GST UPDATE ON THE SAGA OF TRANSITIONAL CREDIT CONTINUES 70/2020-21

The remedy available in case of inability to file TRAN-1 or revise the wrongly filed TRAN-1 still continues as number of assessees are knocking the doors of High Courts. The landmark decision given by the Hon’ble Delhi High Court in the case of M/s Brand Equity Treaties Pvt. Ltd. has provided much need relief not only to the petitioner but to every assessee who could not file TRAN-1 within the stipulated period by invoking the provisions of Limitation Act and specifying the last date of availing the benefit to be 30^th June, 2020. However, as we all know that the favourable decisions pronounced by High Courts are often not accepted by the department, the revenue department has filed Special Leave Petition before the Hon’ble Supreme Court against the decision given in the case of M/s Brand Equity Treaties Pvt. Ltd. It has been recently reported that the Apex Court has stayed the operation of the said decision as revenue authorities have contended that the reference to provisions contained in Limitation Act is not possible when the limitation is prescribed in the Statue. It is pertinent to mention that the Hon’ble Apex Court had on earlier occasion on the similar issue had rejected Special Leave Petition filed by the department against the order of Hon’ble Punjab & Haryana High Court in the case of Union of India Vs Adfert Technologies Pvt. Ltd. It is apprehended that the retrospective amendment made effective under section 140 after the decision of Delhi High Court in the case of M/s Brand Equity Treaties Pvt. Ltd. is one of the main grounds of the Special Leave Petition filed before the Hon’ble Supreme Court.

We have carried our detailed analysis on the decision in the case of M/s Brand Equity Treaties Pvt. Ltd. vide our GST update no. 45/2020-21. In our opinion, the retrospective amendment was not the sole reason for granting benefit by the Hon’ble Delhi High Court and there were other grounds such as credit is vested right under Article 300A of the Constitution and that the time limit prescribed in Rule 117 is directory in nature and not mandatory. It is worth mentioning that recently, the Hon’ble Delhi High Court has pronounced another favourable decision in the case of SKH Sheet Metals Components pronounced on 16.06.2020 wherein the aspect of retrospective amendment has also been considered.In the present case, the petitioner had filed TRAN-1 within the time limit but there was some mistake in claiming credit and wanted to revise the transitional credit which it was not able to do even after repeated requests. The Hon’ble Delhi High Court granted the relief by passing detailed order on the following points:-

The GST system and its procedural fallibility and shortcomings:-It was held that even if it is assumed that petitioner committed mistake which is purely on account of human error, the law ought to provide remedial avenue. Since GST law is a major tax reform in indirect taxation, the difficulties faced in filing of the statutory forms is understandable. In this process, human errors cannot be ruled out and if they occur, the solution is not to criticize the taxpayer for the fault, but instead, the Government should endeavour to find a resolution. The government should support its citizens by making the burden of compliance and payment as simple as possible.

The Finance (Amendment) Act, 2020 and its impact; Judgment in Brand Equity (supra):-The 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. Nevertheless, all things considered, in spite of the amendment, it can be said 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 that continue to apply with full rigour even today, regardless of amendment to section 140 of the CGST Act, 2017.

Arbitrary distinction of timelines under Rules 117 & 117 (IA):-As the meaning of “technical difficulty on common portal” is not defined anywhere, the extension with the said condition is arbitrary.

Concept of ITC and its significance; Whether procedural timelines for TRAN-1 are directory and 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 the same was not treated as sacrosanct. The Central Government has continuously extended the same, by carving out an exception under Rule 117 (1A) and so the time limit has to be considered as directory in nature.

The above reasoning clearly reveals that the benefit of filing TRAN-1/revised TRAN-1 has been granted by the Hon’ble Delhi High Court by observing number of factors and moreover, the benefit is granted after considering the retrospective amendment made in the section 140. This decision has ignited hopes regarding favourable decision by the Supreme Court in the case of M/s Brand Equity Treaties Pvt. Ltd.

If we observe other rulings pronounced recently, it is found that in another case, Hon’ble Delhi High Court has allowed benefit in the case of M/sMangla Hoist Pvt. Ltd.rendered on 17th June, 2020 wherein the contention of the revenue department that they have filed Special Leave Petition before Supreme Court was rejected on the grounds that there is no stay granted. However, as discussed, the Supreme Court has granted stay in the case of M/s Brand Equity Treaties Pvt. Ltd. on 19.06.2020.

To sum up, in our opinion, the assessees should avail this one time opportunity and resort to file their TRAN-1 either on GST portal or manually before 30.06.2020 so that in case the Supreme Court affirms the verdict of Hon’ble Delhi High Court, the assessees are able to avail the benefit granted by the Delhi High Court. We hope the battle of carry forward of transitional credit is put to rest soon by the Apex Court.
This is solely for educational purpose.
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GST UPDATE ON THE SAGA OF TRANSITIONAL CREDIT CONTINUES 70/2020-21

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