GST UPDATE ON RETROSPECTIVE AMENDMENT VIS A VIS LANDMARK DELHI HIGH COURT DECISION 45/2020-21

GST UPDATE ON RETROSPECTIVE AMENDMENT VIS A VIS LANDMARK DELHI HIGH COURT DECISION:-

It is not uncommon for the government to bring retrospective amendment after an unfavourable decision by the High Court on any legal point or lacunae in drafting of laws and so has been done recently. The Hon’ble Delhi High Court decision in the case of BRAND EQUITY TREATIES LIMITED wherein all assessees who could not file TRAN-1 within the stipulated period have been given 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 detailed analysis of the decision was discussed in our GST update no. 32/2020-21. We are not discussing the reasoning adopted by the Hon’ble High Court in this update as it has already been dealt in depth in our earlier update. In the present update, we are concerned with the fate of the decision after retrospective amendment made effective videnotification no. 43/2020-Central Tax dated 16^th May, 2020.

The notification seeks to amend section 140 of the CGST Act, 2017 retrospectively from 01.07.2017 so as to specify that the benefit of transitional credit is available if the assessee complies with the requirement within such time and in such manner as may be prescribed thereby leaving no room for doubt as regards validity of Rule 117 to prescribe the timeframe within which transitional return is required to be filed by the assessee in order to carry forward the transitional credit in GST regime. Hence, the retrospective amendment provides sufficient backing to the limitation prescribed by Rule 117 of the CGST Rules, 2017. It is worth noting that the section 128 of the Finance Act, 2020 wherein such amendment in section 140 was provided was not implemented before 18.05.2020 and was rather not placed before the Hon’ble Delhi High Court by either of the parties. Now, the question arises is whether the retrospective amendment will in any manner effect the benefit granted by the Hon’ble Delhi High Court to the assessees.

In this context, it is worth mentioning that there are contrary decisions as regards allowing assessees to file transitional return by various High Courts and the pleading of constitutional validity or vires of Rule 117. To quote, the challenge to the maintainability of Rule 117 as being ultra vires the CGST Act, 2017 was put forth by the petitioner before the Hon’ble Ahmedabad High Court in the case of Willowood Chemicals Pvt. Ltd. Versus Union of India [2018-TIOL-2873-HC-AHM-GST] and before the Hon’ble Mumbai High Court in the case of M/s NELCO Ltd. Versus Union of India [2020-TIOL-641-HC-MUM-GST] but the said pleading was rejected by both the High Courts. Consequently, whether the assessees situated in Ahmedabad or Mumbai would be able to get benefit of decision rendered by the Delhi High Court is also doubtful as the jurisdictional High Court would prevail for them. As such, the discrimination amongst the assessees would still persist even after favourable decision pronounced by the Hon’ble Delhi High Court. Even Rajasthan High Court is also giving relief only in case of technical glitches. It is worth observing that one of the grounds taken before the Hon’ble Delhi High Court was that the time limit specified under Rule 117 discriminates amongst assessees and provides extension only to those assessees who have log records of technical problems faced by them in filing the transitional return. Well, even after the favourable decision, the discrimination would prevail in the places where there are contrary decisions pronounced by the High Courts.

Now, the question arises is that whether the retrospective amendment would help the revenue authorities to get a favourable decision by the Apex Court? The decision given by the Hon’ble Delhi High Court would be definitely challenged before the Supreme Court wherein it would be pleaded by the revenue authorities that the transitional credit is not a vested right but a concession available to the assessees with conditions of filing the transitional return within the stipulated time period as prescribed by the law. The main ground taken by the Hon’ble Delhi High Court was that the credit is a vested right and constitutionally protected right under Article 300A of the Constitution which could not be taken away by framing Rules without there being substantive provision in this regard in the CGST Act, 2017. It is not hidden that in past there have been decisions wherein it has been held that the right of credit is not vested and it is within the powers of the Government to attach conditions along with the availment of such concession. It has been concluded that prescribing time limit for availing credit is mandatory condition for availment of credit and cannot be considered as directory or procedural condition. However, at the same time, it is worth observing that the retrospective amendment in section 140 of the CGST Act, 2017 made vide section 128 of the Finance Act, 2020 has been implemented vide notification no. 43/2020-Central Tax dated 16^th May, 2020only with respect to CGST Act, 2017 as the States have not yet amended their respective SGST Acts in line with the retrospective amendment made in section 140 of the CGST Act, 2017. Consequently, whether the retrospective amendment implemented only in CGST Act, 2017 would suffice in nullifying the decision given by the Hon’ble Delhi High Court is also a big question. Therefore, the fate of the decision of the Hon’ble Delhi High Court decision will be known in the days to come.

We remember that our Hon’ble Prime Minister, Mr. Narendra Modi while addressing the business leaders of France and India in 2016 had said that “Retrospective tax is the thing of the past and this chapter will never be opened again in India as India needs a stable governance and predictable taxation system”. However, it appears that the words of the speech are being forgotten while making amendments in the GST regime. We can only keep our fingers crossed for the final verdict of the Supreme Court on the vires of Rule 117 and the applicability of the decision rendered by the Delhi High Court.

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GST UPDATE ON RETROSPECTIVE AMENDMENT VIS A VIS LANDMARK DELHI HIGH COURT DECISION 45/2020-21

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