Rule 117 of the CGST Rules which prescribes a time limit for taking transitional ITC is directory in nature

Delhi HC: Rule 117 of the CGST Rules which prescribes a time limit for taking the input tax credit is directory in nature and does not prevent assessee to claim transitional credit

Micromax Informatics Ltd. vs. Union of India; WP(C) 8026/2021; High Court of Delhi; 02.09.2021

The Petitioner challenged the retrospective amendment by which the provision of section 128 of the Finance Act, 2020 has been inserted w.e.f. 01.07.2017 to section 140 of the Central Goods and Service Tax Act, 2017 by prescribing a time limit for taking input tax credit. The petitioner also sought the benefit of transitional credit.

Vide a detailed judgment dated 05.05.2020; WP(C) no. 196/2019 in the case of petitioner itself, the Hon’ble High Court of Delhi had held that Rule 117 of the CGST Rules which prescribed a time limit for taking the input tax credit is directory in nature. The said Court further held that a period of three years from the appointed date would be the maximum period for availing of such credit. It was contended by the Petitioner that by the impugned amendment, the said judgment was negated. A petition challenging the said judgment was pending before Supreme Court vide SLP (C) No. 7425-7428/2020.

The Bench relied on the decision of the Delhi high Court itself in the case of SKH Sheet Metals Components vs. UOI; 2020 (38) GSTL 592, wherein the court after noticing the amendment dated 18.05.2020, held as follows:

• It was observed that in spite of the amendment, it could be said that the said decision was not entirely resting on the fact that statute (CGST Act) did not prescribe for any time limit for availing the transition of the input tax credit and that there are several other reasons which continue to apply with full rigour even today, regardless of amendment to section 140 of the CGST Act.
• After the retrospective amendment of section 140, rule 117 provides for a time period of 90 days and also stipulates that the same can be extended for a further period not exceeding 90 days. It was observed that under Rule 117(1A), multiple extensions beyond 180 days have been granted for taxpayers who faced “technical difficulties” on common portal. Yet, it was observed that the deserving ‘non technical cases’ like the present one were being ignored and this exclusion was arbitrary and irrational.
• Further there was no provision in the statute that would stipulate a consequence for failure to adhere to the timelines. Rule 117 of the CGST Rules also does not indicate any consequence for non compliance of the condition. Since the consequences for non compliance are not indicated, the provisions have to be seen as directory.
• Pertinently, non observance of the time lines would prejudice only one party the registered person/tax payer. If the timelines are interpreted to be mandatory, the failure to fulfil the obligation of filing TRAN-1 within the stipulated period, would seriously prejudice the tax payers, for whose benefit Section 140 has been provided by the legislature.
• In view of the above discussion, interpreting the procedural timelines to be mandatory would run counter to the intention of the legislature and defeat the purpose for which the transitionary provisions have been provided and have to be construed as directory and not mandatory.

Held: In view of the observations made by the Court it was held that the amendment does not affect the right of the petitioner to claim transitional credit and it would be unnecessary to deal with the Constitutional challenge to it. Further, the petitioner was given liberty to apply for the transitional credit.