The Hon’ble High Court of Delhi reiterated itself within a span of 1.5 months saying that the time limit of 90 days to file TRAN-1 Form given under Rule 117 of the CGST Rules is directory in nature and not mandatory. The Hon’ble Court in the case of Brand Equity Treaties Limited v. Union of India (W.P.(C) 11040/2018) laid down this law and repeated itself in the case of Mangla Hoist Pvt. Ltd. v. Union of India (W.P.(C) 3572/2020 and CM APPL. 12707/2020) which was pronounced yesterday, i.e. on 17th June, 2020.
The case of Mangla Hoist Pvt. Ltd. v. Union of India was filed seeking directions against the respondents to open the GST Portal and enable the registered persons to file TRAN-1 Form and claim its CENVAT tax credit as on 30th June, 2017. Another relief which was sought by the Petitioner was that the Hon’ble Court to declare Rule 117 of the CGST Rules ultravires.
The order in this case was purely based on the judgement given by the Hon’ble Court in Brand Equity Treaties Ltd. v. Union of India. The Court held that the period of 90 days for claiming input tax credit in TRAN-1 is directory and therefore, period of limitation of 3 years under the Limitation Act would apply. The Court directed the Department to allow all assessees to claim input tax credit in TRAN-1 by 30.6.2020. There was no verdict given on the vires of Rule 117.
The Respondents argued that they are going to file an appeal against the order given in Brand Equity case but the Court directed the Respondents to open the portal by 19.06.2020 since the last date to file TRAN-1 is 30.06.2020 as decided by the Hon’ble Court.
Apart from these two judgements, same thing was taken up by the Delhi High Court and the Punjab and Haryana High Court in other cases. Punjab and Haryana High Court went to extent saying that if GST Portal is not open, then assessee will get the month of July, 2020 to file the claim.
What will be the effect of the two judgements?
CENVAT is the Central Value Added Tax which was levied by the Central Government prior to the introduction of GST. TRAN-1 is a Form under GST which allows the registered person having ITC on closing stock and who migrated to GST from VAT, Service Tax, or Central Excise to claim it. According to Rule 117 read with Section 140 of the GST Act, a registered person who migrated from prior regime to GST Regime and who was entitled to tax credit in such regime may claim it as ITC through filling Form TRAN-1 within 90 days of such transition.
Now after these two judgements, the mandate of 90 days has vanished and all the registered persons who could not claim tax credits earlier due to the time limit given may do so by 30th June, 2020.
This brings the registered persons in an advantageous position to get back their tax credits due which they could not claim on time earlier. But it will affect the Government in a negative manner as after these judgements, they will be forced to give the benefit of ITC to the registered persons which will eventually lead to paying back to the assessee, thereby creating a revenue loss.
Recent Developments
The GST Authority has approached the Hon’ble Supreme Court which has stayed the order of Delhi High Court given in the case of Brand Equity Pvt. Ltd. Justice Sanjiv Khanna in this case made the remarks that “it took him a full day to file his income tax return” thereby hinting that the process is complicated.
Now the verdict of Supreme Court on the issue would be final. It is a battle worth watching – whether the Supreme Court will show mercy on the Tax Authority or will it favour the assessee?
By Aparna Tripathi – Editor, Lex Jura Law Journal