Index:
1. Delhi HC Ruling: Allows Taxpayers to avail Transitional Credit up to 30.06.2020.
M/s Brand Equity Treaties Ltd. & 3 Others. vs. The Union of India.
W.P.(C) 11040/2018 and C.M. No. 42982/2018 on 05.05.2020
- Background:
One of the objectives of introduction of GST was to avoid cascading effect of taxes. The provisions related to transitional credit and input tax credit should have been more liberal. In certain cases, the provisions of the rules are restricting the credit and in certain other cases portal is not allowing. This is leading to numerous litigations.
- Brief Facts of the Case:
In present case the petitioners had failed to file the correct declaration in Form TRAN?1 within the due date due to system error or filed with incorrect figures or could not file due to confusion. Hence, they filed separate writ petitions. Considering that the issues involved are common, a common order has been passed.
- Reasonings and conclusion of the judgement:
- CENVAT credit which stood accrued and vested is the property of the assessee and is a constitutional right under Article 300A of the Constitution.
- The same cannot be taken away merely by way of delegated legislation by framing rules, without there being any overarching provision in the GST Act.
- The date prescribed for filing of the said Form TRAN-1 was extended several times by way of orders issued from time to time.
- Rule 117 (1A) permit Commissioner to extend the date for submission of Form TRAN-1 where the taxpayers could not file due to technical difficulties on the common portal.
- The above rule demonstrates that the department recognize the fact that the registered persons were not able to upload GST TRAN-1 due to technical difficulties on the common portal.
- Restricting the benefit only to taxpayers whose cases are covered by "technical difficulties on common portal" subject to recommendations of the GST Council, is arbitrary, vague and unreasonable.
- There is no definition to this concept of “technical difficulty on the common portal” and it is a broader term. Hence, cannot have a narrow interpretation.
- Further, technical difficulties cannot be restricted only to a difficulty faced by or on the part of the department. It would include within its purview any such technical difficulties faced by the taxpayers as well, which could also be a result of the respondent's follies.
- Thus, the phrase "technical difficulty" is being given a restrictive meaning by the authorities which is supplied by the GST system logs.
- Rule 117 of CGST Rules’2017 which prescribes mechanism for availing the transitional credit, is procedural and directory, and cannot affect the substantive right of the registered taxpayer to avail transitional Credit.
- Rule 117 of the CGST Rules is arbitrary, unconstitutional, and violative of the right to equality enshrined under the Article 14 of the Constitution to the extent that it imposes a time limit to carry forward transitional credit.
- Taxpayers cannot be robbed of their valuable rights on an unreasonable and unfounded basis of them not having filed TRAN-1 Form within 90 days, when civil rights can be enforced within a period of three years from the date of commencement of limitation under the Limitation Act, 1963.
- In absence of any specific provisions under the Act, residuary provisions of the Limitation Act, should be the guiding principle and thus a period of three years from the appointed date would be the maximum period for availing of such credit.
- The department should either open the online portal so as to enable the Petitioners to file declaration in Form TRAN-1 electronically, or to accept the same manually.
- Further, the benefit is not just qua the Petitioner, thereby extending the benefit to all taxpayers who missed the deadline due to non-technical difficulty.
- Therefore, Respondents are directed to publicise this judgment widely including by way of publishing the same on their website so that others who may not have been able to file TRAN-1 till date are permitted to do so on or before 30.06.2020.
Our Comments:
- Section 140 of the CGST Act’2017 has been amended vide the Finance Act, 2020 with retrospective effect from 01 July 2017 to provide that credit shall be availed within such time and in such manner as may be prescribed.
- However, from the above judgement it is clear that transitional credit is a vested right of taxpayer. Rule 117 of CGST Rules’2017 is procedural rule and cannot take away substantive right of availing transitional Credit if it is not filed within the time prescribed therein.
- The benefit of this order is not only applicable to petitioners but also applicable to all the taxpayers within the jurisdiction of the said court. It shall also apply to taxpayers of the other States if there are no contrary decisions by their jurisdictional High Court.
- Delhi HC Ruling: Allowed to rectify the errors in returns of the tax period in which such error pertains to.
Bharti Airtel Limited Vs. UOI &Ors.
W.P.(C) 6345/2018, CM APPL. 45505/2019 on 05.05.2020
- Background:
Assessee is prevented from correcting its monthly GST returns, and consequently seeking refund of the excess taxes paid due to non-operationalisation of GSTR-2 & 3 and technical glitches in the transition phase (July, 2017 to September, 2017), that has caused error in reporting in GSTR-3B.
- Brief Facts of the Case:
Due to lack of IT infrastructure during transition phase Assessee recorded ITC in GSTR-3B on estimate basis as GSTR-2 was in abeyance the correct details of ITC could not be known. As a result, the Assessee is compelled to discharge its tax liability in cash, despite actual ITC being available but not reflected in the system on account of lack of data. As a result of which, ITC has been underreported and excess payment of cash has been made without any functionality for rectifying the unmatched entries in the respective month in GSTR-3B (i.e. when error crept in).
- Reasonings and conclusion of the judgement:
- The filing and rectification procedure post introduction of GSTR-1, 2A and 3B has been smooth and provides for a 2-stage rectification procedure by which the errors or omissions can be rectified by a registered person.
- Admittedly, due to system issues and under preparedness with regard to the extent of data to be processed, Form GSTR-2, and 3 were not made operational which makes it abundantly clear that neither the system of the Government were ready, nor were the systems of the suppliers all across the country geared up to handle such an elaborate electronic filing and reconciliation system.
- GSTR-3B is filled in manually by each registered person and has no inbuilt checks and balances. Hence, if the statutorily prescribed form i.e. GSTR-2 & 3 had been operationalized the Petitioner with reasonable certainty would have known the correct ITC available to it in the relevant period, and could have discharged its liability through ITC, instead of cash.
- GSTR-3B was introduced is only a truncated (short) version of GSTR-3 which does not permit the data validation before it is uploaded and has fundamentally altered the original version without checks and balances.
- There is no reason or logic why rectification/adjustment is being allowed in the month subsequent to when such errors relates and restrict rectification in the tax period to which the data relates. Therefore, Circular No. 26/26/2017-GST dated 29.12.2017 is not in consonance with the provisions of CGST Act, 2017. There is no provision under the Act that would restrict such rectification.
- Restriction if any, that can be introduced by way of a circular, has to be in conformity with the scheme of the Act. It is trite proposition of law that circular issued by the Board cannot be contrary to the Act and the Government cannot impose conditions which go against the scheme of the statutory provisions contained in the Act. The subordinate legislation must conform to the statute under which it is made, and they cannot whittle down the benefits granted under statutory provision.
- Petitioner has a substantive right to rectify/adjust the ITC for the period to which it relates. The rectification/ adjustment mechanism for the months subsequent to when the errors are noticed is contrary to the scheme of the Act. The Respondents cannot defeat this statutory right of the Petitioner by putting in a fetter by way of the impugned circular.
- Relief - The refund of excess cash balance in terms of Section 49 (6) read with Section 54 of the CGST Act does not effectively redress Petitioner’s grievance. Therefore, the only remedy that can enable the Petitioner to enjoy the benefit of the seamless utilization of the input tax credit is by way of rectification of its annual return i.e. GSTR-3B for the month to which the error relates.
Our Comments:
- Considering the fact that there is no restriction under the provision of the Act for rectification & the restriction was brought by way of a circular & because of non-operation of forms (GSTR-2/2A/3) which was supposed to be operational as per Act, the restriction cannot be imposed on the assessee where he otherwise could have rectified.
- The landmark judgements under erstwhile law said that the circular is binding only on the revenue, not court/the assessee [refer Ratan Melting Wires case 2008 (231) E.L.T. 22 (SC)]. The circular which is contrary to the statutory provisions has really no existence in law (i.e. circular 26/26/2017-GST). Therefore, the assessee would be allowed for rectification of the Form GSTR-3B for the period to which the error relates.
- Jharkhand HC Ruling: Invoking Section 79 of CGST Act, for recovery of interest without following the adjudication proceedings of Section 73 or 74 of the CGST Act is not permissible
Mahadeo Construction Co. Vs. UOI &Ors.
W.P.(T) No. 3517 of 2019 on 21.04.2020
- Background / Brief Facts of the Case:
- The due date reflected in the GSTN portal for the month of Feb’18 and March’18 was 31.03.2019. Based on this, the assessee, i.e. the petitioner had filed the returns for the said period before 31.03.2019, but after the 20th day of the succeeding months.
- However, the due date for filing GSTR-3B for both the months remained 20th of the succeeding month and not 31.03.2019. As per notification No. 76/2018 Central Tax, dated 31.12.2018, only the late filing fee would be waived off, if the returns for the months July 2017 to September 2018, were filed before 31.03.2019.
- The petitioner was served a notice by the Superintendent of Goods and Service Tax, directing the petitioner to pay an amount Rs. 19,59,721/- in the form of interest for delay in payment of taxes for the months of Feb’18 and March ’18.
- The respondent authorities further exercised powers under section 79 of the CGST Act by initiating the garnishee proceedings and issued a notice to the petitioner’s banker for recovery of the interest amount directly from the banker.
- Where the return is filed belated, the interest for delayed payment of tax cannot be recovered by initiating the garnishee proceedings under section 79.
- Reasonings and conclusion of the judgement:
- The tax paid after the due date means tax has not been paid within the prescribed period, it would fall under the expression “tax not paid” as mentioned under Section 73 or 74.
- Also, as per Section 73(5), (6) and (7), if a person has already paid the tax amount along with interest on his own ascertainment, before serving the notice, and the Assessing Officer is satisfied, then no notice shall be served upon the assessee. However, as per Section 73(7), if the Assessing Officer is of the opinion that the tax deposited along with interest falls short of the amount actually payable, then a notice under Section 73(1) shall be served by the Officer for recovering the short fall in the amount deposited by the assessee.
- Therefore, in the said case, since the assessee has deposited the tax amount but not the interest amount, arising on delay in filing of the returns, it can be said that the “amount deposited is not amount actually payable”, hence, the Proper Officer is required to initiate proceedings under Section 73(1) of the CGST Act for recovering the amount which is “short paid” or the interest amount which is “not paid”.
- Section 50 of the Act requires a person to pay interest on his own, if the tax has not been paid to the Government within the prescribed time. However, it cannot be construed that the liability of interest under this section is automatic. Computation of interest is an arithmetic exercise which cannot be unilateral by the department. The calculation of interest shall be communicated to the assessee, which maybe disputed by the assessee with regard to computation or period and in such a case, the only option available to the Proper Officer is to initiate proceedings either under section 73 or 74 of the Act.
- It was also held that garnishee proceedings under Section 79 of the Act cannot be initiated before completing the adjudication proceedings under Section 73 or 74, as garnishee proceedings should be invoked only if the tax and interest has been computed and declared in the return by the taxpayer (self-assessed tax and interest) but not paid to the government.
Our Comments:
- From the above judgement it is clear that the authorities cannot recover the tax or interest amount by directly recovering the money from the bank account of the assessee, without following the adjudicating proceedings.
- Also, the basic principles of natural justice, i.e. an opportunity of being heard shall be provided to the asseesee by the Proper Officer.
- Several such cases have been observed where the tax authorities have directly served notices to the bankers of the assessee demanding the payment of the tax amount which is falling short in the opinion of the authorities, but without intimating the same to the assessee. The order of this High Court is applicable throughout India unless the jurisdictional High Court has given the contrary decision.