Delhi High Court ruling allows taxpayers to avail transitional credit upto June 30, 2020
Recently in the matter of Brand Equity Treaties Ltd. Vs. Union of India {[2020] 116 taxmann.com 415 (Del)}, the Hon’ble Delhi High Court (“HC”) held that rule 117 of the Central Goods and Services Tax Rules, 2017 (“the CGST Rules”) prescribes time limit (of ninety days from appointed day) for transitioning of credit (during Transition from pre-GST regime to GST regime) is directory in nature and would not result in forfeiture of rights, in case credit is not availed within period prescribed. However, this does not mean that credit can be availed till perpetuity, so taking the balanced approach and in terms of residuary provisions of limitation Act, a period of 3 years from the appointed date would be maximum period for availing of such credit, i.e., till June 30, 2020. HC has further directed the Department to allow all assessees to claim input tax credit in TRAN-1 by June 30, 2020. The direction would apply to all those who could not file TRAN-1 and claim input tax credit as HC has directed department to publicize this decision.
The Central Government vide Notification No. 43/2020 – Central Tax dated May 16, 2020 (“Notification 43/2020”) has amended the provisions of Section 140 of the Central Goods and Services Tax Act, 2017 (“the CGST Act”) to empower the government to prescribe time and manner for availment of credits, w.e.f. July, 1, 2017.
In our view, the amendment has been brought to nullify the effect of HC judgment. The taxpayers who have missed claiming transitional credits can avail the same before June 30, 2020 as HC decision is not merely based on legal infirmity that rule 117 of the CGST rules lacks power to prescribe time limit but various meritorious reasons like credit being substantive right and violation of Article 14 of the Constitution of India, though such a view is prone to litigation.