Time Limit For Availing Transitional Input Tax Credit Under GST Mandatory: Madras HC

The Madras High Court has recently held that the time limit for availing Transitional Input Tax Credit is mandatory in nature, not directory. Also, the Court observed that the ITC is a form of concession not a property, so the time limit prescribed to avail such a concession under Rule 117 must be followed in mandatorily.

Division bench of Chief Justice AP Shahi and Justice Senthilkumar Ramamoorthy were hearing a writ petition filed by PR Mani Electronics, a retail merchant of electronic appliances, challenging the constitutional validity of Rule 117 of the Central Goods and Service tax Rules, 2017 as ultra vires to Section 140 of Central Goods and Service Tax Act, 2017 (CGST Act) and Articles 14 and 300 A of the Constitution.

According to the petitioner, they are entitled to avail transitional input tax credit of an amount of Rs. 4,62,496 under CGST and Rs 7,512 under SGST. Moreover, the petitioner's consultant could not enter the common portal and upload the required form within the prescribed time as per the rule. Subsequently the petitioner approached the Sales Tax Collection Inspector, in person and submitted a hard copy of Form GST TRAN-1 and also received an acknowledgement for the same.

Section 140 of the CGST Act prescribes that the registered person is required to submit a return, within such time, and in such manner as may be prescribed for purposes of availing transitional ITC.

Petitioners contended that there has been no response with regard to the entitlement of the petitioner to transitional ITC despite regular follow ups. ITC is in the nature of property and, therefore, we cannot be deprived of its property merely because the requisite form could not be submitted within the prescribed time limit, petitioners argued.

However, the bench rejected this contention and observed that ITC is a form of concession granted to a registered person under the CGST Act, not a property in which a person can establish any rights. Referring to the judgment of the Supreme Court in Jayam and Company Vs. Assistant Commissioner & Anr., the Court said -

“Thus, the object and purpose of Section 140 clearly warrants the necessity to be finite. ITC has been held to be a concession and not a vested right. In effect, it is a time limit relating to the availing of a concession or benefit. If construed as mandatory, the substantive rights of the assesses would be impacted; equally, if construed as directory, it would adversely impact the Government's revenue interest, including the predictability thereof. On weighing all the relevant factors, which may not be conclusive in isolation, in the balance, we conclude that the time limit is mandatory and not directory.”

Thereafter, the Court observed that the impugned Rule 117 does in no way stand ultra vires to Section 140 of the CGST Act-

“As regards the contention that Rule 117 is ultra vires Section 140 of the CGST Act, on examining Rule 117 of the CGST Rules and Section 140 of the CGST Act, we find that Section 140 stipulates that a registered person making a claim for input tax credit should furnish a return, within such time, and in such manner as may be prescribed.

As stated earlier, the rule making power is contained in Section 164, which is couched in wide terms, and enables the Government to frame rules to give effect to the provisions of the CGST Act and, in particular, to make rules for In this statutory context, we find ample reason to conclude that Rule 117 of the CGST Rules is intra vires Section 140 of the CGST Act but none to conclude otherwise.”

Thus, the writ petition was dismissed.

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