GST: Retrospective amendment again : 27-02-2020

1. Retrospective amendments are not uncommon under GST. The government has time and again used this as a tool to remove any anomaly which may have arisen during GST implementation. Generally, it has clinched in favour of revenue such as disallowing transition of cess, GSTR-3B is return under Section 39, etc.

Budget 2020

2. The Union Budget 2020 shows the same trend which covered various amendments to the GST Law proposed vide Finance Bill, 2020 including amendment to Section 140 of the CGST Act, 2017 with retrospective effect from 01.07.2017 by inserting the phrase “within such time” in section 140(1), 140(2) & 140(8) and the phrase “within such time and in such manner as may be prescribed” in section 140(3), 140(5), 140(7) and 140(9).

The impact of the above amendment is that executive machinery now has the power to prescribe time limit (including the manner) for claiming credit under various transitional provisions.

Rule 117 of the CGST Rules, 2017 prescribed the time limit for availment of transitional credit in Tran-1 till 27.12.2017 and in case of technical glitches upto 31.03.2020. The question that arises here is, what was the need for inserting such phrases in the Act with retrospective effect from 01.07.2017?

Why retrospective amendment?

3. Taxpayers have fought a long battle in respect of various transitional issues, specifically in respect of time limit for submitting declaration through Tran-1. The dispute arose mainly due to technical glitches faced by taxpayers while filing Tran-1. Later on, the government inserted Rule 117(1A) wherein the due date for Tran-1 could be extended in case of technical difficulties faced by taxpayers.

However, even after insertion of such rule, various writ petitions were filed before the High Courts for submitting TRAN-1 due to technical glitches. The time limit prescribed under Rule 117(1A) was also challenged before the Courts, since the Act did not prescribe or empower the prescription of a time-limit.

However, reference here can be made to the case of Willowood Chemicals (P.) Ltd. v. Union of India [2018] 91 taxmann.com 296/66 GST 642 (Guj.), wherein the Hon’ble Gujarat High Court did not accept the contention of the petitioner that Rule 117 is ultra vires to the Act and observed that-

 Section 164, the general rule making power, is couched in the widest possible manner and the plenary prescription of time-limit is neither without authority nor unreasonable/arbitrary.
 There has to be a degree of finality on claims, credits, transfer of such credits and other issues.
 The tax credits at such large scale cannot be allowed to linger on indefinitely as it has effect on tax collection, estimated and budgetary allocations and, in turn, revenue deficits.
 The statutory provisions, the scale of operations and the possible repercussions were considered by the Court if Rule 117 is annihilated.

However, besides above judgement, the High Courts have consistently held that time-limit prescribed under Rule 117 cannot be read strictly to decline the benefit of vested and substantive credit to petitioner, especially when there have been technical glitches while submitting Tran-1. Some have also held the said credit as a Constitutional Right under Article 300A of the Constitution of India.

Even the Hon’ble Gujarat High Court after rejecting the contention that Rule 117 is not ultra vires in the case of Willowood Chemicals (P.) Ltd. (supra), has held in the case of Siddharth Enterprises v. Nodal Officer [2019] 109 taxmann.com 62 (Guj.) that credit earned under erstwhile regime is a vested right and cannot be taken away by Rule 117 on mere failure to file declaration within the due date.

The two views of the Gujarat High Court in the Willowood Chemicals (P.) Ltd. case (supra) and the Siddharth Enterprises case (supra) are also adopted by other High Court differently wherein some Obelisk Composite Technology LLP v. Union of India 2019 (12) TMI 1162 – Rajasthan HC and other similar judgements pronounced its decision in line with the Willowood Chemicals (P.) Ltd.’s case (supra) and some pronounced in line with the Siddharth Enterprises case Adfert Technologies (P.) Ltd. v. Union of India [2019] 111 taxmann.com 27 – Punjab And Haryana HC and other similar judgments.

Considering the provisions of Section 140 and propositions as laid down in the Siddharth Enterprises case (supra), one could have contended that rules cannot provide the time limit for availing transitional credit since government doesn’t have the power to prescribe it under the Act. In other words, the rule-making authority doesn’t have any power to provide for any time-line in the absence of any specific provision in the statute.

The amendments proposed vide Finance Bill empowering the government to prescribe ‘time-limit’ appear to invalidate the proposition laid down in the Siddharth Enterprises case (supra) and other similar judgments.

Whether time limit under Rule 117 can still be contested?

4. It is critical to mention that different High Courts while granting the benefit to petitioner, in addition to proposition that the time-limit cannot be prescribed by Rule 117, have also considered various other reasons which, inter alia, include

 The date contemplated under law is procedural.
 Right to carry forward credit is a right or privilege, acquired and accrued under earlier regime saved by Section 174 of the CGST Act
 Denial of credit may lead to cascading effect of tax.
 Discrimination in time-limit to allow ITC for purchase of goods or services made in the pre-GST regime and post-GST regime is in violation of Article 14 of the Constitution.

In the light of the above background wherein retrospective amendments have been made to the Act and there are also other reasons which High Courts have considered, the question arises what will be the fate of petitions which are already concluded and also the petitions lying in different High Courts. It will be interesting to see how High Courts will pronounce them judgements in pending cases wherein the petitioner cannot take the stand that time-limit under rules is not within the power.

Concluding Remarks

5. The inclination of the GST regime towards retrospective amendments is evident as per the abovementioned instances. However, this approach is problematic for business houses and also undermines the government’s credibility and the rule of law and introduces unpredictability into the tax system. In this regard, one is remined of the speech of late Finance Minister, Sh. Arun Jaitley at the time of presentation of the Budget in 2014 in respect of retrospective power the government:

“This power has to be exercised with extreme caution and judiciousness keeping in mind the impact of each such measure on the economy and the overall investment climate….. I would like to convey to this August House and also the investors community at large that we are committed to provide a stable and predictable taxation regime that would be investor friendly and spur growth”.