Dispute on time limit relating to transitional arrangements for input tax credit (ITC) under Goods & Services Tax (GST) has reached apex court with Finance Ministry appealing against a Delhi High Court’s ruling on this issue.
The HC, in its ruling on May 5, said time limit for transitional credit is only ‘directory’ and not ‘mandatory’. For the first time in the GST regime, a court ruling made applicable to not only the petitioner but all the affected assessees who are not even party to the petition. This would mean all assessees can claim all pending transitional credit (technically known as ITC) till June 30.
Meanwhile, to protect its revenue, the Finance Ministry notified a retrospective amendment in the Central Goods and Services Act (CGST Act 2017) on May 17. Accordingly, it has formally been made effective to prescribe the time limit and the manner for availing ITC against certain unavailed credit under the existing law. This amendment shall take effect retrospectively from July 1, 2017. The fine print of this amendment makes it clear that the power to prescribe a timeline now emanates from a law enacted by Parliament and not from the sub-ordinate legislation, i.e. rules. Since the High Court order focusses on the rule, the notification will impact the claim settlement for many businesses except the petitioners in the matter decided on May 5.
And now, the Ministry has filed a special leave petition (SLP) in the apex court. The petition questioned whether the HC was right in holding that transitional credit being a valuable civil right can be enforced within a period of three years from the date of commencement of limitation under the Limitation Act, 1963 and not within the 90 days’ time prescribed in the special statue under the CGST rules.
The SLP posed another question whether the High Court’s finding that the period of 90 days has no rationale and that the cut-off date provided for in sub-rule (1A) of Rule 117 is arbitrary is erroneous in light of the well-settled legal principle that cut off times are in the realm of the legislature/executive to lay down. The courts, especially in fiscal statutes, should not interfere with such cut-off dates.
“The date prescribed by the Delhi High Court based on the limitation act is 30th June, 2020 and as expected, SLP has been filed before this date. It remains to be seen how the issue progresses especially in light of the retrospective amendment,” said Abhishek A Rastogi, Partner at Khaitan & Co, who is arguing the lead petition. Further, the emphasis remains that it is a vested right, and the objectives of GST was a seamless flow of credit, and hence Article 300A of the Indian Constitution cannot be ignored. This article says: “No person shall be deprived of his property save by authority of law.”
Transitional credit refers to use of tax credit accumulated up to June 30, 2017, that is, last day of the erstwhile central excise and service tax regime. After the introduction of GST, a special provision was made for credit accumulated under VAT, excise duty or service tax to be transited to GST. However, this can be availed by submitting a form within a specified time limit which was extended till December 31, 2019.