing the requirement of filing GSTR-3 when the assessee is liable to file GSTR-3B thereby substituting GSTR-3B in place of GSTR-3 as envisaged by the CGST Act, 2017. We submit that the GST Law was introduced with the matching concept indicating filing of GSTR-1, GSTR-2 and GSTR-3. The original scheme of the law was that GSTR-3 is the return under section 39(1) of CGST Act, 2017 and even the circular no. 7/7/2017-GST dated 1^st September, 2017 clarified that errors committed while filing GSTR-3B may be rectified while filing GSTR-1 and GSTR-2 of the respective month which will be auto-populated in GSTR-3 to be filed by the assessee subsequently. Hence, we understand that from inception of GST regime, the law envisaged GSTR-3 as the return to be filed by assessee but due to non-preparedness of GST portal, the filing of GSTR-3 was deferred and kept in abeyance. However, when the Hon’ble Gujarat High Court ruled that GSTR-3B is not a return and so the last date of availing input tax credit according to section 16(4) of CGST Act, 2017 is due date of filing annual return, the government resorted to declare GSTR-3B as return under section 39 with retrospective effect. In our opinion, the legislature is permitted to rectify error in law by way of retrospective amendment but is it possible to change the entire scheme of the Act by way of retrospective amendment? We leave this question to be answered by our netizens that how far is it justifiable for the government to declare GSTR-3B as return under section 39(1) of the CGST Act, 2017 when such a return was introduced as a temporary measure and was never envisaged while implementing GST law. Well, the assessees are left with no option but to follow the retrospective amendment and forgoe their genuine input tax credit inspite of all technical problems faced by them.

This is solely for educational purpose.
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GST UPDATE ON HOW FAIR IS THE PRACTISE OF NULLIFYING THE DECISION OF COURT BY WAY OF RETROSPECTIVE AMENDMENT? 52/2020-21

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