A two-judge bench of the Gujarat High Court has recently upheld the provisions of the GST Laws wherein a time limit was prescribed for claiming transitional credit under the old tax regime in form GST TRAN-1.
Before the High Court, the petitioners challenged the constitutionality of the provisions relating to the time limit prescribed for filing GST TRAN-1. The petitioners claimed that they were unable to file the return due to the technical glitches in the GST portal and this proviso limits the right of a dealer to claim carry forward of the tax credit in relation to inter-State sales as well as branch transfers or export sales, unless necessary declarations in Forms C, F & H are produced. According to them, Rules 117 of the CGST Rules and CGST Rules which prescribe the time for making a declaration of available tax credits as on 30th June 2017 are ultra vires the Act and the rule making powers of the authority. Such time limit in any case should be read as directory and not mandatory.
The bench comprising Justice Akil Kureshi and Justice B N Karia noted that Section 140 [c] is in the nature of enabling the dealers to take credit of existing taxes paid by them but not utilized for discharging their tax liabilities. It contains conditions subject to which the benefit can be enjoyed.
Regarding the validity of sub-rule [1] of Rule 117, it was noted that the provision lays down a time limit for making declaration only upon making of which, a person could take benefit of tax credit in terms of Section 140 of the CGST Act.
“It is in exercise of this rule making power, the Government has framed the CGST Rules, 2017 in which; as noted, sub-rule (1) of Rule 117 has prescribed, besides other things, the time limit for making declaration in the prescribed form for every dealer entitled to take credit of input tax under Section 140. Sub-rule [1] of Rule 117 thus applies to all cases of credits which may be claimed by a registered person under section 140 of the Act and is not confined to subsection [3]. This plenary prescription of time limit within which necessary declarations must be made is, in our opinion, neither without authority nor unreasonable,” the bench said.
The bench further held that “Combined effect of the powers conferred to subordinate legislature under sub-sections [1] and [2] of Section 164 of the CGST Act would convince us that the prescription of time limit under sub-rule [1] of Rule 117 of the CGST Rules is not ultra vires the Act. Likewise, such prescription of time limit cannot be stated to be either unreasonable or arbitrary. When the entire tax structure of the country is being shifted from earlier framework to a new one, there has to be a degree of finality on claims, credits, transfers of such credits and all issues related thereto. The petitioners cannot argue that without any reference to the time limit, such credits should be allowed to be transferred during the process of migration. Any such view would hamper the effective implementation of the new tax structure and would also lead to endless disputes and litigations.”
“Merely because the rule in question prescribes a time frame for making a declaration, such provision cannot necessarily be held to be directory in nature and must depend on the context of the statutory scheme,” the bench added.
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