One Year Limitation for GST Transitional Credit Constitutionally Valid: Bombay HC [Read Judgment]

In Evergreen Seamless Pipes and Tubes Pvt. Ltd.& Ors vs. Union of India & Ors., the Bombay High Court upheld the Constitutional validity of One Year Limitation for GST Transitional Credit under Section 140(3)(iv) of the CGST Act, 2017.

As per the said provision registered person but who was not liable to be registered under the existing law or who was engaged in the manufacture of exempted goods or provision of exempted services, or who was providing works contract service and was availing of the benefit of Notification No.26/2012, dated 2062012 or a first stage dealer or a second stage dealer or a registered importer or a depot of a manufacturer, and he shall be entitled to take, in his electronic credit ledger, credit of eligible duties in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day, subject to the conditions inserted in Clauses (i) to (v).  The condition stipulated in clause (iv) was regarding such invoices or other prescribed documents which were issued not earlier than twelve months immediately preceding the appointed day i.e. 01/07/2017.

Due to this particular condition, the stocks on which they had already paid tax under the erstwhile tax regime, would be barred from availing CENVAT credit where the invoice is issued on or prior to 30/06/2016.  Aggrieved the Petitioners approached the High Court as the invoices they had were dated earlier than the 12-month limitation period set out in the prerequisite under Section 140(3)(iv).

The Counsel for the Petitioner contended that there is no reasonable rationale beyond inflicting tax cascading effect on depot/traders while extending full credit to registered manufacturers and partial credit to traders who do not have the duty paying documents available with them. It was in these circumstances that the provisions were challenged as violating the mandate of Articles 14 and 19(1)(g) of the Constitution of India. He also submitted that the petitioners, be they a depot of a manufacturer or a first stage had secured a right to claim CENVAT credit or input tax credit and that the right had accrued to them in terms of the existing law and that could have been claimed without any restriction or conditions. He also pointed out that once under the existing law no such preconditions were imposed for the enjoyment or availment of that right, then, the present regime which seeks to impose a condition was unreasonable and arbitrary, therefore, would make the statutory provision violative of Articles 14 and 19(1)(g) of the Constitution of India.

The Counsel for the respondents argued that a CENVAT credit was a mere concession and it could not be claimed as a matter of right. He pointed out that CENTVAT Credit Rules under the existing legislation themselves stipulated and provided for conditions for availment of that credit, then, that credit on inputs under the then existing law itself was not an absolute but a restricted or conditional right. He further contended that It is subject to fulfilment or satisfaction of certain requirements and conditions that the right could be availed of.

The division bench comprising of Justice Prakash D. Naik and Justice S.C. Dharmadhikari observed “The availment of CENVAT Credit or input tax credit is clearly termed as a concession. With the conditions imposed, the concession could have been availed of. In the absence of a substantive provision granting such concession, there would have been no concession at all. Thus, one cannot pick and choose a condition for challenge by alleging that the availment is undisputedly conditional but one of the conditions, though having nexus with the availment, is unconstitutional or arbitrary and excessive… Once we are of the opinion that there is nothing indefeasible or absolute in the right claimed under the existing law or in transitional arrangements set out, or in the substantive provisions permitting availing of input tax credit, then, all the more the challenge must fail. We cannot also by any comparative analysis of the Central and State Law hold that this condition, as imposed, is unreasonable.”