HC rules provision prescribing due date to claim transitional credit under GST is not mandatory

This Tax Alert summarizes a recent ruling  ^[1] of Gujarat High Court (HC). The issues in the Writ Petition was to allow filing of declaration for transitional credit beyond the due date and whether rule 117 of Central Goods and Services Tax Rules, 2017 providing the due date to claim transitional credit is procedural in nature, and thus merely directory and not a mandatory provision.

According to the petitioner, the intention of the Government was not to collect tax twice on the same goods and thus, credit of duty/tax paid earlier is admissible as transitional credit, even if declaration in Form GST TRAN-1 and TRAN-2 are not filed within the due date on account of technical difficulties. The phrase “technical difficulties on the common portal” should be interpreted liberally.

Referring to various rulings, HC observed that:

·         Section 140(3) of Central Goods and Services Tax Act, 2017 provides for a substantive right which cannot be curtailed or defeated on account of the procedural lapse.

·         The entitlement of credit of the eligible duties is a vested right.

·         Liability to pay GST on stock carried forward from previous regime without corresponding credit would lead to double taxation.

·         Rule 117 is violative of Article 14, 19(1)(g) and 300A of the Constitution. 

Thus, HC directed the respondents to allow petitioner to file declaration in Form GST TRAN-1 and TRAN-2 to enable them to claim transitional credit of eligible duties. HC held that rule 117 providing the due date for the purposes of claiming transitional credit is procedural in nature and thus, the same should not be construed as a mandatory provision.

Comments

  

Basis the principles reinforced by the HC, decision seems to provide a directive to tax officials to liberally consider cases of delayed declarations for allowing the transitional credits notwithstanding the time lines prescribed for claiming such credits.

Ruling may help taxpayers who have yet to file declaration in TRAN-1 and 2 to claim transitional credit.

Judiciary in India has taken contrary positions while addressing allowability of tax benefits. Some have laid emphasis on complying with procedural provisions to claim tax benefits made available by the statute whereas others have overlooked the procedural lapse while allowing the beneit.