GST Update on retrospective amendment made in Transitional Provisions vide notification no.43/2020 dated 16th May 2020 40/2020-21

GST Update on retrospective amendment made in Transitional Provisions vide notification no.43/2020 dated 16^th May 2020

In our earlier update on transitional credit, we have discussed on Delhi high court decision in the case of M/s Brand Equity regarding the transitional provisions where the judiciary has held that the substantive right of the taxpayer cannot be forfeited in terms of Article 300 A of the constitution. In addition to this the Hon’ble High Court has also held that the time limit prescribed by Rule 117 is only directory in nature and not mandatory as there was no time limit prescribed by the regulatory Sec 140 of the CGST Act 2017. The judgement pronounced by the Delhi High Court also states that when there is no specific provisions under the Act prescribing the time limit, the residuary provisions of the Limitation Act is applicable and the period of 3 years should be the taken into consideration and thus a period of three years from 1st July 2017 would be the maximum period for availing of an input tax credit and allowed taxpayers to. Therefore, the Hon’ble Court has allowed all taxpayers in the country to furnish fresh FORM GST TRAN-1 within 30th June 2020.

CBIC issued a notification 43/2020 (CT) on 16^th May announcing May 18, 2020, to be the effective date for the implementation of the provisions pertaining to transitional credit for un-availed CENVAT which was amended under Section 128 of the Finance Act, 2020. In Budget 2020, Section 128 of Finance Act was inserted which provided a retrospective amendment in section 140 of transitional provisions under the CGST Act, giving the power to prescribe a time limit for transitioning credit. Under the said amendment, within such time has been included in sec 140 with retrospective effect which was not earlier mentioned in the original provision of Sec 140. By this amendment, the Government intended to nullify various High Courts judgements which allowed the benefit of the carry forward of the Input Tax Credit to the taxpayers. The Court were of the view that no time limit has been specified in the Act, hence this substantial right cannot be taken away. But by this retrospective amendment, the time limit has been inserted and hence the decision of High Courts does not hold good.

In our opinion, this amendment will be challenged in Court of law and another round of litigation will be seen by us. It may happen that after this amendment, the department will challenge these decisions in Apex Court saying that time limit has been inserted, hence High Court decisions does not hold good. We will advise the taxpayers to file the declaration manually with the department by 30/06/2020 so that their claim is not barred.

In view of author, the department and Government should have allowed the taxpayer to carry forward this credit which is substantive right. GST was a new levy and it was not operational due to portal bottlenecks, hence, the taxpayers were not able to file the TRAN-1. But there was no alterative procedure, he should have filed it. He has not filed due to ignorance only. Hence, this simple mistake in initial stage of implementation of GST should have been condoned rather than dragging the poor taxpayers into unnecessary and costly litigation.

This is solely for educational purpose.

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GST Update on retrospective amendment made in Transitional Provisions vide notification no.43/2020 dated 16th May 2020 40/2020-21

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