The Court held that input tax credit is a statutory concession, not a vested right, and Rule 117 imposing a time limit for filing Form GST TRAN-1 is intra vires and mandatory. The petitioner failed to comply with the requirement to file the form electronically, so the writ for declaration of ultra vires status was dismissed.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
IN THE HIGH COURT OF JUDICATURE AT MADRAS
The Hon'ble Mr. A.P.SAHI, THE CHIEF JUSTICE and The Hon'ble Mr. Justice SENTHILKUMAR RAMAMOORTHY
Writ Petition No.8890 of 2020 and WMP.No.10803 of 2020
M/s.P.R.Mani Electronics Rep. by its Proprietor, P.Rajamani, S/o.Perumal Naidu, No.32, Sannathi Street, Thiruvannamalai District. ... Petitioner Vs 1.Union of India Rep. by Secretary, Ministry of Finance, No.136-A, North Block, New Delhi.
2.The Goods and Service Tax Council, Rep. through its Chairman, Goods and Services Tax Secretariat, 5th Floor, Tower V, Jeevan Bharathi Buildings, Janpath Road, Cannaught Place, New Delhi.
3.The Principal Chief Commissioner of GST & Central Excise, 26/1, Mahatma Gandhi Road, Nungambakkam, Chennai – 600 034. 4.The Assistant Commissioner of GST & Central Excise, Tiruvannamalai- I Assessment circle, Commercial Tax Buildings, Collectorate Campus, Tiruvannamalai. ... Respondents
PRAYER : Petition filed under Article 226 of the Constitution of India, praying to issue a writ of declaration to declare that Rule 117 of Central Goods and Service Tax(CGST) Rules is ultra
vires and unconstitutional in so far as petitioner consent and also to direct the Respondents authorities to permit the Petitioner to file Form GST Trans – 1 either electronically or manually to claim the transitional input tax credit of Rs.4,70,008/- accrued and vested with the Petitioner and grant such other relief.
For Petitioner : Mr.R.Rajarajan
For Respondents : Mr.R.Sankaranarayanan
Additional Solicitor General for R1 & R2 Assisted by Mr.K.Venkatasamy Babu
Mr.Mohammed Shaffiq Spl.GP(T) for R3 and R4
SENTHILKUMAR RAMAMOORTHY.J.,
The validity of Rule 117 of the Central Goods and Service Tax Rules, 2017 (the CGST Rules) is under challenge in this writ petition on the grounds that it is ultra vires Section 140 of the Central Goods and Services Tax Act, 2017 (the CGST Act) and infringes Articles 14 and 300A of the Constitution, and the Petitioner further prays that the Respondents should be directed to permit the Petitioner to file Form GST TRANS – 1 either electronically or manually to claim the transitional input tax credit of Rs.4,70,008/-.
“140. Transitional arrangements for input tax credit- (1) A registered person, other than a person opting to pay tax under section 10, shall be entitled to take, in his electronic credit ledger, the amount of CENVAT credit carried forward in the return relating to the period ending with the day immediately preceding the appointed day, furnished by him under the existing law within such time and in such manner as may be prescribed(emphasis added): Provided that the registered person shall not be allowed to take credit in the following circumstances, namely: —
(i)where the said amount of credit is not admissible as input tax credit under this Act; or (ii)where he has not furnished all the returns required under the existing law for the period of six months immediately preceding the appointed date; or
(iii)where the said amount of credit relates to goods manufactured and cleared under such exemption notifications as are notified by the Government.
(2) A registered person, other than a person opting to pay tax under section 10, shall be entitled to take, in his electronic credit ledger, credit of the unavailed CENVAT credit in respect of capital goods, not carried forward in a return, furnished under the existing law by him, for the period ending with the day immediately preceding the appointed day in such manner as may be prescribed: Provided that the registered person shall not be allowed to take credit unless the said credit was admissible as CENVAT credit under the existing law and is also admissible as input tax credit under this Act. Explanation.–– For the purposes of this subsection, the expression “unavailed CENVAT credit” means the amount that remains after subtracting the amount of CENVAT credit already availed in respect of capital goods by the taxable person under the existing law.
(3) A registered person, who was not liable to be registered under the existing law, or who was engaged in the manufacture of exempted goods or provision of exempted services, or who was
providing works contract service and was availing of the benefit of notification No. 26/2012—Service Tax, dated the 20th June, 2012 or a first stage dealer or a second stage dealer or a registered importer or a depot of a manufacturer, shall be entitled to take, in his electronic credit ledger, credit of eligible duties in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day subject to the following conditions, namely:-
(i)such inputs or goods are used or intended to be used for making taxable supplies under this Act;
(ii)the said registered person is eligible for input tax credit on such inputs under this Act;
(iii) the said registered person is in possession of invoice or other prescribed documents evidencing payment of duty under the existing law in respect of such inputs;
(iv) such invoices or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day; and
(v)the supplier of services is not eligible for any abatement under this Act:
Provided that where a registered person, other than a manufacturer or a supplier of services, is not in possession of an invoice or any other documents evidencing payment of duty in respect of inputs, then, such registered person shall, subject to such conditions, limitations and safeguards as may be prescribed, including that the said taxable person shall pass on the benefit of such credit by way of reduced prices to the recipient, be allowed to take credit at such rate and in such manner as may be prescribed....”
with retrospective effect from July 1, 2017. Section 164 of the CGST Act empowers the Government, on the recommendations of the GST Council, to frame rules for implementing the provisions of the Act. Section 164, in relevant part, is as under:
“164. Power of Central Government to frame rules-(1) The Government may, on the recommendations of the Council, by notification, make rules for carrying out the provisions of this Act.
Pursuant to Section 164, the CGST Rules were framed and the procedure relating to availing of Transitional ITC was prescribed by Rule 117 thereof. Rule 117 reads as under: “CGST Rule 117: Tax or Duty Credit Carried Forward under any Existing Law or on Goods Held in Stock on the Appointed Day (Chapter-XIV: Transitional Provisions)
(1) Every registered person entitled to take credit of input tax under section 140 shall, within ninety days of the appointed day, submit a declaration electronically in FORM GST TRAN-1, duly signed, on the common portal specifying therein, separately, the amount of input tax credit to which he is entitled under the provisions of the said section:
Provided that the Commissioner may, on the recommendations of the Council, extend the period of ninety days by a further period not exceeding ninety days.
Provided further that where the inputs have been received from an Export Oriented Unit or a unit located in Electronic Hardware Technology Park, the credit shall be allowed to the extent as provided in sub-rule (7) of rule 3 of the CENVAT Credit Rules, 2004.
(1A) Notwithstanding anything contained in subrule (1), the Commissioner may, on the
recommendations of the Council, extend the date for submitting the declaration electronically in FORM GST TRAN-1 by a further period not beyond 31st March, 2020, in respect of registered persons who could not submit the said declaration by the due date on account of technical difficulties on the common portal and in respect of whom the Council has made a recommendation for such extension.
(2) Every declaration under sub-rule (1) shall-
(a) in the case of a claim under sub-section (2) of section 140, specify separately the following particulars in respect of every item of capital goods as on the appointed day- (i) the amount of tax or duty availed or utilized by way of input tax credit under each of the existing laws till the appointed day; and (ii) the amount of tax or duty yet to be availed or utilized by way of input tax credit under each of the existing laws till the appointed day;
(b) in the case of a claim under sub-section (3) or clause (b) of sub-section (4) or sub-section (6) or sub-section (8) of section 140, specify separately the details of stock held on the appointed day;
(c) in the case of a claim under sub-section (5) of section 140, furnish the following details, namely:—
(i) the name of the supplier, serial number and date of issue of the invoice by the supplier or any document on the basis of which credit of input tax was admissible under the existing law;
(ii) the description and value of the goods or services;
(iii) the quantity in case of goods and the unit or unit quantity code thereof;
(iv) the amount of eligible taxes and duties or, as the case may be, the value added tax [or entry tax] charged by the supplier in respect of the goods or services; and
(v) the date on which the receipt of goods or services is entered in the books of account of the recipient.
(3) The amount of credit specified in the application in FORM GST TRAN-1 shall be credited to the electronic credit ledger of the applicant maintained in FORM GST PMT-2 on the common portal.
(4) (a) (i) A registered person who was not registered under the existing law shall, in accordance with the proviso to sub-section (3) of section 140, be allowed to avail of input tax credit on goods (on which the duty of central excise or, as the case may be, additional duties of customs under sub-section (1) of section 3 of the Customs Tariff Act, 1975, is leviable) held in stock on the appointed day in respect of which he is not in possession of any document evidencing payment of central excise duty.
(4) (a) (ii) The input tax credit referred to in sub-clause (i) shall be allowed at the rate of sixty per cent. on such goods which attract central tax at the rate of nine per cent. or more and forty per cent. for other goods of the central tax applicable on supply of such goods after the appointed date and shall be credited after the central tax payable on such supply has been paid:
Provided that where integrated tax is paid on such goods, the amount of credit shall be allowed at the rate of thirty per cent. and twenty per cent. respectively of the said tax;
(4) (a) (iii) The scheme shall be available for six tax periods from the appointed date.
(4) (b) The credit of central tax shall be availed subject to satisfying the following conditions, namely:-
(4) (b) (i) such goods were not unconditionally exempt from the whole of the duty of excise specified in the First Schedule to the Central Excise Tariff Act, 1985 or were not nil rated in the said Schedule;
(4) (b) (ii) the document for procurement of such goods is available with the registered person;
(4) (b) (iii) The registered person availing of this scheme and having furnished the details of stock held by him in accordance with the provisions of clause (b) of sub-rule (2), submits a statement in FORM GST TRAN 2 by 31st March 2018, or within such period as extended by the Commissioner, on the recommendations of the Council, for each of the six tax periods during which the scheme is in operation indicating therein, the details of supplies of such goods effected during the tax period;
Provided that the registered persons filing the declaration in FORM GST TRAN-1 in accordance with sub-rule (1A), may submit the statement in FORM GST TRAN-2 by 30th April, 2020.
(4) (b) (iv) the amount of credit allowed shall be credited to the electronic credit ledger of the applicant maintained in FORM GST PMT-2 on the common portal; and
(4) (b)(v) the stock of goods on which the credit is availed is so stored that it can be easily identified by the registered person.”
the Petitioner's property and, therefore, the Petitioner cannot be deprived of its property merely because the requisite form could not be submitted within the prescribed time limit. The prescription of such time limit in Rule 117 is ultra vires Section 140 and violates Article 14 and 300-A of the Constitution of India in as much as it deprives the Petitioner of its property by way of ITC. At a minimum, the said Rule 117 should be read as a directory or permissive provision and not as a mandatory or peremptory provision. The present writ petition was filed in these facts and circumstances.
provisions of the Act and, in particular, to make rules for matters that are required to be prescribed by the CGST Act. Interestingly, the power to frame rules with retrospective effect is also conferred subject to the limitation that it should not pre-date the date of entry into force of the CGST Act. Pursuant thereto, Rule 117 was framed whereby a time limit was fixed for submitting the on line Form GST TRAN -1. By the Finance Act of 2020, the words “within such time” were introduced in Section 140, with retrospective effect from 01.07.2020, thereby conferring expressly the power to prescribe time limits in Section 140 even without relying entirely on the generic Section 164. In this statutory context, we find ample reason to conclude that Rule 117 of the CGST Rules is intra vires Section 140 of the CGST Act but none to conclude otherwise.
“11. From the aforesaid scheme of Section
19 following significant aspects emerge:
(a) ITC is a form of concession provided by the legislature. It is not admissible to all kinds of sales and certain specified sales are specifically excluded.
(b) Concession of ITC is available on certain conditions mentioned in this section.
(c) One of the most important condition is that in order to enable the dealer to claim ITC it has to produce original tax invoice, completed in all respect, evidencing the amount of input tax.
purpose of claiming tax. Therefore, under the scheme of the VAT Act, it is not permissible for the dealers to argue that the price as indicated in the tax invoice should not have been taken into consideration but the net purchase price after discount is to be the basis. If we were dealing with any other aspect dehors the issue of ITC as per Section 19 of the VAT Act, possibly the arguments of Mr Bagaria would have assumed some relevance. But, keeping in view the scope of the issue, such a plea is not admissible having regard to the plain language of sections of the VAT Act, read along with other provisions of the said Act as referred to above.”
“45. This Court in the above case clearly laid down that whether particular provision is mandatory or directory has to be determined on the basis of the object of the particular provision and design of the statute. The period of 10 days in submitting the report of the public analyst was held to be directory for the reason that on the negligence of those to whom public duties are entrusted no one should suffer. Such interpretation should not be put which may promote the public mischief and cause public inconvenience and defeat the main object of the statute. The interpretation of Rule 9(j) in the above case was on its own statutory scheme and has no bearing in the present case. We, thus, are of the view that time period as provided in Section 19(11) is mandatory.”
The said Section 19(11) also pertains to the time limit for claiming ITC and uses the word "shall". After examining the language of Section 19(11) and the context, including the object and design of the statute, the Hon'ble Supreme Court concluded that the time limit specified in Section 19(11) is mandatory.
directed the tax authorities to open the on line portal so as to enable the electronic filing of Form GST TRAN-1 or accept the manually filed form. The said decision was based on earlier judgments of the Delhi High Court wherein it was observed that the GST system is in a “trial and error phase”. A subsequent judgment of the Division Bench of the Delhi High Court in SKH Sheet Metals Components v. Union of India [2020 SCC online Del 650] (SKH Sheet Metals) examined the concept of ITC and observed that an uninterrupted and seamless chain of ITC is the heart and soul of GST so as to avoid cascading of taxes. In the said judgment, the mandatory or directory nature of Rule 117 was considered and the Court concluded that it is directory both on the basis that the CGST Act does not specify the consequences of not complying with the time limit and because construing it as mandatory would prejudice the assessee. In drawing this conclusion, the Court relied on the judgment of the Delhi High Court in Brand Equity Treaties Ltd. v. Union of India [(2020) Taxmann.com 415] (Brand Equity Treaties) and Micromax Informatics (cited supra), wherein the Court held that CENVAT credit had accrued and vested in the assessee and is, consequently, the property of the assessee. By order dated 19.06.2020 in SLP Nos 7425-7428 of 2020, the Hon'ble Supreme Court granted a stay of the operation of the judgment in Brand Equity Treaties. At this juncture, it is pertinent to point out that Brand Treaty Equities was decided prior to the amendment to Section 140 of the CGST Act whereby the words "within such time" were introduced. On the other hand, SKH Sheet Metals Components was decided after the amendment; nonetheless, the Delhi High Court concluded that the amendment settles the question as to the power to frame rules fixing the time limit for filing the declaration but does not fix a time limit for transitioning credit.
accumulated ITC under erstwhile tax legislations and claim the same under the CGST Act. In effect, it is a transitional provision as is evident both from Section 140 and Rule 117. In light of the judgment of the Supreme Court in Jayam, the contention of the learned counsel for the Petitioner to the effect that ITC is the property of the Petitioner cannot be countenanced and ITC has to be construed as a concession. In addition, it is evident that ITC cannot be availed of without complying with the conditions prescribed in relation thereto. Prior to the amendment to Section 140 of the CGST Act, the power to frame rules fixing a time limit was arguably not traceable to the unamended Section 140 of the CGST Act, which contained the words "in such manner as may be prescribed", because such words have been construed by the Supreme Court in cases such as Sales Tax Officer Ponkuppam v. K.I. Abraham [(1967) 3 SCR 518] as not conferring the power to prescribe a time limit. Nevertheless, in our view, it was and continues to be traceable to Section 164, which is widely worded and imposes no fetters on rule making powers except that such rules should be for the purpose of giving effect to the provisions of the CGST Act. A fortiori, upon amendment of Section 140 by introducing the words "within such time", the power to frame rules fixing time limits to avail Transitional ITC is settled conclusively. In SKH Sheet Metals, the Delhi High Court concluded, in paragraph 26, that the statute had not fixed a time limit for transitioning credit by also referring to the repeated extensions of time. Given the fact that the power to prescribe a time limit is expressly incorporated in Section 140, which deals with Transitional ITC, and Rule 117 fixes such a time limit, we are unable to subscribe to this view. The fact that such time limit may be extended under circumstances specified in Rule 117, including Rule 117A, does not lead to the sequitur that there is no time limit for transitioning credit. In this context, reference may be made to Section 16(4) of the CGST Act which provides as follows:
"Section 16(4): A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under Section 39 for the month of September following the end of the financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier."
The above provision is indicative of the legislative intent to impose time limits for availing ITC. Besides, Section 19(3)(d) of the TNVAT Act itself imposed a time limit for availing ITC and further provided that it would lapse upon expiry of such time limit. In our view, keeping the above statutory backdrop in mind, in the context of Transitional ITC, the case for a time limit is compelling and disregarding the time limit and permitting a party to avail Transitional ITC, in perpetuity,
would render the provision unworkable. In this regard, we concur with the conclusion of the Bombay High Court in Nelco that both ITC and Transitional ITC cannot be availed of except within the stipulated time limit. Such time limits may, however, be extended through statutory intervention. As stated earlier, in SKH Sheet Metals, the Delhi High Court observed that ITC is the heart and soul of GST legislations in as much as such legislations are designed to prevent the cascading of taxes. There can be no quarrel with this conceptual position; however, it is not a logical corollary thereof that time limits for availing ITC and, in particular, Transitional ITC, are inimical to the object and purpose of the statute.
19.We also note that Rule 117 specifies that the return in Form GST TRAN – 1 is required to be filed electronically on the common portal. This requirement is not satisfied by handing over the form in person to the Sales Tax Collection Inspector,
Tiruvannamalai. Consequently, in our view, the Petitioner has completely failed to make out a case to direct the Respondents to permit the Petitioner to file Form GST TRAN -1 and claim the Transitional ITC of Rs.4,70,008/-. Needless to say, if any dispensations are granted by the tax authorities with regard to availing of Transitional ITC, whether by filing Form GST TRAN-1 or otherwise, and to which the Petitioner may be entitled, this order will not preclude the Petitioner from making a claim for Transitional ITC.
Sd/Assistant Registrar (CS-I) //True Copy// Sub Assistant Registrar Rrg To 1.The Secretary, Union of India Ministry of Finance, No.136-A, North Block, New Delhi. 2.The Chairman, The Goods and Service Tax Council, Goods and Services Tax Secretariat, 5th Floor, Tower V, Jeevan Bharathi Buildings, Janpath Road, Cannaught Place, New Delhi.
3.The Principal Chief Commissioner of GST & Central Excise, 26/1, Mahatma Gandhi Road, Nungambakkam, Chennai – 600 034. 4.The Assistant Commissioner of GST & Central Excise, Tiruvannamalai- I Assessment circle, Commercial Tax Buildings, Collectorate Campus, Tiruvannamalai. W.P.No.8890 of 2020 RSV(CO) GN(07/08/2020)
3 issues framed by the court
Whether Rule 117 of CGST Rules fixing a time limit for filing Form GST TRAN-1 is ultra vires Section 140 of CGST Act.
Whether input tax credit is a vested property right of the assessee or a statutory concession subject to time limits.
Whether the time limit for availing transitional input tax credit under Rule 117 is mandatory or directory.
Colour shows how this judgement treated each authority
Micromax Informatics Ltd. v. Union of IndiaReferred¶73
Micromax Informatics Ltd. v. Union of India, WP(C) No.196 of 2019
Jayam and Company v. Assistant Commissioner and anotherFollowed¶76
Jayam and Company v. Assistant Commissioner and another, (2016) 15 SCC 125 · Who else cites this
ALD Automotive Private Limited v. Commercial Tax OfficerFollowed¶76
ALD Automotive Private Limited v. Commercial Tax Officer, (2019) 13 SCC 225 · Who else cites this
Sales Tax Officer Ponkuppam v. K.I. AbrahamReferred¶99
Sales Tax Officer Ponkuppam v. K.I. Abraham [(1967) 3 SCR 518] · Who else cites this
Union of India v. A.K. PandeyReferred¶104
Union of India v. A.K. Pandey [(2009) 10 SCC 552] · Who else cites this
Bachhan Devi v. Nagar NigamReferred¶104
Bachhan Devi v. Nagar Nigam [(2008) 12 SCC 372] · Who else cites this
C. Bright v. The District CollectorExplained¶104
C. Bright v. The District Collector, [2019 SCC Online Mad 2460] · Who else cites this
3 provisions across 2 enactments
M/s P.R.Mani Electronics Rep. by its Proprietor, P.Rajamani
Union of India Rep. by Secretary, Ministry of Finance
The Goods and Service Tax Council Rep. through its Chairman
The Principal Chief Commissioner of GST & Central Excise
The Assistant Commissioner of GST & Central Excise, Tiruvannamalai
SENHILKUMAR RAMAMOORTHY
A.P. SAHI
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
