Court upholds time limit for GST transitional credit claims; Rule 117 valid

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Case Name

M/s. P.R. Mani Electronics v. Union of India & Others

Court Name: High Court of Judicature at Madras

Case No.: Writ Petition No. 8890 of 2020

Decision on: 13th July 2020

Key Takeaways

1. Rule 117 is Valid: Rule 117 of the CGST Rules, which prescribes a 90-day time limit (extendable) for filing Form GST TRAN-1 to claim transitional ITC, is intra vires (within the powers of) Section 140 of the CGST Act.

2. Time Limit is Mandatory: The time limit prescribed in Rule 117 is mandatory, not directory. Failure to file within the prescribed time results in the loss of the right to claim transitional ITC.

3. ITC is a Concession, Not a Vested Right: Input Tax Credit is a statutory concession granted by the legislature, not a property right. It can only be availed by strictly complying with prescribed conditions, including time limits.

4. Retrospective Amendment Validates Rule-Making Power: The Finance Act, 2020 retrospectively amended Section 140 to include the words “within such time,” thereby clarifying the power to prescribe time limits for claiming transitional ITC.

5. No Constitutional Violation: The petitioner withdrew the constitutional challenge (Articles 14 and 300A), and the court found no merit in the argument that Rule 117 violates constitutional provisions.

Issue

Is Rule 117 of the CGST Rules, 2017, which prescribes a time limit for filing Form GST TRAN-1 to claim transitional input tax credit, ultra vires Section 140 of the CGST Act and unconstitutional? Is the time limit mandatory or directory?

Facts

1. Background: M/s. P.R. Mani Electronics is a proprietorship firm engaged in retail trade of mobile phones and electronics. The firm was registered under the Tamil Nadu Value Added Tax Act, 2006 (TNVAT Act) and later obtained registration under the GST laws when they came into force on July 1, 2017.

2. Transitional ITC Entitlement: When GST was introduced, the petitioner was entitled to carry forward input tax credit from the previous tax regime (TNVAT) as “transitional ITC” under Section 140 of the CGST Act. The petitioner claimed entitlement to Rs. 4,62,496/- under CGST and Rs. 7,512/- under SGST.

3. Rule 117 Requirements: Rule 117 of the CGST Rules required registered persons to file Form GST TRAN-1 electronically within 90 days of July 1, 2017 (the “appointed day”). This deadline was extended to December 27, 2017, due to technical difficulties on the common portal.

4. Petitioner’s Attempt to File: On December 27, 2017, the petitioner’s consultant allegedly could not access the online portal to upload the form. On December 29, 2017, the petitioner personally submitted a hard copy of Form GST TRAN-1 to the Sales Tax Collection Inspector and received an acknowledgment.

5. No Response: Despite repeated follow-ups, the petitioner received no response regarding the transitional ITC claim.

6. Subsequent Amendment: Rule 117 was amended on September 10, 2018, by inserting Sub-Rule 1A, which allowed the Commissioner to extend the deadline up to March 31, 2020, for persons who faced technical difficulties.

7. Writ Petition Filed: The petitioner filed this writ petition challenging the validity of Rule 117 and seeking directions to allow the filing of Form GST TRAN-1 either electronically or manually.

Arguments

Petitioner’s Arguments (M/s. P.R. Mani Electronics):

1. Rule 117 is Ultra Vires: The petitioner argued that Rule 117 exceeds the rule-making power granted under Section 140 of the CGST Act because Section 140 (before amendment) did not explicitly authorize the prescription of a time limit.

2. ITC is Property: The petitioner contended that ITC is in the nature of property and cannot be taken away merely because a form was not filed within the prescribed time. This would violate Article 300A of the Constitution (right to property).

3. Time Limit Should be Directory: The petitioner argued that Rule 117 should be read as a directory (permissive) provision, not mandatory. The use of the word “shall” should not be conclusive. The subsequent amendments extending the deadline indicate that the provision was intended to be flexible.

4. Technical Difficulties: The petitioner emphasized that technical glitches on the GST portal prevented timely filing, and the authorities were aware of these issues, as evidenced by the extensions granted.

5. Reliance on Delhi High Court: The petitioner relied on the Delhi High Court judgment in Micromax Informatics Ltd. v. Union of India, WP© No. 196 of 2019, which held that Rule 117 is directory.

Respondents’ Arguments (Union of India and GST Authorities):

1. ITC is a Concession: The respondents argued that ITC is a statutory concession, not a vested right or property. Concessions can only be availed by strictly complying with prescribed conditions, including time limits.

2. Time Limit is Mandatory: The use of the word “shall” in Rule 117 makes the time limit mandatory. The respondents relied on the Supreme Court judgment in ALD Automotive Private Limited v. Commercial Tax Officer, (2019) 13 SCC 225, which held that time limits for claiming ITC under the TNVAT Act were mandatory.

3. Rule 117 is Intra Vires: The respondents contended that Section 164 of the CGST Act provides wide rule-making powers, and Rule 117 is well within those powers. The retrospective amendment to Section 140 by the Finance Act, 2020, which added “within such time,” further validates Rule 117.

4. Contrary Judgments: The respondents pointed out that the operation of the Delhi High Court judgment in Brand Equity Treaties Ltd. v. Union of India [(2020) Taxmann.com 415] was stayed by the Supreme Court. They also relied on the Bombay High Court judgment in Nelco Limited v. Union of India [2020 SCC Online Bom 437], which upheld Rule 117.

Key Legal Precedents

The court examined several important precedents:

1. Jayam and Company v. Assistant Commissioner and another, (2016) 15 SCC 125

• Principle: ITC is a concession, not a vested right. Conditions for availing concessions must be strictly complied with.
• Application: The court relied on this judgment to reject the petitioner’s argument that ITC is property. The Supreme Court clearly held that ITC under the TNVAT Act is a concession that can only be availed by satisfying prescribed conditions.

2. ALD Automotive Private Limited v. Commercial Tax Officer, (2019) 13 SCC 225

• Principle: Time limits for claiming ITC are mandatory when the statute uses the word “shall.” The interpretation depends on the object and design of the statute.
• Application: The court applied this principle to hold that the time limit in Rule 117 is mandatory, similar to Section 19(11) of the TNVAT Act.

3. Micromax Informatics Ltd. v. Union of India, WP© No. 196 of 2019 (Delhi High Court)

• Principle: The Delhi High Court held that Rule 117 is directory, not mandatory.
• Application: The Madras High Court respectfully disagreed with this view, noting that the Supreme Court had stayed the operation of a related Delhi High Court judgment in Brand Equity Treaties Ltd. v. Union of India.

4. Brand Equity Treaties Ltd. v. Union of India [(2020) Taxmann.com 415] (Delhi High Court)

• Principle: CENVAT credit had accrued and vested in the assessee and is the property of the assessee.
• Application: The Supreme Court stayed the operation of this judgment, indicating disagreement with the view that ITC is property.

5. SKH Sheet Metals Components v. Union of India [2020 SCC Online Del 650] (Delhi High Court)

• Principle: ITC is the heart and soul of GST to avoid cascading taxes. Rule 117 is directory.
• Application: The Madras High Court disagreed, holding that while ITC is important, time limits are necessary and do not contradict the statute’s purpose.

6. Nelco Limited v. Union of India [2020 SCC Online Bom 437] (Bombay High Court)

• Principle: Rule 117 is intra vires Section 140 and imposes a reasonable time limit. ITC is a concession that lapses if not claimed within the prescribed time.
• Application: The Madras High Court agreed with this view and followed the Bombay High Court’s reasoning.

7. Willowood Chemicals Ltd. v. Union of India [2014 (306) ELT 551] (Gujarat High Court)

• Principle: Transitional ITC is a concession, and Rule 117 is intra vires Section 140.
• Application: The court cited this judgment to support its conclusion that Rule 117 is valid.

8. Sales Tax Officer Ponkuppam v. K.I. Abraham [(1967) 3 SCR 518] (Supreme Court)

• Principle: The phrase “in such manner as may be prescribed” does not confer the power to prescribe a time limit.
• Application: The court acknowledged this principle but held that Section 164 of the CGST Act provides wide rule-making powers, and the retrospective amendment to Section 140 settles the issue.

9. Union of India v. A.K. Pandey [(2009) 10 SCC 552] and Bachhan Devi v. Nagar Nigam [(2008) 12 SCC 372]

• Principle: The use of “shall” or “may” is not conclusive in determining whether a provision is mandatory or directory. The court must consider the object, purpose, and consequences of non-compliance.
• Application: The court applied these principles to conclude that Rule 117 is mandatory based on the peremptory language, the object of the statute, and the nature of ITC as a concession.

10. C. Bright v. The District Collector, [2019 SCC Online Mad 2460] (Madras High Court)

• Principle: Factors to determine whether a provision is mandatory or directory include: peremptory language, object and purpose, consequences of non-compliance, effect on substantive rights, and whether it relates to rights or duties.
• Application: The court used these factors to conclude that Rule 117 is mandatory.

Statutory Provisions Referenced:

• Section 140 of the CGST Act, 2017: Deals with transitional arrangements for input tax credit.
• Section 164 of the CGST Act, 2017: Empowers the Government to frame rules, including with retrospective effect.
• Section 16(4) of the CGST Act, 2017: Prescribes a time limit for availing ITC, indicating legislative intent to impose time limits.
• Rule 117 of the CGST Rules, 2017: Prescribes the procedure and time limit for claiming transitional ITC.
• Section 19(3)(d) and Section 19(11) of the TNVAT Act, 2006: Imposed time limits for availing ITC under the previous tax regime.
• Articles 14 and 300A of the Constitution of India: Equality before law and right to property (constitutional challenge withdrawn).

Judgement

The Madras High Court dismissed the writ petition. Here’s the court’s reasoning:

Key Findings:

1. Rule 117 is Intra Vires Section 140: The court held that Rule 117 is well within the rule-making power conferred by Section 164 of the CGST Act. The retrospective amendment to Section 140 by the Finance Act, 2020, which added “within such time,” conclusively settles the power to prescribe time limits.

2. ITC is a Concession, Not Property: Following the Supreme Court’s judgment in Jayam, the court held that ITC is a statutory concession that can only be availed by complying with prescribed conditions, including time limits. It is not the property of the assessee.

3. Time Limit is Mandatory: The court concluded that the time limit in Rule 117 is mandatory, not directory. The use of the word “shall” creates a rebuttable presumption of mandatory nature. Considering the object and purpose of the statute, the nature of ITC as a concession, and the legislative intent (as evidenced by Section 16(4) and Section 19(3)(d) of the TNVAT Act), the court held that the time limit must be strictly enforced.

4. Extensions Do Not Make the Provision Directory: The fact that the time limit was extended under Rule 117(1A) does not mean there is no time limit or that the provision is directory. Extensions are statutory interventions that modify the time limit but do not eliminate it.

5. Disagreement with Delhi High Court: The court respectfully disagreed with the Delhi High Court judgments in Micromax Informatics and SKH Sheet Metals, noting that the Supreme Court had stayed the operation of Brand Equity Treaties. The court preferred to follow the Bombay High Court’s judgment in Nelco and the Gujarat High Court’s judgment in Willowood.

6. No Constitutional Violation: The petitioner withdrew the constitutional challenge, and the court found no merit in the argument that Rule 117 violates Articles 14 or 300A of the Constitution.

Court’s Reasoning:

The court emphasized that:

• Transitional provisions are meant to facilitate the transition from one tax regime to another, but they cannot operate in perpetuity.
• Allowing claims for transitional ITC without any time limit would render the provision unworkable and defeat the legislative intent.
• The statutory backdrop, including Section 16(4) of the CGST Act and Section 19(3)(d) of the TNVAT Act, clearly indicates the legislative intent to impose time limits for availing ITC.
• While ITC is important to prevent cascading of taxes, this does not mean that time limits are inimical to the statute’s purpose.

Orders:

The writ petition was dismissed. The court did not grant any relief to the petitioner, meaning the petitioner cannot claim the transitional ITC of Rs. 4,70,008/- because the Form GST TRAN-1 was not filed within the prescribed time limit.

FAQs

1. What is transitional input tax credit (ITC)?

Transitional ITC allows businesses to carry forward the input tax credit accumulated under the previous tax regime (like TNVAT) into the new GST regime. This ensures that businesses don’t lose the credit they had built up before GST was introduced.

2. What is Form GST TRAN-1?

Form GST TRAN-1 is the declaration form that registered persons must file to claim transitional ITC under the GST laws. It must be filed electronically on the GST common portal.

3. What was the deadline for filing Form GST TRAN-1?

Initially, the deadline was 90 days from July 1, 2017 (the date GST came into force). This was extended to December 27, 2017, and later, Rule 117(1A) allowed further extensions up to March 31, 2020, for persons facing technical difficulties.

4. Why did the petitioner lose the case?

The petitioner lost because the court held that the time limit for filing Form GST TRAN-1 is mandatory. Since the petitioner did not file the form electronically within the prescribed time (or the extended time), the right to claim transitional ITC was lost.

5. Is ITC a right or a concession?

According to the Supreme Court in Jayam and as affirmed by the Madras High Court in this case, ITC is a statutory concession, not a vested right or property. It can only be availed by strictly complying with the conditions prescribed in the law.

6. Can the time limit in Rule 117 be extended?

Yes, Rule 117 itself provides for extensions. The Commissioner can extend the time limit on the recommendation of the GST Council. Rule 117(1A) allowed extensions up to March 31, 2020, for persons facing technical difficulties.

7. What if I faced technical difficulties in filing the form online?

The court acknowledged that technical difficulties existed, which is why extensions were granted. However, the court held that the time limit (including extended deadlines) is still mandatory. If you did not file within the extended time, you cannot claim transitional ITC.

8. Can I file a hard copy of Form GST TRAN-1 instead of filing online?

No. Rule 117 specifically requires the form to be filed electronically on the common portal. The court did not accept the petitioner’s argument that a hard copy filed with the tax inspector should be treated as valid.

9. What is the significance of the Finance Act, 2020 amendment to Section 140?

The Finance Act, 2020 retrospectively amended Section 140 to include the words “within such time,” clarifying that the Government has the power to prescribe time limits for claiming transitional ITC. This amendment strengthens the validity of Rule 117.

10. Are there conflicting judgments from different High Courts on this issue?

Yes. The Delhi High Court in Micromax Informatics and SKH Sheet Metals held that Rule 117 is directory, while the Bombay High Court in Nelco and the Gujarat High Court in Willowood held that it is mandatory. The Madras High Court followed the Bombay and Gujarat High Courts. The Supreme Court stayed the operation of the Delhi High Court judgment in Brand Equity Treaties, indicating possible disagreement.

11. What does this judgment mean for other taxpayers in similar situations?

This judgment means that taxpayers in Tamil Nadu (and potentially in other states following this precedent) who did not file Form GST TRAN-1 within the prescribed time limit cannot claim transitional ITC, even if they faced technical difficulties. The time limit is mandatory and strictly enforced.

12. Can this judgment be appealed?

Yes, the petitioner can appeal this judgment to the Supreme Court of India. Given the conflicting views among different High Courts, the Supreme Court may eventually need to settle this issue definitively.

13. What is the practical impact of this judgment?

The practical impact is that businesses that failed to file Form GST TRAN-1 within the prescribed time (including extensions) will lose their transitional ITC. This could result in significant financial losses for businesses that had accumulated substantial credit under the previous tax regime.

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/-.

2. The Petitioner is a proprietary concern involved in the retail

trade of mobile phones, electrical, electronic, and other items. Earlier, the Petitioner was registered as a dealer under the Tamil Nadu Value Added Tax Act, 2006 (the TNVAT Act) and, upon the coming into force of the CGST

Act, the Integrated Goods and Services Tax Act, 2017 (the IGST Act) and

the State Goods and Services Act, 2017 (the SGST Act) (two or more of

which are referred to as the GST laws) on 01.07.2017, the Petitioner

obtained registrations under the GST laws. When the CGST and SGST Acts

were introduced, as a transitional measure, the carry forward of credit for

taxes paid on inputs under previously existing indirect tax laws, which may

be referred to as transitional ITC (Transitional ITC), was enabled by making

provision in respect thereof. In terms thereof, according to the Petitioner, he is entitled to avail Transitional ITC of Rs.4,62,496/- under the head of

CGST and Rs.7,512/- under the head of SGST under the respective GST

laws.

3. Section 140 of the CGST Act deals with Transitional ITC

under the CGST Act. The said Section 140, inter alia, reads as under:

“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 sub-section, 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....”

4. Thus, Section 140 stipulates that the registered person is

required to submit a return, within such time, and in such manner as may be

prescribed for purposes of availing Transitional ITC. The words “within

such time” were not originally a part of Section 140(1) and were introduced

by the Finance Act, 2020 under Notification No.43/2020 dated 16.05.2020

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.

(2)Without prejudice to the generality of the provisions of sub-

section (1), the Government may make rules for all or any

of the matters which by this Act are required to be, or may

be, prescribed, or in respect of which provisions are to or

may be made by rules.

(3)The power to make rules conferred by this section shall

include the power to give retrospective effect to the rules or

any of them from a date not earlier than the date on which

the provisions of this Act come into force.”

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 sub-rule (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.”

5. As is evident on perusal of Rule 117(1), a registered person is

required to submit a declaration, electronically, in Form GST TRAN-1 on

the common portal within 90 days or, if applicable, the extended period not

exceeding 180 days from the appointed date in order to make a claim for

Transitional ITC. Upon recognizing that there were technical difficulties

on the common portal, the last date for submitting Form GST TRAN-1 was

extended and fixed as 27.12.2017. According to the Petitioner, on that date,

the Petitioner's consultant could not enter the common portal and upload the

form. No evidence of logging-into the common portal is provided and,

therefore, the veracity of the above statement cannot be tested. However, the Petitioner approached the Sales Tax Collection Inspector, in person, on

29.12.2017, and submitted a hard copy of Form GST TRAN-1 and also

received an acknowledgment. In spite of repeated follow up with the

Respondents, thereafter, the Petitioner states that there was no response with regard to the entitlement of the Petitioner to Transitional ITC. Meanwhile, Rule 117 was amended with effect from 10.09.2018 by inserting Sub-Rule 1-A, whereby the Commissioner was permitted, subject to the

recommendation of the GST Council, to extend the date for submitting the

declaration electronically by a further period up to 31.03.2020.

6. According to the Petitioner, ITC is in the nature of 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.

7. We heard Mr.R.Rajaraman, the learned counsel for the

Petitioner; Mr.R.Sankaranarayanan, the learned Additional Solicitor General

for Respondents 1 and 2; and Mr.Mohamed Shaffiq, the learned Special

Government Pleader(Taxes) for Respondents 3 and 4.

8. The principal contention of the learned counsel for the

Petitioner was that Rule 117 of the CGST Rules does not impose a

mandatory obligation on registered persons, such as the Petitioner, to file

Form GST TRAN-1 within the prescribed period. As a corollary, a person

does not lose the right to ITC upon default in submitting the declaration in

time. Although a constitutional challenge is made in the writ petition, the

learned counsel conceded that such constitutional challenge was not being

pressed. Nonetheless, the learned counsel submitted that Rule 117 is ultra

vires Section 140 of the CGST Act and, at a minimum, is liable to be

construed as a directory provision in so far as it specifies a time limit for the submission of the declaration in Form GST TRAN-1. In support of this

contention, the learned counsel pointed out that the tax authorities were

fully cognizant of the fact that registered persons were unable to submit the on line declaration within the prescribed period on account of technical

glitches. This is evident from the fact that the time limit was subsequently

extended by inserting Sub Rule 1-A in Rule 117 whereby the Commissioner

was permitted, subject to the recommendation of the GST Council, to extend

the date for submitting the declaration electronically by a further period up to 31.03.2020. The learned counsel contended that the said provision itself states that it is introduced so as to enable the submission of the declaration by persons who could not submit the same within the previously prescribed time limit on account of technical difficulties in the common portal. As per the learned counsel, this clearly indicates that the provision is intended to be directory and not mandatory notwithstanding the use of the word "shall" in Rule 117(1). In order to further buttress his submissions, the learned counsel relied upon a judgment of the Division Bench of the Delhi High Court in Micromax Informatics Ltd. v. Union of India, WP(C) No.196 of 2019 (Micromax Informatics), wherein Rule 117 was construed as directory and not mandatory.

9. On the contrary, the learned Additional Solicitor General

submitted that ITC is in the nature of a concession granted to registered

persons and, therefore any conditions, including time limits, subject to

which such concessions are granted should be enforced strictly. In other

words, concessions cannot be availed of unless the conditions relating

thereto are fully complied with.

10. The learned Special Government Pleader(T) also contended

that ITC is a concession and not a vested right. In support of this

proposition, he referred to and relied upon the judgment of the Hon'ble

Supreme Court in Jayam and Company v. Assistant Commissioner and

another, (2016) 15 SCC 125 (Jayam), wherein it was held categorically, in

the context of the TNVAT Act, that ITC is a concession. In Jayam, he

pointed out that the Supreme Court further held that the conditions subject

to which such concession is granted should be strictly complied with in

order to avail such concession. He also pointed out that this principle was

reaffirmed in the recent judgment of the Hon'ble Supreme Court in ALD

Automotive Private Limited v. Commercial Tax Officer, now upgraded

as Assistant Commissioner(ct) and others, (2019) 13 SCC 225 (ALD

Automotive). In this judgment, the Hon'ble Supreme Court reiterated that

ITC is a concession, which can only be availed of by the beneficiary as per

the terms and conditions specified in the statute. More importantly, he

pointed that the Supreme Court held in ALD Automotive that the time limit

for filing the tax return under Section 19(11) of the TNVAT Act was

mandatory because it used the word "shall". By analogy, he contended that

the time limit in Rule 117 should also be construed as mandatory. With

regard to the judgment of the Division Bench of the Delhi High Court, he

pointed out that the operation of the said judgment was stayed by the

Supreme Court and that there was a judgment of the Division Bench of the

Bombay High Court to the contrary.

11. We considered the submissions of the learned counsel for the

respective parties and examined the records.

12. The statutory and constitutional challenge, in this case, is on

the basis that Rule 117 of the CGST Rules is ultra vires Section 140 of the

CGST Act and Article 14 and 300-A of the Constitution. At the time of

arguments, the learned counsel for the Petitioner did not pursue the

constitutional challenge. As regards the contention that Rule 117 is ultra

vires Section 140 of the CGST Act, on examining Rule 117 of the CGST

Rules and Section 140 of the CGST Act, we find that Section 140 stipulates

that a registered person making a claim for input tax credit should furnish a return, within such time, and in such manner as may be prescribed. As

stated earlier, the rule making power is contained in Section 164, which is

couched in wide terms, and enables the Government to frame rules to give

effect to the 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.

13. The learned counsel for the Petitioner contended that ITC is

the property of the registered person, such as the Petitioner, and that

consequently Rule 117 should not be construed in such manner as to divest

a person of property. The question as to the nature of ITC was considered

by the Hon'ble Supreme Court in Jayam (cited supra), albeit in the context

of the TNVAT Act, wherein the Hon'ble Supreme Court categorically

concluded that ITC is a form of concession provided by the legislature and

that it can only be availed of by satisfying prescribed conditions.

Paragraphs 11 and 12 of the said judgment are significant and read as

follows:

“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.

12. It is a trite law that whenever concession is given

by statute or notification, etc. the conditions thereof are to be

strictly complied with in order to avail such concession. Thus, it

is not the right of the “dealers” to get the benefit of ITC but it is a

concession granted by virtue of Section 19. As a fortiori,

conditions specified in Section 10 must be fulfilled. In that hue,

we find that Section 10 makes original tax invoice relevant for the

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.”

14. The judgment in ALD Automotive (cited supra) dealt with the

question whether the time limit in Section 19(11) of TNVAT is mandatory or

directory. Paragraph 45 thereof is as under:

“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.

15. The validity and the mandatory or directory nature of Section

140 of the CGST Act and Rule 117 of the CGST Rules were considered in

several High Court judgments and we propose to discuss them briefly before

drawing definitive conclusions. In Blue Bird Pune Pvt. Ltd. v. Union of

India [2019 SC Online Del 9250](Blue Bird), a Division Bench of the

Delhi High Court 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.

16. By contrast, a Division Bench of the Bombay High Court

interpreted Rule 117 of the CGST Rules in Nelco Limited v. Union of

India [2020 SCC Online Bom 437] (Nelco) as intra vires Section 140 and

as imposing a reasonable time limit for availing of ITC. Nelco was decided

before Section 140 was amended. Even so, the Court concluded that Section

164 of the CGST Act is wide enough to enable the framing of rules fixing a

time limit to claim Transitional ITC. In addition, the Court concluded that

ITC is a concession which is required to be availed of within the prescribed

time, failing which it would lapse. The Gujarat High Court also considered

this question in Willowood Chemicals Ltd. v. Union of India [2014 (306)

ELT 551](Willowood). In Willowood, the Gujarat High Court concluded

that Transitional ITC is a concession and that Rule 117 is intra vires Section 140 of the CGST Act.

17. Section 140 of the CGST Act read with Rule 117 of the

CGST Rules enables a registered person to carry forward the 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.

18. In judgments such as Union of India v. A.K. Pandey [(2009)

10 SCC 552] and Bachhan Devi v. Nagar Nigam [(2008) 12 SCC 372],

the Supreme Court held that the use of words such as "shall" or "may" are

not conclusive or determinative of the mandatory or permissive nature of a

provision. In C. Bright v. The District Collector, [2019 SCC Online Mad

2460], after considering a number of judgments of the Supreme Court, a

Division Bench of this Court captured the relevant factors to determine

whether a provision is directory or mandatory, illustratively, in paragraph

20. In summary, those factors are: the use of peremptory or negative

language, which raises a rebuttable presumption that the provision is

mandatory; the object and purpose of the statute and the provision

concerned; the stipulation or otherwise of the consequences of non-

compliance; whether substantive rights are affected by non-compliance;

whether the time limits are in relation to the exercise of rights or availing of concessions; or whether they relate to the performance of statutory duties.

In this case, the peremptory word "shall" is used. The relevant rule deals

with the time limit for availing Transitional ITC by carrying it forward from the credit balance under tax legislations which have been repealed and

replaced by the CGST Act. Thus, the object and purpose of Section 140

clearly warrants the necessity to be finite. ITC has been held to be a

concession and not a vested right. In effect, it is a time limit relating to the availing of a concession or benefit. If construed as mandatory, the

substantive rights of the assessees would be impacted; equally, if construed

as directory, it would adversely impact the Government's revenue interest,

including the predictability thereof. On weighing all the relevant factors,

which may be not be conclusive in isolation, in the balance, we conclude

that the time limit is mandatory and not directory.

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.

15. In the result, the writ petition is dismissed. Consequently, the

connected miscellaneous petition is closed. No costs.