This is to apprise you on recent decision of the Delhi High Court in case of Brand Equity Treaties Limited v. UOI, 2020-VIL-196-DEL. In this case, the High Court has extended the time limit for carrying forward of transitional credit under GST regime via Form GST TRAN-1 (‘TRAN-1’) for all taxpayers to 3 years from the date of implementation of GST i.e. till June 30, 2020.

Facts

Upon advent of GST, the taxpayers were entitled to carry forward credit of erstwhile taxes under Section 140 of the Central Goods and Services Tax Act, 2017 (‘CGST Act’) read with Rule 117 of the Central Goods and Services Tax Rules, 2017 (‘CGST Rules’) by filing TRAN-1. Several taxpayers could not file TRAN-1 within the prescribed time limit i.e. December 27, 2017 on account of technical glitches on GST portal or missed filing the same.

In the past as well, the taxpayers filed writ petitions before different High Courts and the Courts took divergent view on this issue. While some Courts allowed transition of credit by ignoring procedural issues while others refused transition of credit by reading this condition as mandatory.

In this case, bunch of writ petitions were filed before the Delhi High Court on the ground that credit is vested property under Article 300A of the Constitution of India which cannot be taken away merely by prescribing time limit in a delegated legislation (CGST Rules). The taxpayers also challenged absence of enabling provision in the CGST Act that prescribe time limit under Rule 117 of the CGST Rules.

Decision

The Court allowed the writ petition and decided the issue in favour of the taxpayers. The Court held as under:

• The time limit prescribed in the CGST Rules, does not remain sacrosanct being not flowing from statutory provisions.

• The time limit prescribed under Rule 117(1A) of the CGST Rules allowing transition of credit to taxpayers facing technical glitches on GST portal, has been extended multiple times. This provision allowing transition of credit to taxpayers who can evidence technical glitches is discriminatory as there were several flaws on GST portal and every taxpayer may not have evidence of technical glitch.

• Credit is vested property under Article 300A of the Constitution of India which cannot be taken away merely by prescribing time limit in a delegated legislation (CGST Rules).

• Transitional credit is a vested civil right which cannot be claimed in perpetuity. The period of 3 years prescribed under the Limitation Act, 1963 for enforcement of civil rights shall be the guiding principle. Accordingly, time limit for claiming transitional credit is extended up to June 30, 2020.

NITYA Comments: 

This judgment brings significant relief for all the taxpayers who missed to transition old credits (in whole or in part). The Court has directed the Government to publicize the judgment so that all taxpayers can claim relief and open the portal to enable taxpayers to file TRAN-1 or accept the same manually. Notably, it will be interesting to see applicability of this judgment for taxpayers outside Delhi. 

The Court did not discuss retrospective amendment made by the Finance Act, 2020 in Section 140(1) of the CGST Act authorizing Central Government to provide time limit for filing TRAN-1 in the CGST Rules. While the amendment is yet to be made effective, it will negate one of the strong arguments of the taxpayer that the Government was not empowered to prescribe date for filing TRAN-1. However, other reasonings of the Court would remain intact viz. credit being a vested right that cannot be restricted by procedural lapse and distinction created by the Government for extending due date for filing TRAN-1 as unreasonable. 

The revenue is likely to contest the issue before the Supreme Court and seek immediate stay on operation of the judgment.

The taxpayers intending to claim benefit of this judgment, should file fresh / revised TRAN-1 (electronically or manually) before June 30, 2020.