In a recent matter, the Rajasthan High Court reaffirmed the mandatory nature of the time and manner for claiming transitional credit under Rule 117 of the Central Goods and Services Tax (CGST) Rules, 2017.
The petitioner, Dharnia Motors is a sub-dealer of Hero Motocorp Ltd. and is engaged in the sale of motorbikes after procuring them from the primary dealer. The excise duty was embedded in the cost of goods as the manufacturer issued invoices to the primary dealer, not directly to Dharnia Motors. As a result, the petitioner did not possess documents evidencing payment of excise duty.
The Petitioner was entitled to credit of excise duty on goods held in stock as on 30.06.2017, prior the implementation of the GST regime on July 1, 2017. Even though Dharnia Motors were not required to register under the erstwhile Central Excise Act, 1944, they had accumulated balance credit of excise duty on the purchased goods which were eligible for transitional arrangements to avail input tax credit.
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Dharnia Motors attempted to claim transitional credit by filing TRAN-3 on the GST portal, using Credit Transfer Documents (CTDs) issued by Hero Motocorp, however they failed to file the mandatory TRAN-1 form within the time limit of 90 days specified under Rule 117 of the CGST Rules, 2017.
Notification No. 34/2017-Central Tax (Dated 15th September 2017) required simultaneous filing of TRAN-1 and TRAN-3 to claim credit on CTDs and hence the Petitioner’s claims were denied by the Department.
Sharad Kothari, appearing for Dharnia Motors challenged the denial of transitional credit contending that Rule 117 was not obligatory while arguing that fulfilling the substantive conditions of Section 140 was sufficient enough to claim credit. They further asserted that the procedural requirement of submitting TRAN-1 was not a substantive obligation and should not invalidate their claim.
On the other hand, Rajvendra Saraswat appearing for the Revenue argued that the right to claim transitional credit was conditional upon fulfilling both the eligibility criteria under Section 140 and the procedural requirements of Rule 117. They emphasized that Notification No. 34/2017-Central Tax mandated simultaneous filing of TRAN-1 and TRAN-3, reinforcing the necessity of adhering to the stipulated time frame.
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The Bench of Chief Justice Manindra Mohan Shrivastava and Justice Munnuri Laxman observed that the statutory phrase “within such time and in such manner as may be prescribed” in Section 140 provided the basis for the Rule 117 requirement. The Bench noted that filing TRAN-1 electronically was not a mere procedural formality but a statutory prerequisite for claiming transitional credit.
The Rajasthan High Court referenced the Supreme Court decision in Jayam & Co. v. Assistant Commissioner & Anr. (2016) and ALD Automotive Pvt. Ltd. Vs. Commercial Tax Officer Now Upgraded as the Assistant Commissioner (CT) & Ors. (2018), where it was established that concessions like transitional credit must adhere strictly to the conditions set by law.
Underlining the objective of Rule 117, the Bench held that the purpose of the procedural legislation is to ensure timely resolution of transitional credit claims and to prevent stale or unverifiable claims. It concluded that the time limit prescribed for filing TRAN-1 is a statutory mandate, integral to the eligibility criteria under Section 140.
In light of the observations, the Rajasthan High Court dismissed the petition, reaffirming that non-compliance with the prescribed time and manner under Rule 117 disqualifies a trader or dealer from claiming transitional credit.
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