If ITC has not been availed as per Rule 117, then it should be availed within a period of 3 years as per provisions of Limitations Act (Transitional Provisions)

Case Title: Brand Equity Treaties Ltd. v. Union of India

Court: High Court of Delhi

Petition No.: W.P.(C) Nos. 11040/2018, 196/2019, 8496/2019, 13203/2019

Category of Dispute: Transitional Credit – Time limit for filing FORM GST TRAN-1

Date of Judgement: 5th May 2020

Relevant Sections: Section 140(1), Section 164 of the CGST Act, Rule 117 of CGST Rules

Facts of the Case

[¶5–9]
Petitioners, registered under the pre-GST regime and part of the Times Group, held substantial accumulated CENVAT credit in their last service tax returns prior to 1st July 2017. Due to confusion, technical glitches, errors, and group-level delays, they failed to file or correctly file TRAN-1 electronically before the prescribed deadline. Despite attempts to claim refund or credit manually or otherwise, their requests were not entertained by the authorities, prompting the present writs.

Questions in Consideration

[¶1, 3, 16, 17]

1. Whether the petitioners can be permitted to file or revise Form GST TRAN-1 to avail transitional credit beyond the prescribed time limit.
2. Whether Rule 117 of the CGST Rules, which imposes a time limit, is ultra vires Section 140 of the CGST Act and violates Article 14 and 300A of the Constitution.
3. Whether the limitation period under Rule 117 is mandatory or merely procedural and directory.

Observations of the Court

1. Inefficiency of GST System & Trial-and-Error Phase
   [¶14–15, 18–19]
   The Court acknowledged the nascent stage of GST implementation with several procedural and systemic hurdles on the GST portal. It opined that the “technical difficulty” contemplated under Rule 117(1A) is not limited to portal errors but includes all bona fide technical and procedural issues faced by taxpayers.
2. Nature of Transitional Credit – Vested Right
   [¶17–18, 21]
   The Court observed that accumulated CENVAT credit is a vested right and property under Article 300A, and cannot be taken away merely due to a procedural lapse or under a subordinate legislation like Rule 117 without an express statutory provision.
3. Rule 117 is Directory, Not Mandatory
   [¶21–22]
   The time limit in Rule 117 was held to be procedural and directory. In absence of consequences under Section 140 for delayed filing, the Court ruled that the Limitation Act’s residuary period of three years would apply.
4. Discriminatory Interpretation of “Technical Difficulty”
   [¶18–20]
   The Court strongly criticized the narrow interpretation of “technical glitches” and found the sub-rule (1A) creating an arbitrary classification by limiting relief only to cases where the GST system logged errors.

Judgement of the Court

[¶23–24]
The Court allowed the petitions and directed the respondents to reopen the GST portal or accept manual TRAN-1 filings by 30.06.2020. It further extended the benefit of this judgment to all similarly placed taxpayers and instructed the government to publicize the judgment widely.

Between Fine Lines

• The Court ruled that the accumulated transitional credit is a vested right and procedural lapses in filing TRAN-1 should not deprive taxpayers of this benefit.
• Rule 117 prescribing the time limit was declared directory, not mandatory.
• A three-year period under the Limitation Act was held as a reasonable limit for claiming transitional credit.
• “Technical difficulty” was interpreted broadly to include taxpayer-side issues as well.
• Relief was granted to all similarly placed taxpayers, not just the petitioners.

Summary of Referred Cases

Takeaway

“Transition Lost in Time: A Battle for Procedural Fairness in Claiming Vested Tax Credit”