Judgement Update Time limit to file TRAN-1 is procedural and not mandatory

The recent decision of High Courts in the case of Siddharth Enterprises v. The Nodal Officer, 2019-VIL-442-GUJ and Krish Automotors Private Limited v. UOI, 2019-VIL-462-DEL has given a big relief to the taxpayers who were unable to transition the tax credits earned under erstwhile regime into the Goods and Services Tax (‘GST’) regime. The taxpayers prayed before the Court to declare timelines for filing TRAN-1 and TRAN-2 as directory and not mandatory.

Rule 117(1A) of the Central Goods and Services Tax Rules, 2017 (‘CGST Rules’) states that due date of filing transitional forms can be extended where the forms could not be filed due to technical difficulties on the portal. The taxpayers inter alia contended that the expression ‘technical difficulties on the common portal’ is not defined and hence, the same should be interpreted liberally.

In the case of Siddharth Enterprises (supra), the taxpayer could not file transitional forms due to technical glitch on the common portal. The department refused to provide relief on the ground that the taxpayer did not even try to save or file the form TRAN-1 and hence, the writ petition must not be entertained.

In the case of Krish Automotors (supra), the taxpayer admitted that with multiple due dates, it missed filing FORM TRAN-1 by December 27, 2017.

The Court in Siddharth Enterprises (supra) laid down following important principles:     

• The purpose of GST is to remove cascading taxes as envisaged in the Objects and Reasons of GST legislations.

• The Courts must cut down technicalities which are not necessary for the fulfilment of the purposes of legislation.

• An interpretation unduly restricting the scope of a beneficial provision should be avoided so that it does not take away with one hand what the policy gives with the other.

• Tax credit is a vested right and is indefeasible. A procedure should not run contrary to the substantive right granted by the policy.

The Court held that no discrimination can be made in terms of time limit for availing transitional credit and normal credit under GST. Rule 117 discriminates pre-GST credit and post-GST credit with respect to time limit and is hence violative of Article 14 of the Constitution. Further, no reasons were provided by the Revenue for such discrimination. Thus, it is unreasonable, arbitrary, irrational and runs contrary to Article 19 of the Constitution.

NITYA Comments:

The Court rightly held that Rule 117 of the CGST Rules is procedural. When all the relevant Indirect taxes were subsumed into one GST law, it was legitimately expected by the taxpayer that the erstwhile tax credit would be carried forward to the GST regime. Keeping in mind that GST is predominantly IT-based and taxpayers were unaware of nitty-gritty of this novel law, mere 6 months’ time to file transitional forms was harsh and confiscatory in nature.

Notably, this decision is contrary to the High Court’s own decision in the case of Willowood Chemicals Private Limited v. UOI, [2018] 58 GSTR 310 (Guj). In this case, the petitioner challenged time limit under Rule 117 of the CGST Rules albeit in respect of Section 140(1) of the CGST Act. The petitioner contended that firstly, subordinate legislation cannot prescribe time limit not envisaged in the parent Act and secondly, such time limit should be held to be directory and not mandatory. The Court rejected both the contentions and upheld the time limit prescribed under Rule 117. The two decisions stand at loggerheads in respect of the validity of time limit for filing transitional forms. Interestingly, in Siddharth Enterprises (supra), the Court has adopted harmonious construction and interpreted the time limit as procedural to save Rule 117.

Resultantly, the taxpayers who never attempted to file transitional forms or missed some of the credits, can attempt to claim the same even now.