hc52 Willowood Chemicals Pvt. Ltd. vs Union Of India on 19 September, 2018

Gujarat High Court

Willowood Chemicals Pvt. Ltd. vs Union Of India on 19 September, 2018

• ench: Akil Kureshi, B.N. Karia
• /SCA/4252/2018 JUDGMENT

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

R/SPECIAL CIVIL APPLICATION No. 4252 of 2018

FOR APPROVAL AND SIGNATURE :

HONOURABLE Mr. JUSTICE AKIL KURESHI

and

HONOURABLE Mr. JUSTICE B.N. KARIA

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1 Whether Reporters of Local Papers may be allowed to see the Yes

judgment ?

• To be referred to the Reporter or not ? Yes
• Whether their Lordships wish to see the fair copy of the judgment ? No 4 Whether this case involves a substantial question of law as to the No

interpretation of the Constitution of India or any order made

thereunder ?

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WILLOWOOD CHEMICALS PVT. LTD.

Versus

UNION OF INDIA

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Appearance :

Mr. VINAY SHRAFF, Sr Advocate with Mr. NIPUN SINGHVI; Mr. VISHAL J DAVE;

Mr. PRATEEK GATTANI & Ms. HIRAL U MEHTA, Advocates for the PETITIONER

Mr. KAMAL TRIVEDI, Advocate General with Mr. PRANAV TRIVEDI, AGP for the RESPONDENT(s) No. 4, 5

Mr. NIRZAR S DESAI, Advocate for the RESPONDENT(s) No. 3,4

NOTICE SERVED(4) for the RESPONDENT(s) No. 1,2

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CORAM: HONOURABLE Mr. JUSTICE AKIL KURESHI

and

HONOURABLE Mr. JUSTICE B.N. KARIA

12th / 19th September 2018

ORAL JUDGMENT

( P E R : H O N O U R A B L E M r . J U S T I C E A K I L K U R E S H I ) The pet i tioners have challenged constitution a l it y of second proviso to Section 140 [1] of the Gujarat Goods and Services Tax Act, 2017 [“GGST Act” for short]. The p e t i t i o n e r s h a v e also C / SCA / 4252 / 2018 JUDGMENT challenged the vires of Rule 117 of the Central Goods and Services Tax Rules, 2017 [“CGST R u l e s ” fo r s h or t ] and Rule 117 of the Gujarat Goods and

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Service Tax Rules, 2017 [“GGST Rules” for short]. The petitioners have prayed that the respondents be directed to allow the petitioners to carry forward CENVAT credit in the e l ec t ron i c c r ed i t l e d g e r , a v a i la b l e a s o n 3 0 t h J u n e 2 0 1 7 i n terms of Section 140 [3] of the Central Goods and Services Tax Act, 2017 [“CGST Act” for s h o r t ] . S i m i l a r d i r e c t i o n i s s o u g h t i n c on n e c t i o n w i th t h e c a r r y f o rw a r d o f e li g i b l e c r e d i t o f S t a t e t a x i e . , t h e V al u e A d d e d T a x [ ” V A T ” f o r s h o r t ] a v a i l a b l e a s o n 3 0 t h J u n e 2017. We may record that the petitioners have also in the prayer clause, included the challenge t o t h e v i r e s o f S e c t i o n 1 6 4 o f t h e C G S T A c t . However, no contentions were raised with respect to this last challenge. We would, therefore, not elaborate on this aspect in the judgment.

2. The petitioners’ prayers arise in the following background : 2.1 Petitioner no. 1 is a company registered under the Companies Act, 1956. The petitioner no. 2 is a Director of the company. The petitioner no. 1 is registered under the CGST as C/SCA/4252/2018 JUDGMENT w e l l a s G G S T A c t s . P r e v i o u s l y , t h e p e t i t i o n e r n o . 1 −C o m p a n y w a s r eg i s t e red u n d e r t h e G u j a r a t V a l u e A d d e d T a x A c t , 2 0 0 3 [ ” G V A T ” fo r s h o rt ] . W i th t h e a dv e n t o f G S T r e g i m e with e f fe c t f r o m 1 s t J u l y 2017, the company had to migrate to the new tax structure. The newly framed statutes for such

purpose include transitional provisions, enabling dealers to carry forward tax credits available t o t h e m a s o n 3 0 t h J u n e 2 0 1 7 . S e c t i o n 1 4 0 o f t h e C G S T Ac t l ay s down conditions for carry forward of such tax credit. Section 164 of the CGST Act is a rule m aki n g provision empowering the Government to frame the rules for the purpose of carrying out provisions of the Act. In exercise of such powers, the Central Government has framed CGST Rules. Rule 117 contained therein pertains to carry f o r w ar d o f t ax c r e d i t s u n der the existing law . S u b− rule [1] thereof envisages that every registered person entitled to take credit of input tax under Section 140, shall submit a declaration electronically in Form GST Tran − 1 within ninety days of the appointed day. This time limit was extended from time to time. The final extension was g r a nted upto 27 . 12 . 2 0 1 7 , b e yond which the respondents did not accept any further declarations.

C/SCA/4252/2018 JUDGMENT

2.2 Likewise, Section 140 of the GGST Act also envisages carry

forward of the tax credits available to a dealer as on 30th June 2017; subject to certain co n d i t i o n s . R u le 117 of th e G G S T R u l e s a l so c o n t ai n s a pr o vi s i o n fo r fil i n g d e cl a r at i on e l ec t ronically of the tax cre d it w h i c h , a s i n i tia l ly p re s c ribe d , h a d t o b e w i t h in ni n ety days from t he ap p ointed day . Thi s w as a l s o ex t e n d ed s i mu l tane o usly with the CGST finally upto 27th December 2017 and beyond which there was no further extension.

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2.3 Case of the petitioners is that in terms of Rule 117 of the CGST Rules, the petitioners tried to upload the declaration in TRAN −1 on the official portal on 27.12.2017,

however, due to technical glitches in the portal, the petitioners could not upload the d e cl a rat i on . S i mi l ar di f fic u l t i e s we r e e x p eri e n c e d b y d e a l e r s a c r o s s t h e c oun t r y . T h e p e ti t i o n e r s , t h e r e f o r e , app r o a ched the concerned authorit i es on 28 . 12 . 2017 and submitted physical declaration in the proper format . T h e a u thorities , however , conveyed that they have no power to accept physical declarations.

3. In this background, broadly stated, the petitioners’ grievances are as under :

C/SCA/4252/2018 JUDGMENT

[i] On account of technical glitches in the Government portal,

despite efforts m ade by the petitioners for filing the declaration electron i cally , the same could n ot be done within extended time for no fault of the petitioners. Thus, the tax credit available in the accounts as on 30th June 2 0 1 7 w o u l d b e l o s t f o r e v e r , s i n c e i n a b se n c e of such decl a ration within the time envisaged , tax credit would not be transferred to the GST regime;

[ii] Second proviso to Section 140 [1] of the CGST Act is unconstitutional. This proviso limits the right of a dealer to claim carry forward of the tax credit in relation to inter − State sales as well as branch transfers or export sales, unless necessary declarations in Forms− C, F & H are produced.

[ i i i ] Rul e s 117 of th e CGST Rules and GGST Rules which prescribe the time for making a declaration of available tax credits as on 30th June 2017 are

u l t r a v i r e s t h e A c t a n d t h e r u l e m a k i n g powers of the authority. Such time limit in any case should be read as directory and not mandatory.

4 . Ap p earing f or t he p e titioners , learned counsel Shri Vinay Shraff raised the following contentions :

C/SCA/4252/2018 JUDGMENT

[i] Second proviso to Section 140 [1] of the GGST Act is ultra

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vires the Constitution which imposes unreasonable restrictions on enjoyment of the petitioners’ property rights. It creates hostile discrimination between two classes of dealers who form a homogeneous group. The assesses are saddled with liability to produce d ecl a r a t i o n s f r o m t h e p u r c h a s e r s , d e al e r s a n d o t h e r a g e n c i e s , f a i l i n g w h i c h t h e b e n e f i t o f r e d u c e d t a x w o u l d n o t b e av a i l ab l e , t h o u g h t h e s a l e s m a y h a v e b e e n m a d e i n t h e c o u r s e o f i n t e r − S t a t e s e l l , b y w a y o f b r a n c h t r a n s f e r , o r f o r e x p o r t s . I n t h i s c o n t e x t , ou r a t t e n t i o n w a s draw n t o t h e pr o v i s i o n s o f G V A T A c t ; and in particular, Section 11 thereof, which pertains to tax credit which a registered dealer c o u l d a v a i l u n d e r t h e s a i d A c t . O u r a t t e n t i o n w a s a l s o d r a w n t o S e c t i o n 1 0 0 o f t h e G V A T A ct wh i ch p e r t a i n s t o ” R e p e a l a n d S a v i n g s ” . S u b −s e c t i o n [ 2 A ] w a s i n s e r t e d in Section 100 of the GVAT Act by the Gujarat Value Added Tax [Amendment] Act, 2017 which inter alia provides that nothing done in the amendment of the GVAT Act shall affect any right, privilege, obligation or liability acquired, accrued or incurred under the Act prior to the c o m i ng i n t o f or c e o f t h e s aid C / S C A / 4 2 5 2 / 2 0 1 8 J U D G M E N T a m e n d me n t . O n t h i s b a s is , i t was a r gu e d tha t t h e t a x c r e dit at the disposal of t h e petitio n ers as on 30th J u ne 2017 i s in the nature of accr u e d o r v e s t e d r ig h t w h i ch c oul d n o t b e t ak e n aw a y b y pu t t i n g r e s t r i c t ions i n e n j o y me n t t h e re o f , a s w a s done t hr o ugh t h e second proviso to Section 140 [ 1 ] of t h e GGST Act . In t his context , rel i a nce was placed on the following judgments :

[ a ] I n c a s e o f Ei c h e r Mot o r s L i mi t e d v . Un i on o f I n di a . , repor t e d i n 1 9 9 9 [ 1 06 ] E L T 3 [ SC ] i n w h ic h the S u p r e me C o u r t , i n the context of MODVAT credit, had observed as under :

“6. We may look at the matter from another angle. If on the inputs, the assessee

had already paid the taxes on the basis that when the goods are utilized in

the ma n uf a cture of further pro d uc t s a s i npu t s t h e re t o

then the tax on these goods gets adjusted which are finished subsequently. Thus a

right accrued to the assessee on the date when they paid the tax on the raw materials or the inputs and that right would continue until the facility available thereto gets worked out or until those goods existed. Therefore, it becomes clear that Section 37 of the Act does not enable the authorities concerned to make a rule which is impugned herein and, therefore, we ma y ha v e n o h e s i t a t i on to hold that the Rule cannot be applied to the goods manufactured prior to 16−3−1995 on which duty had been paid and credit facility thereto has been availed of for the purpose of manufacture of further goods.”

[ b ] In case of Collector of Central Excise , Pune v . Dai Ichi Karkaria Limited, reported in 1999 [112] ELT 353 [SC], in which C/SCA/4252/2018 JUDGMENT the S upreme C ourt referring to the decision in case of Eicher

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Motors Limited [Supra] had observed as under :

” 1 7 . I t i s c l e a r f r om th e s e R u l e s , a s w e r e a d t h e m ,

that a manufacturer obtains credit for the excise duty paid on raw material to

be used by him in the production of an excisable product immediately it

makes the requisite declaration and obtains an acknowledgment thereof. It

is entitled to use the credit at any time thereafter when making payment

of exci s e d uty on the e x cisab l e p r o d u c t . Ther e i s n o

p r o v ision in the Ru l e s w hi c h provi d es f or a revers a l

of the c r e d it by the excise authorities except where it

has been i l legal l y or irregularly taken , in which event

it stands cancelled or if utilized, has to be paid for. We are here really concerned

with credit that has been validly taken, and its benefit is available to the manufa c turer without any limitation in time or otherwise unless the manufacturer itself chooses not to use the raw material in its excisable product. The credit is, therefore, i ndefeasible . It should also be noted that there is no co− relation of the raw material and the final product; that is to say, it is not as if credit can be taken only on a final product that is manufactured out of the particular raw material to which the credit is related. The credit may be taken against the excise duty on a

final product manufactured on the very day that it becomes available.”

4.1 It was further contended that the second proviso to Section 140 [1] of the GGST Act is a charging provision but without machinery for computation of credit which would be denied. In absence of a n y ma c hinery for such computation , the charging provision would fail. In this respect, reliance was placed on the C/SCA/4252/2018 JUDGMENT decis i on of Supreme Court in ca s e of Commissioner of Income Ta x , Ba n g a lore vs . B . C Srinivasa Setty , reported in 128 ITR 294 . For the same purpose, reliance was also placed on the decision of the Supreme Court in case of

G o v i n d S a r a n G a n g a S a r a n v s . C ommiss i on e r o f Sales Ta x & O r s . , A I R 1 985 SC 10 4 1 a n d i n c a s e of Mathuram Agrawal vs. State of Madhya Pradesh, [1999] 8 SCC

6 6 7 . 4 . 2 I t w a s f u r t h e r co n t e n d e d t h a t t h e r e w a s n o a l l e g a t i o n o f t h e Department that there has been any default in payment of tax by the petitioners. Obtaining n e c e s s a r y f o r m s f r o m t h e p u r c h a s e r s a n d e x p o r t e r s o f t e n t a k e a l o n g t i m e a n d o n l y o n t h i s c o u n t , t h e assessee would suffer higher tax; as if the sales were made intra−State.

4 . 3 O u r a t t e n ti o n w a s a l s o d ra w n t o a d ec i sio n of A l l a h a b a d H i g h C o u r t i n t h e c a s e o f Y a m a h a M o t o r E s c o r t s L i m i t e d v . S t a t e o f U . P & O r s . , r e p o r t e d i n [ 2 0 1 1 ] 3 8 V S T 1 1 5 i n w h ich t he D iv i s i o n B e n c h ha d obs e r v e d th a t n o n p r o d u c t i on o f f o r m C o r D w o u l d n o t m ake i n te r −

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S t a t e t r a n s a c t io n i l l e g a l or v o i d . I t w o u l d o n l y r e s u l t i n denying the manufacturer, the benefit of reduced rate of tax.

C/SCA/4252/2018

JUDGMENT

4.4 In this context, reliance was placed on the decision of

Di v i si o n B e nc h of th i s Cou r t in t he ca s e o f I n d u s u r G l o b a l Limited v. Union of India, reported in 2014 [310] ELT 833 [Guj] in which, the Court struck down sub −rule [3A] of Rule 8 of the CENVAT Credit Rules which provides for withdrawal of the CENVAT credit facility for paying the duty in case of m a n uf a ctu r ers w h o had n o t pa i d the d u t y in time . It was h e ld that in such c ases to in s ist that the assessee mus t pay su c h d ut y i n c a s h witho u t u s in g C e n v a t c r edit i mposed u n r e aso n a b l e r e strict i o n . 4 . 5 R elianc e w a s a l so pl a c e d on a d e c ision of t h e C al c u t t a H i g h Court in the case of Shiv Kumar Jain v. Union of India, reported in 2004 [168] ELT 158 [Cal.],

in which, it was held that the Government cannot deprive the enjoyment of the property without due recourse to law.

4 . 6 I n t h e c o n t e x t o f t i m e l i m i t p r o v i d e d i n R u l e 1 1 7 o f t h e GGST Rules and CGST Rules, counsel vehemently contended that the said provision is ultra vires the Act and is also arbitrary and unreasonable, and therefore, ultra vires Article 14 of the Constitution of India. It was contended that the provisions C/SCA/4252/2018 J U D G M E N T c o n t a i n e d i n t h e p a r e n t A c t p e r t a i n i n g t o t r a n s f e r o f u n −u t i l i z e d t a x c r e dit s d i d n ot en v i sa g e a n y t i m e l i m i t f o r m a k i n g a d e c l a ra t i o n f o r s u c h p u r p o s e . S u c h t i m e l i m i t c a n n o t b e i n t r o d u c e d t h r o u g h t h e r u l e s un l e s s s p e c ifi c p o w e r s f o r s u c h p u r p o s e h ave been gr a n t e d . N e ither Sectio n 1 4 0 of the parent A ct n o r the rule making powers envisage any authority in the delegated legislation to impose such condition.

4.7 In the alternative, it was contended that such time limit should be construed as directory and not mandatory. Any procedural provision which is framed for implementing the substantive provisions should ordinarily be directory in nature. By insisting on rigid time frame for making declaration, procedural provision is being given p r i m a r y o v e r s u b s t a n t i v e p r o v i s i o n thereby a vested right is sought to be taken away merely because due to genuine reasons, declaration could not be made within time.

4 . 8 I n t h e co n t e xt o f this co n t e n tion , co u n s e l relied on decisi o n of the S u p reme Cou r t i n c a se of S tate of M y s o r e & Ors . vs . Mal l i c k Hashim & Co., AIR 1972 SC 1449 in which the validity of the time C/SCA/4252/2018 JUDGMENT l i m it f o r f i l i n g revi s i o n applic a t i on s con t ai n ed i n Rul e 1 8 f r a m e d

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u n d e r t h e M y s o r e S a le s T ax A c t , 1 9 5 7 c a m e u p f o r c o n s ide r a t i o n . T h e C o u r t w a s o f t h e o p i n i o n t h a t s u c h r u l e i s a n a t t e m p t t o d e n y t h e d e a le r s , t h e r e f u n d t o w h i c h t h e y a r e e n t i t l e d u n d e r t h e l a w o r a t a n y r a t e t o ma k e t h e e n f o r c e m e n t o f s u c h r i g h t u n d u l y d i f f i c u l t . 4 . 9 R e f e r e n c e w a s a l s o m a d e t o a d e c i s i o n o f t h e S u p r e m e C o u r t in the case of Sambhaji & Ors. vs. Gangabai & Ors., reported in [2008] 17 SCC 117, in which, referring to a three −Judge Bench decision of the Supreme Court in case of Salem Advocate Bar Association v. Union of India, reported AIR 2003 SC 189 and holding that time limit of ninety days provided in Rule 1 of Order VIII of CPC is directory in nature, it was observed that the procedural law is not to be a tyrant but a servant, not an obstruction but an aid to justice.

4.10 Reliance was also placed on the decision of Supreme Court in the case of Mangalore Chemicals & Fertilizers Limited v. Deputy Commissioner, reported in 1991 [55] ELT 437 [SC] in which it was observed that while interpreting condition for exemption, a distinction had to be made between the procedural C/SCA/4252/2018 JUDGMENT condition of a technical nature and a substantive condition. For the same purpose, reference was

a l so m a d e t o t h e d e c i s i o n o f t h e S u p r e m e C o u r t i n c a s e o f Commissioner of Customs & Excise, Madras v. Home Ashok Leyland Limited, 2007 [2010] ELT 178 [SC]. In this context, reliance was placed on a decision of Supreme Court in case of S t a t e o f H i m a c h a l P r a d e s h & O r s . v s . G u j a r a t

Ambuja Cement Limited & Anr., [2005] 142 STC 1 [SC].

5. On the other hand, learned Advocate General led the arguments on behalf of the r e s p o n d e n t s . I n t h e c o n t e x t o f challenge to the second proviso to Section 140 [1] of the GGST Act, he submitted that there is no lack of competence in the State legislature in framing the said statutory provisions.

The further proviso merely imposes a condition for transfer of existing tax c red i t i n t h e h a n d s o f a d e a l e r f r o m t h e o l d r e g i m e t o n e w r e g i m e o f f u r n i s h i n g n e c e s s a r y f o r m s e s t a b l i s h i n g t h e f a c t u m o f i n t e r −S t a t e sales, branch transfer or export sales. He drew our attention to the third proviso to Section 140 [1] and submitted that as and when such forms would be submitted by the dealer, the amount of excess tax would be refunded. Thus, all that this proviso does is to C/SCA/4252/2018 JUDGMENT defer the right of a dealer to claim benefit of reduced tax till necessary declarations are produced before the authorities. This was also the s ituation i n t h e e a rl i e r s ta t u t o ry s c hem e . O u r a t tent i o n w a s d r a w n t o the p r o v i s i o n s o f t he C e n t r a l S a l e s T a x A c t a n d t h e r u l e s f r a m ed t h e reu n d er t o h igh l i g ht tha t i n t h e earlier t a x structure also , in abse n ce of su c h for m s , the dealer would suffe r tax on the sale; as if it was an intra −State sale. As and when such forms are produced; even during the course of assessment, the benefit of concessional rate of tax would be available. 5 . 1 W i t h r e s p ect t o c h a lleng e to t h e t i me l i m i t p r ovided un d e r Rules 117 of the CGST and GGST Rules, it was contended that the said rules were framed in exercise of rule making powers and were in consonance with the scheme of Section

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140 of the Act. Right to enjoy tax credit is a kind of concession. Such concession can always be made subject to conditions. Initial time limit of 90 days was extended from time t o t i m e . A l l d e a l e r s a c r o s s t h e c ou n t r y go t t i m e u pt o 2 7 t h D e c e m b e r 201 7 ie . , n ear l y s i x m o nths to manage their affairs and make necessary declarations. When the entire tax structure was being

chang e d in o r der t o b r ing C / SCA / 4 2 5 2 / 2018 JUD G M ENT u nifo r mi t y , si m p l i c i ty a n d co m mo n t a x r a t e s a c ros s t h e c o u n t r y , cer t a in t rans i t io n al d i f fic u l t i es ar e b oun d to su r f a c e . I t w a s f o r s u c h purpose that the migrating dealers were granted the benefit of left over tax credits. Interpreting the time limit provision as merely directory would not be conducive of efficient tax mechanism. 5.2 In support of his contentions, learned AG has relied on the following decisions :

[ i ] I n c a s e o f J a y a m & C o m p a n y v . A s s i s t a n t C o m m i s s io n e r & A n r . , reported in [2016] 15 SCC 125 in which sub −section (20) of Section 19 of the Tamil Nadu Value Added Tax Act, 2006 was challenged. This provision provided that notwithstanding anything contained in the said section, where any registered dealer has sold goods at a price lesser than the price of the goods purchased by him, the amount of the input tax credit over and above the output tax of those goods shall be reversed. In this context, while rejecting challenge, the Court observed as under:

” 1 1 . F r o m t h e a f o r e s a i d s c he m e o f s e c t i o n 19 following significant aspects emerge :

( a ) I T C i s a f o r m o f c o n c e s s i o n p r o v i d e d b y t h e

Le g i s l a t u r e . I t i s n o t a dm i s s i b l e t o a l l k in d s o f s al e s

and certain specified sales are specifically excluded.

C/SCA/4252/2018 JUDGMENT

• C o n c e s s i o n o f IT C is a v a i l a b l e o n c e r t a i n conditions mentioned in this section.

• One of the most important condition is that in order to enable the dealer to

claim ITC it has to produce original tax invoice, completed in all respect, evidencing the amount of input tax.

12. It is a trite law that whenever concession is given by statute or

notification, etc., the conditions thereof are to be strictly complied with in order

to avail of such concession. Thus, it is not the right of the “dealers” to get the benefit of ITC but its a concession granted by virtue of section 19. As a forti o r a r i , con d i t io n s spec i f i ed in s e cti o n 10 mus t be fulfilled. In that hue, we find that section 10 makes original tax invoice relevant for the purpose of claiming tax. Therefore, under the scheme of the VAT A c t , i t i s no t p e r m i ssib l e f or t he d eal e r s t o a r g ue t h a t

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the price as indicated in the tax invoice should not have been taken into

consideration but the net purchase price after discount is to be the basis. If we

we r e d ea l i n g wi t h a ny o t h e r a s p e c t d e h or s t he i s s u e

of I T C a s per s ection 1 9 of t h e V A T A ct , pos s i b l y t h e

ar g u m ents o f Mr . Bagari a would h av e a s s u med s o m e relevance. But, keeping in view the scope of the issue, such a plea is not

a d m i s s i b l e h a v i n g r e g a r d t o t h e

p l a i n l a n g u a g e o f s e c t i o n s o f t h e V A T A c t , r e a d a l o n g

with other provisions of the said Act, as referred to above.”

5 . 3 I n t h e c ase o f St a t e o f G u j a r a t v . Re l ian c e Ind u s tri e s Limited, reported in [2017] 16 SCC 28, in which, in the context of provisions contained in the Gujarat Value Added Tax Act reducing the tax credit that has to be availed by the dealer, it was observed that how much tax credit has to be given and under what C/SCA/4252/2018 JUDGMENT ci r c u m s tance s is t h e do m a i n o f t h e l e g i s l a t u r e a n d t h e c o u rt s a re not to linker with the same. The Court noted with approval, the observations in the case of

G o d r e j & B o y c e M f g . C o m p a n y P r v t . Limited vs . Co m mi s sion e r of Sal e s Tax & Or s . , repo r t ed i n [ 1 9 92 ] 3 SC C 6 2 4 t o t h e e f f ect tha t i t i s o n l y b y v i r t u e of t h e r u l e s t h a t th e assessee was entitled to a set off. It is really a concession and an indulgence.

5 . 4 I n c a se o f O s ram S u r ya [ P ] Limi t ed v . C o m m i s si o ne r o f C ent r al Exci s e , I ndore , repor t e d i n [ 200 2 ] 9 SCC 2 0 , i n w h i c h , t h e Su p rem e C o u r t c o n s i d e r e d t h e c h a l l e n g e t o t h e s ub s t i t u t e d s e c o n d p r o vi s o t o R u l e 5 7 [ 4 ] o f t h e M O D V AT R u l e s w h i c h p r o v i d e d t h a t t h e m a n u fa c t u r e r s h a l l n o t t a k e c r e d i t a f t e r s i x m on t h s f r om t h e date o f i s s u a n c e o f an y d o c u m e n t s s p e c i fi e d i n t h e f i r s t p r o v i s o t o t h e s a i d s u b − rule. Relying on decision of the Supreme Court in the case of Eicher Motors Limited v. Union of India [Supra] and Collector of Central Excise, Pune v. Dai Ichi Karkaria Limited [Supra], it was argued that this provision took away the existing rights. Rejecting s u c h c o n t e n t i o n , i t w a s o b s e r v e d t h a t t h e p l a i n reading of the said provision shows that it applies to those cases C/SCA/4252/2018 JUDGMENT wh e r e t h e manufac t u r e r i s s e e k i n g t o ta k e the credit a fter intr o d u c t i o n of t h e r ules , a n d the c ases wher e t he ma n ufa c tu r e r i s seeking to do so after a period of six months from the date when the manufacturer receives i n p u t . T h i s r u l e d o e s n o t o p e r a t e r e t r os p e c t i v e l y n o r d o e s i t i n a n y m a n n e r a f f e c t t h e r i g h t o f t h o s e p e r s o n s w h o h a v e a l r e a d y t a k e n c r e d i t b e f o r e c o m i n g i n t o f o r c e o f t he r u l e i n q u e s t i o n . I t o p e r a t e s p r o s p e c t i v e l y i n reg a r d t o t h o se manufacturers who seek to take credit after coming into force of the rule.

5 . 5 In case o f USA Agencies [ Repr e sented b y i t s P r o p r i e t r i x , A t t u r T o w n , Sale m Dist r i c t v . The C o mer c i a l Tax Off i c e r , A t t u r [Rural] Assessment Circle, Attur., reported in [2013] 5 CST 63 in which validity of sub −

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section 11 of Section 19 of the Tamil Nadu Value Added Tax Act came up for consideration. S e c t i o n 1 9 p e r ta i n s t o i n p u t t a x c r e d i t i n r esp e c t of a n y t ransactio n of t axa b l e p u r c h a s e s i n a n y m o n t h a n d pr o v i d e s t ha t t h e d e a l e r s h a l l m a k e a claim before the end of financial year or before ninety days from the date of purchase; w h i c h e v e r i s l a t e r . I n t h e c o n t e x t o f t h i s challenge, the Court considered whether section was inconsistent C/SCA/4252/2018 JUDGMENT wi t h t he cha r g i n g s ec t io n a n d w h e t h e r t h e s a m e w a s d i r e c t o r y a n d n o t m a n d a t o r y . W h i l e u p h o l d i n g t h e v a l i d i t y o f t h e s e c t i o n , i t w a s f u r t h er held t h at the l e gislature c on s c i o u s l y w a n t e d t o s e t u p t h e t i m e f r a m e f o r a v a i l m e n t o f t h e i n p u t t a x c r e d i t . S u c h co n ditions therefore must be strictly complied with.

5 . 6 I n c a s e o f J C B I n d i a L i m i t e d v . U n i o n o f I n d i a . , r e p o r t e d i n [ 2 0 1 8 ] 5 3 G S T R 1 9 7 , i n w h i c h D i v i s i o n B e n c h o f t h e B o m b a y H i g h C o u r t h a d u p h e l d v i r e s o f C l a u s e ( i v ) o f s u b −s e c t i o n [ 3 ] o f S e c t i o n 1 4 0 o f th e C G S T A c t i m p o s i n g a c o n d i t i o n o n t h e f i r s t s t a g e d e a l e r s t o a vail t a x c r e d i t , t h a t s u c h c r e d i t s h o u l d b e i n r e l a t i o n t o i n v o i c e w h i c h i s d a t e d n o t e a r l i e r t h e n 1 2 m o n t h s p r e c e d i n g t h e a p p o i n t e d day. We may, however, record that in case of Filco Trade Centre Private Limited vs. Union of India [SCA No. 18433 of 2017 with SCA 20185/2017 :: decided on 5th September 2018], the Gujarat High Court has taken a different view.

5.7 In case of R.K Garg v. Union of India & Ors., reported in [1981] 4 SCC 675 to contend that in the taxing statutes, the legislature enjoys greater latitude.

C/SCA/4252/2018

5.8 In the context of petitioners’ grievance regarding technical

JUDGMENT

g l i t c h e s i n t h e o f f i c i a l p o r t a l p r e v en t i n g m ak i n g of d e c l a r a t i o n , the Union of India has filed an additional affidavit of one Dr. Ashir Tyagi, Commissioner, CGST dated 11th September 2018. In such affidavit, it is stated that the Government of India has come out with a Circular dated 3rd April 2018 providing certain guidelines to see that genuine cases of difficulties faced are resolved. Thereafter, sub −rule 1A is inserted in Rule 117 by N o ti f ic a t i o n dat e d 1 0 t h Se p t e m b e r 201 8 , w h i ch r e a ds as und e r : − ” [ 1 A ] N o t w i t h s t a n d i n g a n y t h i n g c o n t a i n e d i n s u b −r u l e [ 1 ] , t he C o mm i s s i o n e r m a y , o n the r e co m mendati o ns o f the Council, extend the date for submitting the declaration electronically in FORM GST TRAN − 1 by a further period not beyond 31st March 2019, in respect of registered persons who could not submit the said declaration by the due date on account of technical d i f f i c u l tie s o n t h e c o m m o n p o r t a l a n d i n r e s p e ct o f w h o m th e C o u n c i l h a s made a recommendation for such extension.”

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5 . 9 I t i s s t a t e d t hat c o r r e s p o n d ing a mendm e n t i s m a d e in s u b − rule [4], wherein below Clause (b) in sub−clauses (iii), the following proviso is inserted :

“Provided that the registered persons filing the declaration in FORM GST TRAN-1 in accordance with C/SCA/4252/2018 JUDGMENT sub-rule [1A], may submit the statement in FORM GST TRAN-2 by 30th April 2019.”

6 . B e fo r e e x a m i n i n g r ival c o n t e ntion s , w e m a y r ecall t h a t t h e Government of India has amended Rule 117 of the CGST Rules by inserting sub−rule [1A] which provides that notwithstanding anything contained in sub −rule [1], the Commissioner may on recommendation of the Council, extend the date of submitting declaration e l e c t r o n i c a l l y i n F O R M G S T T R A N −1 b y a f u r t h e r period not beyond 31st March 2019, in respect of registered persons who could not submit the sa i d d e c l a r at i o n b y t h e d u e d a t e o n a c c oun t o f t e ch n i ca l difficulties on the common portal. Thus, in genuine cases of inability of a dealer to submit the declaration within the time originally permitted on account of technical d i f f i c u l t i e s on t h e c o m m o n p o r t a l , p o w e r s h a v e b e e n ve s t e d in t h e C o m m i s s i o n e r t o e x t end t h e t i m e m a xi m u m u p t o 3 1 st M a r c h 2 0 1 9 . The petitioners’ grievance of not being able to file declaration on account of technical glitches in

t h e p o r t a l ; i f g e n u i n e t h e r e f o r e , could be addressed under this rule. This would take care of the petitioners’ one of the grievances. This however does not mean that the petitioners’ challenge to vires of the statutory provisions C/SCA/4252/2018 JUDGMENT does not survive. We would, therefore, address such issues raised by the petitioners.

• Before taking up challenge to the vires of different statutory provisions, we may broadly state the powers of constitutional courts to annual a statute framed by the Union or the S t a t e l e gi s l a t u r e . I t i s w ell se t t l e d tha t there i s a p r e s u mp t ion o f co n s tituti o n ality of a stat u t e . I n c ase of S t a t e of Jammu & Kas h m i r v s . T ril o k i N a t h K h o s a & O r s . , r e p ort e d i n A I R 1974 S C 1 , t he C o nsti t ution B e n c h o f t he S u p r e m e C o u r t u p h el d t h e l e g i s l a t ion c l a s s i f y i n g A s s i s t a n t E n g i n e e r s i n t o D e g r e e −h o l d e r s a n d D i p l o m a − ho l d e r s f or t h e p u rpo s e o f p r o m o ti o n . I t w a s o b se r v e d t h a t t h e re is a pr e s u m p t i o n o f c o n s t i t u t i o n a l i t y o f a s t a t u t e a n d t h e b u r d e n i s o n o n e who canvasses that certain statute is unconstitutional to set out facts necessary to sustain the plea of discrimination and to adduce cogent and convincing evidence to prove those facts.

• It is equally well settled that the presumption of constitutionality would touch even the subordinate legislation. However, the grounds on which a statute framed by the Parliament or the State legislature are limited, as compared to the C/SCA/4252/2018 JUDGMENT s u bo r d ina t e legislat i on . Whi l e a l e g i sla t i o n fr a med b y t he subordinate l e g i s l atu r e c a n a l s o b e q u e s t i o n e d o n t h e g r o u n d t h a t the same is ultra vires the Act, or is beyond the rule making powers of the authority or that the same is wholly arbitrary and unreasonable, the law framed by the Parliament and the

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State legislature, it was held and observed in the case of State of A.P vs. Mc Dowell & Company & O r s . , r e p o r t e d i n [ 1 9 6 3 ] 3 S C C 7 0 9

c o u l d b e s t r u c k d o w n o n l y o n t w o g r o u n d s v i z . , l a c k o f l e g i s l a t i v e competence, or violation of the fundamental rights or any other constitutional provisions. It was

further observed that no enactment can be struck down by just saying that it is arbitrary or u n r e a s o n a b l e . I n t h e l a t e r j u d g m e n t i n t h e c a s e o f S h a y r a B a n o v . U n i o n o f I n d i a & O r s . , r e p o r t e d i n [ 2 0 1 7 ] 9 S C C 1 , R o h i n t o n F a l i Nariman, J., expressed a view in the following terms :

“101. It will be noticed that a Constitution Bench of this Court in Indian Express

Newspaper v. Union of India, [1985] 1 SCC 641, stated that it was settled law

t h a t s u b o r d i n a t e l e g i s l a t i o n c a n b e c h a l l e n g e d o n a n y

of the grounds available for challenge against plenary legislation. This being the

case, there is no rational distinction between the two types of legislation when

it comes to this ground of challenge under Article 14. The test of manifest

arbitrariness, therefore, as laid down in the aforesaid judgments would

apply to C/SCA/4252/2018 JUDGMENT invalidate legislation as well as subordinate legislation under Article 14. Manifest arbitrariness, therefore, must be something done by the legislature capriciously, irrationally and/or without adequate determining principle. Also, when something is done which is excessive and disproportionate, such legislation would be manifestly arbitrary. We are, therefore, of the view that arbitrariness in the sense of manifest arbitrariness as pointed out by us above would apply to negate legislation as well under Article 14.”

9. In recent judgment in case of Navtej Singh Johar & Ors. vs. Union of India, [W.P (Cri.) No. 7 6 o f 2 0 1 6 ] , t h e C o n s t i t u t i o n B e n c h o f t h e S u p r e m e C o u r t s t r u c k d o w n a p o r t i o n o f S e c t i o n 3 7 7 o f th e I n d i a n P e n a l C o d e t o t h e e x t e n t i t c r i m i n a l i z e d c o n s e n s u s g a y s e x . D i p a k M i s h r a , C J . , n o t e d w i t h a p p r o v a l , t h e a b o v e q u o t e d o b s e r v a t i o n s m a d e i n t h e c a s e o f S h a y r a B a n o [ S u p r a ] a n d h e l d t h a t S e cti o n 3 7 7 I P C s o l o n g a s i t c r i m i n a l i z e s c o n s e n s u a l s e x u a l a c t o f whatever nature between competent adults is manifestly arbitrary. Rohinton Fali Nariman, J., in his separate but concurring opinion also referred to the observations made in the case of Shayra Bano [Supra] that a statutory provision can be struck down on the groun d o f m a n i f es t a r bi t r a r i n e s s . I t was o b se r v ed th a t S e c t i o n 3 7 7 IPC in penalizing consensual gay sex is manifestly arbitrary.

C/SCA/4252/2018 JUDGMENT

1 0 . K e e p i n g i n m i n d th e s e p r i n c i p l e s , we may t a ke cl o s e r l o o k a t the relevant provisions. As is well known, the GST statutes were activated w.e.f 1st J u l y 2 0 1 7 . T h e s e s t a t u t e s e n v i s a g e u n i f o r m t a x structure and subsume range of existing taxes such as Excise duty, Central Sales Tax and the

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V a l u e A d d e d T a x . C h a p t e r 2 0 o f t h e CGST Act pertains to transitional provisions. Section 139 contained in the said chapter e n v i s a g e s m i g r a t i o n o f r e g i s t r a t i o n o f t h e persons who were registered under the existing laws. Section 140 pertains to transitional arrangements for input tax credits. Relevant portion of which reads as under :

“140. (1) A registered person, other than a person opting to pay tax under section 10,

shall be entitled to take, in his electronic credit ledger, the amount of CENVAT credit carried forward in the return relating to the period ending with the day immediately preceding the appointed day, furnished by him under the existing law in such manner as may be prescribed:

Provided that the registered person shall not be allowed to take credit in the following circumstances, namely:–

(i) where the said amount of credit is not admissible as input tax credit under this

Act; or

(ii) where he has not furnished all the returns required under the existing law for the

p e riod o f s i x m o n t h s i m m ed i a t e l y p r e c e d i n g t h e a ppo i n t e d d a t e ; o r C/SCA/4252/2018 JUDGMENT

(iii) where the said amount of credit relates to goods manufactured and cleared under

such exemption notifications as are notified by the Government.”

“140. (3) A registered person, 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–Service Tax, dated the 20th June, 2012 or a

first stage dealer or a second stage dealer or a registered importer or a depot of a manufacturer, 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 following conditions, namely:–

• such inputs or goods are used or intended to be used for making taxable supplies under this Act;

• the said registered person is eligible for input tax credit on such inputs under this

Act;

(iii) the said registered person is in possession of invoice or other prescribed documents evidencing payment of duty under the existing law in respect of such inputs;

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• such invoices or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day; and

• the supplier of services is not eligible for any abatement under this Act: C/SCA/4252/2018 JUDGMENT

140. (10) The amount of credit under sub-sections (3), (4) and (6) shall be calculated

in such manner as may be prescribed.

9 . Se c t i o n 1 6 4 of t h e C G S T A c t pe r t a i n s t o p o w e r o f t h e

Government to make rules. We would refer to this provision at an appropriate

s t a g e . I n e x e r c ise of s u c h r u l e m a k i n g p o we r s , t h e

C e n tra l G o v e rnm e n t f r a m e d C G S T R u l e s . C h a p t e r 1 4 o f t h e C G S T

Ru l es c o n t a i n s t r a n s i t i o n a l p r o v i s io n s . R u l e 1 1 7 co n t a i n ed in t h e

said C h a p t e r p ert a i n s t o t a x o r du t y c r ed i t c a r r i ed f orwa r d u n d e r

any existing law or on goods held in stock on the appointed day.

Relevant portion of this rule reads, thus−”117 (1) Every registered person entitled to take credit of input tax under section 140 shall, within ninety days of the appointed day, submit a declaration electronically in FORM GST TRAN-1, duly signed, on the common portal specifying therein, separately, the amount of input tax credit [of eligible duties and taxes, as defined in Explanation 2 to Section 140] to which he is entitled under the provisions of the said section.

(3) The amount of credit specified in the application in FORM GST TRAN-1 shall be credited to the electronic credit ledger of the applicant maintained in FORM GST PMT-2 on the common portal.”

1 0 . T h e G G S T A c t a l s o co n t a i ns Chap t e r 20 pe r t a ini n g to “Transitional Provisions”. Section 139 contained therein pertains to C/SCA/4252/2018 J U D G M ENT mi g r a t i o n o f e xisting ta x p ayers . Se c tio n 1 40 p e rtains to “transitional arrangements for input tax credit”. Relevant portion of which reads as under :

“140. Transitional arrangements for input tax credit.

( 1 ) A re g istered p e r s o n , othe r t h a n a p e r s o n o p t i n g

to pay tax under section 10, shall be entitled to take, in his electronic credit ledger,

the amount of Value Added Tax, and Entry Tax, if any, carried forward in

t h e r e t u r n r e l a ting to t h e pe r io d e n din g w i t h th e day

imm e dia t e l y p r e ce d ing t h e a p p o i n t e d day , f u r n ish e d

by him under the existing law in such manner as may be prescribed.

Pro v id e d tha t the reg i ste r ed person sha l l no t b e allowed to take credit in the following circumstances, namely :

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[ i ] w h e r e t h e s a i d a m o u n t o f c r e d i t i s n o t

admissible as input tax credit under this Act, or [ii] where he has not furnished

all the returns required under the existing law for the period of six months

i m m e d i at e ly p r e c ed i n g t h e app o inted dat e ; o r [ iii ]

where the said amount credit relates to goods sold under notification no. [GHN−

51 GST−2001 S.49 [355] TH, dated the 31st December 2001, [GHN −24]

V A T 2 0 1 2 3 / S . 4 0 [ 1 ] ( 8 ) −T H , d a t e d t h e 1 1 t h O c t o b e r

2013 and any other notifications claiming refund of value added tax thereon :

Provided further that so much of the said credit as it attributable to any

claim related to Section 3, sub−section [3] of Section 5, Section 6, Section

6A or sub−section [8] of Section 8 of the Central Sales Tax Act, 1956

w h i c h i s n o t C / S C A / 4 2 5 2 / 2 0 1 8 J U D G M E N T substantiated in the manner and within the period prescribed in rule 12 of the Central Sales Tax [Registration & Turnover] Rules, 1957 shall not be eligible to be credited to the electronic credit ledger :

Provided also that an amount equivalent to the credit specified in the second

proviso shall be refunded under the existing law when the said

cl a i m s a re s ubst a nt i a t e d i n t h e ma n n e r p r e s c r i b e d

in rule 12 of the Central Sales Tax [Registration and Turnover] Rules, 1957.”

1 1 . Se c t i o n 1 6 4 o f t h e G G S T A ct g i v e s r u l e m a k i n g p o w e r t o t h e Government, to which we would advert to at an appropriate stage. In exercise of such powers, t h e S t a t e G o v e r n m e n t f r a m e d t h e GGST Rules. Rule 117 contained in the Rules, contain “Transitional Provisions”. Sub − rule [1] thereof reads as under :

“117. Tax or duty credit carried forward under any existing law or on goods

held in stock on the appointed day :

( 1 ) E v e r y r e gi s t e r e d p e r s o n e n t i t l e d t o t a k e c r e d i t

or input tax under Section 140 shall, within ninety days of the appointed day,

submit a declaration electronically in FORM GST TRAN −1, duly signed,

o n t h e co m m o n p or t a l s p eci f y in g t h er e i n , sepa r a tel y ,

t he a m ou n t of i n put ta x cr e di t to w h i c h h e i s entit l e d

under the provisions of the said section:

Provided that the Commissioner may, on the recommendation of the

C o u n c i l , e x t e n d t h e p e r i o d o f

ninety days by a further period not exceeding ninety days.

C/SCA/4252/2018 JUDGMENT Provided further that in the case of a claim

under Section (1) of Section 140, the application shall specify separately−

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(i) the value of claim under Section 3, sub section (30 of the section 5 Section 6

a n d 6 A a n d s u b s e c t i o n ( 8 ) o f

section 8 of the Central Sales Tax Act, 1956 made by the applicant; and

( i i ) t h e s e r i a l n u m b e r a nd v a l u e o f d e c l a ration i n F o r m C

or F and certificates in Forms E or H or Form I specified in Rule 12 of the

Central Sales Tax (Registration and Turnover) Rules, 1957 submitted by

the applicant in support of the claims referred to in sub Clause (I).”

12. In the background of such statutory provisions, we may first examine petitioners’ challenge to the vires of second proviso to Section 140 [1] of the GGST Act. Under sub − section [1] of Section 140, a registered person, other than a person opting to pay tax under Sec t i o n o f t h e A c t , w o u l d b e e n t i t l e d t o t a k e , i n h i s e l e c t r o n i c c r e d i t l e d g e r , c r e d i t o f t h e a m o u n t o f V a lue A d d e d Ta x a nd E n t r y T ax ; i f a n y , c ar r i e d fo r ward i n the r eturn r elati n g t o t h e p e r io d e n d i n g w i t h t h e da y i m m ed i a t e l y pre c e d i n g th e ap p o i n t e d day, furnished by him under the existing law, in the manner as may be prescribed. First proviso to sub −section [1] of Section 140 lays down circumstances under which such credit shall not be C/SCA/4252/2018 JUDGMENT allowed. A further proviso which is referred to as t h e s e co n d p r o v iso a n d w h ic h i s u n d e r c h a l l e n g e p r o v i d e s t h a t s o m u c h o f t h e s a i d c r ed i t ; a s i s attr i b u t a b l e t o a n y cla i m r elatin g t o Sec t i o n 3 , s u b− S e c t i o n ( 3 ) o f S e c t i o n 5 , S e c t i o n 6 , S e c t i o n 6 A o r s u b −s e c t i o n ( 8 ) o f S e c t io n 8 o f t he C e n tr a l S a l e s T a x , 1 9 5 6 w h i c h is not s u bs t an t i ate d i n t h e ma n n e r a n d w i t h i n t h e p e r i o d p r e s c r i b e d i n R u l e 1 2 o f t h e Central Sales Tax [Registration and Turnover] Rules, 1957 shall not be eligible to be credited to the electronic credit ledger. In the simple terms, this further proviso provides that whenever the dealer has not furnished necessary forms supporting the inter − State sales, branch transfers or export sales, the credit related to such sales would not be a v a i l a b l e . T h e p r o v i s o , f o l l o w i n g t h i s further proviso, however provides that an amount equivalent to the credit specified in the second

p r o v i s o s h a l l b e r e f u n d e d u n d e r t h e existing law, when the said claims are substantiated in the manner prescribed in Rule 12 of the Central Sales Tax [Registration and Turnover] Rules, 1957.

13. The combined effect of further proviso and the proviso following such further proviso to sub−section (1) of Section 140 of C/SCA/4252/2018 JUDGMENT the GGST Act is that a d e a ler w h o f a i l s to iss u e n e cessar y p r escr i be d f orm s i n sup p or t o f i n t e r − State sales, branch transfers or export sales would not be able to claim credit of the taxes. However, as and when such forms are furnished, the amount would be refunded

t o the de a l e r . In e s s enc e , t hus , the s e t w o p rovi s o s br i ng ab o u t a situation un d e r whi c h , till necessary forms in th e prescri b ed format and in the prescribed manner under rule 12 of the Central Sales Tax [Registration and Turnover] Rules, 1957 [hereinafter to be referred t o a s , ” t h e R e g i s t r a t i o n & T u r n o v e r

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R u l e s ” ] a r e f u r n i s h e d , t he c r e d i t equiva l e nt t o r ed u c e d t ax w o u l d n o t b e av a i l a b l e , b u t a s a n d w h e n prescribed forms are furnished , the amount would be refunded to the dealer.

1. We may compare this position with the erstwhile position obtaining under the earlier statute ie., the Central Sales Tax Act, 1956 [to be hereinafter referred to as, “the CST Act, 1956”]. Section 8 of the CST Act, 1956 pertains to “rates of tax on sales in the course of inter− S t a t e t r a d e o r c o m m e r c e . ” S u b −s e c t i o n [ 1 ] o f Section 8 provides that eve r y dealer , who in the course of inter− State trade or commerce, sells to a registered dealer, goods of the C/SCA/4252/2018 JUDGMENT description referred to in sub−section (3), would be liable to pay tax, which shall be two per cent of his turnover, or at the rate applicable to the sale or purchase of such goods inside the appropriate State under the sale tax law of that State; whichever is lower. Sub − section [4] of Section 8, however, provides that the provisions of sub−section [1] shall not apply to any sale in the course of inter−State trade or commerce unless the dealer selling the goods furnishes to the prescribed authority in the prescribed manner, a declaration duly f i l l e d a n d s i g n e d b y t h e r e g i s t e r e d dealer to whom goods are sold containing prescribed particulars in the prescribed form obtained from the prescribed authority.

1. I n e x e r c i s e o f p o w e r s u n d e r s u b −s e c t i o n [ 1 ] o f S e c t i o n 1 3 o f the CST Act , 1956 , the C entral Government has framed the Central Sales Tax [Registration and Turnover] Rules, 1957. Sub −rule (1) of Rule 12 contained therein provides that a declaration and the certificate referred to in sub−section [4] of Section 8 shall be in Forms C and D respectively. Sub −rule (5) of Rule 12 provides that t h e d e c l a r a t i o n r e f e r r e d t o i n s u b −s e c t i o n ( 1 ) o f S e c t i o n 6 A s h a l l b e i n F o r m − F. This rule, thus, prescribes the forms in which necessary C/SCA/4252/2018 JUDGMENT d e c l a r a t i o n s o f i n t e r −S t a t e s a l e s w o u l d b e m a d e . S u b −r u l e ( 7 ) o f R u l e

1 2 p r o v i d e s t h a t d e c l a r a t i o n i n F o r m −C o r F o r m −F s h a l l b e fu r n i s hed t o t h e p r e s c r i b e d a u t h o rit y w i t hi n t h r e e m o n t h s af t e r the end of the period to which the declaration or the certificate relates. Proviso to sub − rule (7) provides that if the prescribed authority is satisfied that the person concerned was prevented by sufficient cause from furnishing such declaration or certificate within the aforesaid time, that authority may allow such declaration or certificate to be furnished w i t h i n s u c h f u r t h e r t i m e a s t h a t au t hor i t y may p e r m i t . T h u s , c o m b i n e d r e a d i n g o f t h e p r o v i s i o n s con t a i n e d i n t h e C S T A c t , 1 9 5 6 a n d t h e R e g istra t io n a n d T u r n o v e r R u le s of 1 9 5 7 wh i c h h e l d the f i eld durin g t h e earl i er re g i m e w o u l d show that the requirement of issuing necessary declarations in the prescribed forms establishing inter−State sales and other similar transactions inviting reduced tax, existed even then.

A s n o t e d , s u b −s e c t i o n [ 1 ] o f S e c t i o n 8 o f t h e C S T A c t , 1 9 5 6 e n v i s a g e d t a x a t a r e d u c e d r a t e o n t h e i n t e r −S t a t e s a l e s . S u b −s e c t i o n [ 4 ] o f S e c t i o n 8 o f the CST Act, however, provided that sub −sec. [1] shall not apply to any sale in the course of inter− State trade or commerce unless the C/SCA/4252/2018 JUDGMENT dealer selling the goods

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f u r n i s h e s t o t h e p r e s c r i b e d a u t h o r i t y necessary d e c l a rat i o n s i n the p re s c r i bed f o r m s . T h e se f o rms hav e been prescribed under rule 12 of the Rules.

1. We are conscious of judicial trend that the benefit of reduced tax was made available even when such forms were furnished beyond the prescribed time, during the course of assessment proceedings or sometimes even at the appellate stage. In this r e sp e c t , w e ma y r e f er t o j u d g m e n t o f t h e Su p re m e C o u r t i n c as e o f Sales Tax Officer, Ponkunnam & Anr. vs. K.I Abraham, reported in AIR 1967 SC 1823, w h e r e i n , r e f e r r i n g t o t h e p r o v i s i o n s c onta i n e d in S e c ti o n s 8 a n d 1 3 o f t he C e n t ra l S a l es T a x Act , 1 9 56 and the Registration and Turnover Rules of 1957, it was held that the assessee was not bound t o f u r n i s h d e c l a r a t i o n i n F o r m −C before 16th February 1961; in the said case. In absence of any such time−limit, it was the duty o f a s s e s s e e t o f u r n i s h d e c l a r a t i o n i n F o r m − C wit h i n a re a son a b l e ti m e , a n d i t wa s n o t e d t h a t i n t h e s a i d c a s e , t h e as s e ss e e ha d f u r n i s h e d t he d e c l a r a t i o n b e f ore t h e o rd e r o f assessment was made by the Sales Tax Officer. It was, therefore, held that the benefit o f su c h d ec l ara t i o n h a d t o b e g i v e n to t h e C / S CA / 4 2 5 2 / 2 018 J U D GME N T assessee. In the case of Yamaha Motor Escorts Limited v. State of Uttar Pradesh & Ors., [Supra], the High Court held that non production of Form −C or D would not make the inter −State transaction illegal or void. It would only result in denying the m a n u fa c t u r e r t h e b e n e f i t o f r e d uc e d r a t e o f t a x . T h u s , e v e n i n t h e erstwhile statutory provisions, the benefit of reduced rate of tax on inter −State sales, etc., was n o t t a k e n a w a y p e r m a n e n t l y f o r t h e failur e of th e d e a l e r t o produce d nece s sary forms in th e pres c rib e d m a n n e r . Th e s am e w a s n e ver t hele s s d e l a y e d , till s uch form s and declarations were produced. The combined reading of sub −section (1) of Section 7 and sub − s e c t i o n ( 4 ) o f S e c t i o n 8 o f t h e C S T A c t , 1 9 5 6 and int e r p r e tat i o n given t o such p r o v i si o n s b y t h e C our t s en s u r e d that e v en if such d e c l a r a t i o ns w e re supp l i e d a t the l a t e r p o i n t o f time, the benefit would not be denied permanently.

1. E f f e c t i v e l y a n d e s s e n ti a lly , t h is is w h a t th e prese n t pro v i sos o f sub − section [1] of Section 140 of the GGST Act do. As per the main provision, credit would be a v a i l a b l e o n t h e a m o u n t o f V a l u e Added Tax and Entry Tax carried forward in the return. As per the further proviso or the second proviso, such credit to that extent C/SCA/4252/2018 JUDGMENT would not be transferred when necessary declarations are not furnished by the dealer. The proviso thereafter however ensures that as and when declarations are filed, the amount equivalent to credit specified in the second schedule would be refunded to the dealer. We do not find any major change in the effect of late production of the forms by a dealer in the present

sta t utory pro v isions ; as compar e d to the earlier position , nor the statutory p r ovisions deny the be n efit of such credit , even where necessary

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declarations are furnished. Thus, no existing or vested right can be said to have been taken away.

We do not think Section 140 [c] is a charging provision or that for want of mechanism for computing such charge, the provision itself would fail. The provision is in the nature of enabling the dealers to take credit of existing taxes paid by them but not utilized for d i s c h a r g i n g t h e i r t a x l i a b i l i t i e s . I t c o n t a i n s conditions subject to which the benefit can be enjoyed.

1. T h i s bri n g s u s to th e p e tit i o n e r s ‘ c h a l l e n g e t o r u l e 1 1 7 of t h e C G S T Rule s a nd G G S T R ules . T h e s t a t u t o ry p r o v i s i o n s b e i n g pa r i materia in both the Act and the Rules, in so far as this challenge is C/SCA/4252/2018 JUDGMENT concerned, we may refer to provisions contained in the CGST Act.

1. As noted, under sub−section [1] of Section 140 of the CGST Act, a registered person, other than one who had opted for composition of tax would be entitled to take credit of the amount of CE N VAT credit c arried forward in t h e r e turn relating t o the period en d ing with the d a y immedia t e l y p r e c e d i n g t h e a p p o i n t e d day, furnished by him under the existing law in such manner as may be prescribed. Under sub− section [3] of Section 140, a registered person, who was not liable to be registered under the exi s ting la w and o ther c at e g o r y of p e r s on s m e n t ioned therei n , would be entitled to take, in his electronic credit ledger, credit of eligible duties in respect of i n puts h el d in s t o c k an d in p u t s c o n t aine d in s em i − f i n i s h e d o r f i n i s h e d g o o d s h e l d i n s t o c k o n t h e a p p o i n t e d d ay ; s u b j e c t t o c o n dition s c o nt a i n e d i n c l a u ses [ i ] t o [ v ] t h e re i n . S u b − s e c ti o n [ 1 0 ] o f S e c t i o n 1 4 0 pro v i d e s th a t t h e amo u n t of c re d i t u n d er su b − sections [3], [4] and [6] shall be calculated in such manner as may be prescribed. Counsel for

the petitioners had compared the language used by the legislature in sub −sections [1] and [3] of Section 140 to argue that the expression “in such manner C/SCA/4252/2018 JUDGMENT as may be prescribed” used in sub−section [1] was missing in sub−section [3].

20. In his contention, therefore, the rules that the subordinate legislature framed could not have prescribed a time limit for making necessary declarations; as referred to under sub −

s ecti o n [ 3 ] o f S e c t i o n 1 4 0 . R ule 1 1 7 o f t h e C G S T R u l e s p e r t ai n s to t ax e s o r duty credit carried forward under any existing law or on goods held in stock on the appointed d a y . S u b − r u l e ( 1 ) o f R u l e 1 1 7 provides that every registered person entitled to take credit of the input tax under Section 140, shall within ninety days of the appointed day, submit a declaration electronically in t h e pr e s c r i b e d f o r mat , d uly s i gne d , on t he c ommon p ortal speci f yi n g separately the amount of input tax credit to which he is entitled under the provisions of the s a i d s e c t i o n . P r o v i s o t o s u b −r u l e [ 1 ] envisages extension of period for making the said declaration on the recommendations of the C o u n c i l . W e h a v e n o t e d t h a t s u c h t i m e li m it wa s e xte n ded fro m tim e t o time a nd f i n ally u pto 27th December 2017. A limited extension has thereafter been granted by the Government by inserting

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s u b −r u l e [ 1 A ] i n R u l e 1 1 7 , C / S C A / 4 2 5 2 / 2 0 1 8 J U D G M E N T auth o r izing the Co m m i ss i o n e r t o e x t e n d the d a t e f o r sub m i t ting th e de c lar a t ion e l ectr o n i cal l y by a f u r t he r p er i o d n o t be y on d 31 s t March 2019, in respect of registered persons who could not submit the said declaration by the d u e d at e o n a c c o u n t of te c h n i c a l di f f i c u l t ies o n t he c o m m o n p o r t a l a n d i n respect of whom, the Council has made recommendation for such extension. Effectively t h u s , t h e l a s t d a t e f o r f i l i n g t h e d e c l a r a t i o n u n d e r s u b −r u l e [ 1 ] o f Rule 117 in general class of persons remained 27th December 2017. For cases falling under sub− rule [1A] of Rule 117, the same could be extended maximum upto 31st March 2019. As per t h e pe t i t ion e r s , t h i s p r e s c r i p t i o n o f t i me l i m i t p e r s e i s u l t r a v ires t h e provisions of the Act and the Constitution of India.

2 1 . I n e s s e n c e , s u b −r u l e [ 1 ] o f R u l e 1 1 7 l a y s d o w n a t i m e −l i m i t f o r ma k i n g d e c l a rat i o n on l y u p o n ma k i n g of w h i ch , a p e r s o n cou l d take benefit of tax credit in terms of Section 140 of the CGST Act. We are conscious that sub − sections [1] and [3] of Section 140 of the CGST Act use somewhat different phraseology. Under sub− s e ct i o n [ 1 ] t h e leg i slatur e has pr o v ide d t h a t t h e b e n e f i t of credit i n the electronic credit ledger would be available to a registered person C/SCA/4252/2018 JUDGMENT i n s u c h m a n n e r ; a s m a y b e p r e s c r i b e d . I n c o n t r a s t , s u b −s e c t i o n [ 3 ] of Section 140 grants facility of credit in electronic ledger of the specified duties to the specified

class of persons; subject to conditions laid down under clauses (i) to (v) of the said s u b −s e c t i o n . I t i s o n l y i n t h e p r o v i s o b e l o w c l a u s e ( v ) o f s u b −s e c t i o n [ 3 ] that the legislature has provided that where a registered person, other than a manufacturer or a supplier of services, is not in possession of an invoice or any other documents e v ide n c i n g p a y m e n t o f d u t y i n r e s p e c t o f i n p u t s , t h e n , s u c h r eg i s tere d pers o n s h a l l ; s u b j e c t t o s u c h c o n d i t i o n s , l i m i t a t i o n s a n d safeg u ards a s m ay b e p re s c r ib e d , i n cl u di n g t h at t h e said t a xable p erson s h a l l p a s s o n t h e b en e f i t o f s u c h c r e d i t b y w a y o f r e d u c e d p r ice s to th e re c ip i e n t , be a l l o w e d t o t ak e cr e dit at such rate and in such ma n n er a s m ay be pr e s cribed . F o r a p p a r ent reasons , this proviso does not apply to all cases and its effect is local, to cover cases where a person is not in possession of an invoice or any other documents evidencing payment of duty in respect of inputs.

22 . W e c a n h ow e v e r n o t be oblivious to Section 164 of the CGST Act, which is the rule making power and reads as under :

C/SCA/4252/2018 JUDGMENT “164. Power of Government to make rules :

[1] The Government may, on the recommendations of the Council, by notification, make rules for carrying out the provisions of this Act. [2] Without prejudice to the generality of t h e p r o v i s i o n s o f s u b −s e c t i o n ( 1 ) , t h e G o v e r n m e n t m a y make rules for all or any of the matters which by this Act are required to be, or may be, prescribed or in respect of which provisions are to be or may be made by rules.

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[ 3 ] T h e p o w e r t o m a k e r u l e s c o n f e r r e d b y t h i s section shall include the power to give retrospective effect to the rules or any of them from a date not earlier than the date on which the provisions of this Act comes into force.

[ 4 ] A n y r u l e s m a d e u n d e r s u b −s e c t i o n ( 1 ) o f s u b − section (2) may provide that a contravention thereof shall be liable to a penalty not exceeding ten thousand rupees.”

• Under sub −section [1] of Section 164 of the CGST Act, thus, the Government on r e c o m m e n d a t i o n s o f t h e C o u n c i l , b y notification, could make rules “for carrying out the provisions of the Act”. This rule making po w er is t h us c ouc h ed i n the wides t possible man n er empowering the Government to make the rules for carrying out the provisions of the Act.” Sub −section [2] to Section 164 is equally widely worded, when it p rovides that , ” without prejudice to the C / SCA / 4252 / 2018 JUDGMENT g e n e r a l i t y o f t h e p r o v i s i o n s o f s u b −s e c t i o n ( 1 ) , t h e G o v e r n m e n t m a y m a k e ru l es for all or any of the matters which by this Act are required to be , or may be, prescribed or in respect of which provisions are to be, or may be made by the rules.” Sub− section [3] of Section 164, to which we are not directly concerned, nevertheless provides that t he p o wer to make rules conferred in the said section would include the power to give retrospective effect to such rules.

• It is in exercise of this rule making power , the Government h a s f r a m e d t h e C G S T R u l e s , 2 0 1 7 i n w h i c h ; a s n o t e d , s u b −r u l e ( 1 ) of Rule 117 h a s prescribed , besides other things , the time limit for ma k i n g d e c l a r a t i o n i n t h e p r e s c r i b e d f o rm f o r e v e r y d e a l e r e n t i t l e d t o t a k e c r e d i t o f i n p u t t a x u n d e r S e c t i o n 1 4 0 . S u b −r u l e [ 1 ] o f R u l e 1 1 7 thus a p p l ies t o al l cases o f c r e d i ts w hich may b e c l aimed by a r e giste r e d p e rson u n der sect i o n 1 4 0 of th e A ct and i s n o t c o n f in e d t o s u b − section [3]. This plenary prescription of time limit within which necessary declarations must be made is, in our opinion, neither without authority nor unreasonable.

• S ect i o n 1 4 0 o f t he A c t env i s a g es c e r t a i n b e ne f i t s t o be c a r r i e d forward during the regime change. As is well−settled, the reduced C/SCA/4252/2018 JUDGMENT r at e of du t y o r c o n ces s i o n in pa y m e nt of dut y ar e i n t h e n a t u r e o f a n e x em p t i o n a nd i s alw a y s o p e n f o r t h e l e g i sl a t u r e t o g r a n t a s w e l l a s t o w i t h dr a w s u c h e x e m p tio n . As n o t e d in ca s e o f J a y am & Co m p any [ S u pr a ] , t h e S up r e m e C o u r t h a d obs e rve d t h a t i n p u t t a x c r e d i t is a f o r m of c on c e s sion p r o v i d e d by t h e le g i slat u r e a n d c a n be made available subject to conditions. Likewise, in the case of Reliance Industries Limited [Supra], it was held and observed that how much tax credit has to be given and under what circ u m stan c e s i s a do m ai n of t h e legislatur e . In case of Godr e j & B oyce M f g . Co . P vt . L i m i t e d [ S u p r a ] , t h e S u p r e m e Co u r t h a d u phe l d a rule which restricts availment of MODVAT credit to six months from the date of issuance of

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t h e d o c u m e n t s s p e c i f i e d i n t h e proviso. The contention that such amendment would take away an existing right was rejected.

26. While the entire tax structure within the country was thus being replaced by a new frame− work, it was necessary for the legislature to make transitional provisions. Section 140 of the CGST A ct , w h ich is a transi t ion a l pr o vi s i o n , e ssenti a l l y p r es e rves all taxes paid or suffered by a dealer. Credit thereof is to be given C/SCA/4252/2018 JUDGMENT in electronic credit register under the new statute, only subject to making necessary declarations in prescribed format within the prescribed time. As noted, sub −section [1] of Section 1 6 4 o f t h e C G S T A c t a u t h o riz e s th e G o ve r n ment to mak e rules for c a r r y ing out the provisions of the Act on recommendations of the Council. Sub−section [2] of Section 164 further provides that without prejudice to the generality of the provisions of sub − sec t ion [ 1 ] , t he G o v e r n m e nt co u l d al s o m ake r ule s fo r a l l , or an y of the m a tt e r s , which b y t h i s A ct a r e r e q u i r ed t o be or m a y b e p r e s cr i b e d o r i n respect of which, provisions are to be or may be made by the rules. Combined effect of the powers conferred to subordinate legislature under sub −sections [1] and [2] of Section 164 of the CGST Act would convince us that the prescription of time limit under sub − r u l e [ 1 ] of R ul e 1 1 7 o f the C G S T R u le s i s n ot ult r a v i r e s the Act. Likewise, such prescription of time limit cannot be stated to be either unreasonable or

a r b i t r a r y . W h e n t h e e n t i r e t a x s tr u c t u r e o f t h e c o u n t r y i s b e i n g s h i f t e d f ro m e a r l i e r f r am e w o r k to a new one, there has to be a degree of finality on claims, credits, transfers of such credits and all issues related thereto. The C/SCA/4252/2018 JUDGMENT petitioners cannot argue that

w i t h o u t a n y r e f e r e n c e t o t h e t i m e l i m i t , suc h cred i ts s h o u l d b e al l o w e d to b e t ransfe r r e d d u r i n g t h e proc e ss of m i g r a t io n . Any su c h vi e w woul d hampe r t h e e f f e c t i v e i m p l e m e n t a t i on o f t h e n e w t a x s t r u c t u r e a n d w o u l d a l s o l e a d t o endless disputes and litigations. As noted in case of USA Agencies [Supra], the Supreme Court had upheld the vires of a statutory provision contained in the Tamil Nadu Value Added Tax Act which provided that the dealer would have to make a claim for input tax credit before

t h e e n d o f t h e f i n a n c i a l y e a r o r b e f o r e ninety days of purchase; whichever is later. The vires was upheld observing that the legislature c o n s c i o u s l y w a n t e d t o s e t u p t h e time frame fo r a v a i l m e nt of the inpu t t a x cre d i t . Such co n dit i o ns therefor e m us t b e s t r i c t ly co m p l ied w ith . T h u s , m e rely b e c a u s e th e rule in question pr e s c ribes a time f r ame fo r m ak i n g a dec l a ration , such p rovision cannot nec e ssarily be held to be directory in nature and must depend on the context of the statutory scheme.

2 7 . I s s ue c a n be l o oked at fro m s lightly different angle . Granting tax credit is an integral part of computation and collection of tax. Tax collection is an important

element of b u d g etary allocations C / SCA / 4252 / 2018 JUDGMENT and estimation of the Union and the States. Such consideration of tax credits at such large s c a l e c a n n o t b e a l l o w e d t o l i n g e r o n

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i n d e f i n i t e l y w h i c h w o u ld h a ve a d irect e f f e ct on t h e t a x collection , estimates and budgetary allocations and in turn, revenue deficit.

2 8 . In t h i s c o n t ext , w e ma y ref e r to the Constit u tion Bench decision of the Sup r eme Co u r t i n the case o f Ma f a t lal In d ustries Limit e d & Ors . vs . Union of I n dia & Ors . , repor t e d i n [ 1 9 9 7 ] 5 SCC 536. In such judgment, various issues concerning the refund applications under the Central Excise and Customs and other taxing statutes came up for consideration before the Nine −

Judge Bench of the Supreme Court. Before adverting to the majority opinion expressed b y B . P J e e v a n R e d d y , J . , w e m a y n o t e a s h o r t p r e c u r s o r t o t h i s j u d g m e n t . I n c a s e of Sa l es T ax Of f icer , B a n ar a s & Ors. vs. Kanhaiya Lal Mukundlal Saraf, [AIR 1959 SC 135], the Constitution Bench of the Supreme Court considered the term “mistake” used in Section 72 of the Contract Act, 1872 in the context of payment of tax. It was held and observed that true principle is that if one party u n der mistake – whether of fact or law, passed to another party money which is not due by contract C/SCA/4252/2018 JUDGMENT or

oth e rwise , that money must be repaid . The mistake lies in thinking that the money paid was due when in fact it was not due and that mistake if e s t a b l i s h e d e n t i t l e s t h e p a r t y w h o p a i d t h e money to rec o ver it back from the party receiving the same . It was further observed that on c e it is established that the payment ; even though it be of the taxes has been made by the party labouring u n der a mis t ake of law , the party is entit l e d to recover th e sa m e and no distinction can be made in respect of the tax liability and other liabilities. Merely because

t h e S t a t e h a s n o t r e t a i n e d t h e m o n i e s p a i d a s S a l e s t a x by the a sse s s e e b u t m erel y e x pen d ed i t i n o r d ina r y course o f business of t he S t a t e will m ake no dif f e re n ce t o the position under Section 72 of the Contract Act.

29. With the aid of this judgment in the case of re−Kanhaiya Lal Mukundlal Saraf [Supra], often times, the parties would bring a proceeding before the Court of law for refund of

t a x a f t e r a n u m b e r o f y e a r s o f c olle c t i o n on t h e gr o u n d that some o t her party h a d chal l e n g ed the l e v y bef o re C o u rt a n d succe e d e d therein . I n c a se of Tilok c hand Mot i c ha n d v . H . B M unshi , C ST , r e por t ed in [1969] 1 SCC 110, the Constitution Bench of the Supreme Court, C/SCA/4252/2018 JUDGMENT ho w ev e r , e x p r e s se d s o me w h a t di f f e r ent vi e w . I t w a s a c a s e in which t h e S a l e s T a x Offic e r h ad f or f e ite d a s u m o f R s . 2 6 , 5 63 / = o f t he p e t i t i o n e r , w h o t h e reup o n h a d fil e d a w r i t pe t i t i o n bef o r e t h e H i gh C ourt c h a l len g i ng s u c h o rd e r . T h e p e t i t i o n w a s d i s m i s s e d o n 2 8 t h N o v e m b er 1 9 5 8 . The app e al was dismiss e d b y D i v is i on B e nch of t h e Hig h Co u r t o n 7th J u l y 1 9 5 9 . L a t e r on , b y a j u d gme n t d a t e d 2 nd De c ember 1 9 6 3 , t he Guj a r a t H i g h C o u r t h e l d t h a t t h e r e l e v a n t provision of the Bombay Sales Tax Act under which the amount was collected was valid. The Supreme Court, however, by judgment dated 29th March 1967 struck down the

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provision as being infringement of Article 19 [1] of the Constitution of India. The petitioner t h ere u p o n f i l ed a p e t i t i o n d i r e c t l y b e fore the Supreme Court under Article 32 of the Constitution. The Supreme Court dismissed the petition.

H i d a y a t u l l a C J . , o b s e r v e d t h a t , ” t h e u t most ex p e d it i on i s the s i n e quo non fo r a cla i m u n d er A r t i cl e 3 2 . T h e pa r ty aggr i ev e d m u st m o ve the C o u r t a t t h e e a r lies t po s s i b l e t i m e a n d e xplai n s a tisfactori l y a ll s emb l ance of delay . ” I t w a s furthe r o bs e rv e d t h a t , ” . . there is no q u esti o n of a m i stake o f law e n t i tli n g th e p e t i t i one r t o invoke analogy of the Article in the Limitation Act”.

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30. Both these judgments of the Supreme Court in the case of Kanhaiya Lal Mukundlal Saraf [ S u p r a ] a n d T i l o k c h a nd M ot i cha n d v . H . B M un s h i , C S T [Supra] came up for consideration before the 9 −Judge Bench in the case of Mafatlal Industries Limited & Ors., [Supra]. Mr. Justice B.P Jeevan Reddy speaking for the m a j o r i t y , s u m m a r i zed the c on c l u s i o n s in p ar a 1 0 8 of t h e jud g ment . P o r t i o n s relevant for our purpose, read as under :−”108. [i] Where a refund of tax/duty is claimed on the ground that it has been collected from the petitioner/plaintiff – whether before the commencement of the Central Excise and Customs Laws [Amendment] Act, 1991 or t her e a f t e r – b y m isinte r pr e t ing o r m is a ppl y i n g t h e pr o visions of t he Central Excises and Salt Act, 1944 read with Central Excise Tariff Act, 1985 or Customs Act, 1962 read with Customs Tarrif Act or by misinterpreting or misapplying any of the rules, regulations or notifications issued under the said enactments, such a claim has necessarily to be preferred under and in accordance with the provisions of the respective enactments before the authorities specified thereunder and within the period of limitation prescribed therein. No suit is maintainable in that behalf. While the jurisdiction of the High Courts under Article 226 – and of this Court under Article 32

– c a n n o t be c i r c u m s c r i b e d by t h e pro v is i o n s o f t h e s a i d e n a c t m e n t s , t h e y w i l l c e r t a i n l y h a v e d u e r e g a r d to the legislative intent evidenced by the provisions of the said Acts and would exercise their j u r i s d i c ti o n c o n s i s t e n t w i t h t h e p r ovisi o ns o f t h e A c t . T h e w r i t p e t i t i o n w i l l b e c o n s i d e r e d a n d d i s p o s e d o f t h e A c t . T h e w r i t p e t i t i o n w i l l b e c o n s i d e r e d a n d d i s p o s e d o f in the light of and in accordance with the provisions C/SCA/4252/2018 JUDGMENT o f S e c t i o n 1 1 B . T h i s i s f o r t h e r e a s o n t h a t t h e p o w e r under Article 226 has to be exercised to effectuate the rule of law and not for abrogating it.

T h e s a i d e n a c t m e n t s i n c l u d i n g S e c t i o n 1 1 −B o f the C e n t r a l E x c ises a n d S a l t Act a n d S e c t i o n 2 7 o f t h e C u s t o m s A c t d o c o n s t i t u t e ” l a w ” w i t h i n t h e m e a n i n g of Article 265 of the Constitution of India and hence, any tax collected, retained or not refunded in accordance with the said provisions must be held to be collected, retained or not

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refunded, as the case may be, under the authority of law. Both the enactments are self−contained enactments providing for levy, assessment, recovery and refund of duties i m p o s e d t h e r e u n d e r . S e c t i o n 1 1 −B o f t h e C e n t r a l E x c i s e s a n d S a l t A c t a n d S e c t i o n 2 7 o f t h e C u s t o m s A c t , b o t h b e f o r e a n d a f t e r t h e 1 9 9 1 [ A m e n d m e n t ] A c t a r e c o n st i t u t i o n a l l y v a l i d a n d h a v e t o b e f o l l o w e d a n d g i v e n e f f e c t t o . S e c t i o n 7 2 o f t h e C o n t r a c t A c t h a s n o a p p l i c a t i o n t o s u c h a c l a i m o f r e f u n d a n d c a n n o t f o r m a basis for maintaining a suit or a writ petition. All refund claims except those mentioned u n d e r P r o p o s i t i o n ( i i ) b e l o w h a v e t o b e a n d m u s t b e f i l e d a n d a d j u d i c a t e d u n d e r t h e p r o v i s i o n s o f t h e C e n t r a l E x c i s e a n d S a l e A c t o r t h e C u s t o m s A c t , a s t h e c a s e may be. It is necessary to emphasize in this behalf that Act provides a complete mechanism for correcting any errors whether or fact or law and that not only an appeal is provided to a

Tribunal –

which is not a departmental organ – but to this Court, which is a civil court.

[ i i ] W h e r e , h o w e v e r , a r e f u n d i s c l a i m e d o n t h e g r o u n d t h a t t h e p r o v i s i o n s o f t h e A c t u n d e r w h i c h i t w a s l e v i e d i s o r h a s b e e n h e l d t o b e u n c o n s t i t u t i o n a l , s u c h a c l a i m , b e i n g a c l a i m o u t s i d e t h e p u r v i e w o f t h e enactment, can be made either by way of a suit or by way of a writ petition. This principle is,

ho w e v e r , s u b j e c t t o a n e x c e p t i o n . W h e r e a p e r s o n a p p r o a c h e s the High Court or the Supreme Court challenging the constitutional validity of a provision but

fails, he C/SCA/4252/2018 JUDGMENT cannot take advantage of the declaration of u n c o n s t i t ut i o n a l i t y o b t a i n e d b y a n o t h e r p e r s o n o n another ground; this is for the reason that so far as he is concerned, the decision has become fin a l a nd c a n n o t b e reop e n e d on the ba s is o f a d eci s i on on another person’s case; this is the ratio of the opinion of Hidayatullah, CJ., in Trilokchand Motichand [Supra] and we respectfully agree with it.

Such a claim is maintainable both by virtue of the declaration contained in Article 265 of t he Constit u tion o f I n d i a a n d al s o b y v i r t ue of Sectio n 7 2 of t h e Contr a ct A c t . In su c h c ase s , pe r i o d o f l i m i t a t io n would naturally be calculated taking into account the principle underlying clause (c) of sub− section [1] of Section 17 of the Limitation Act, 1963. A refund claim in such a situation cannot be governed by the provisions of the Central Excises and Salt Act or the Customs Act, as the case may be, since the enactments do not contemplate any of their provisions being struck down and a refund claim arising on that account. In other words, a claim of this nature is not contemplated by the said enactments and is outside their purview.

[ i i i ] x x x x x x [ i v ] I t i s n ot op e n t o a n y p e r s o n t o m a k e a re f u nd claim on the basis of a decision of a court or tribunal rendered in the case of another person.

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He cannot also claim that the decision of the Court/Tribunal in another person’s case has led him to discover the mistake of law under which he has paid the tax nor can he claim that he

is entitled to prefer a writ petition or to institute a suit within three years of s u c h a l l e g e d d i s c o v e r y o f m i s t a k e o f l a w . A p e r s o n , whether a manufacturer or importer, must fight his own battle and must succeed or fail in s u c h pr o c e e d i n g s . O n c e t h e a s s e s s m e n t o r l e v y has become final in his case, he cannot seek to reopen it nor can he claim refund without reopening such C/SCA/4252/2018 JUDGMENT assessment/order on the ground of a decis i o n in anothe r p er s on ‘ s cas e . Any prop o sit i on t o t he contrary not only results in substantial prejudice to public interest but is offensive to several w ell establ i s h ed p rin c i p l e s o f l a w . I t a l s o lea d s to g r a v e public mischief. Section 72 of the Contract Act, or for that matter Section 17 [1](c) of the Limitation Act, 1963, has no application to such a claim for refund. [v] Article 265 of the Constitution has to be construed in the light of the goal and the ideals set out in the Premable to the Constitution and in Articles 38 and 39 thereof. The concept of economic justice demands that in the case of indirect taxes like Central Excises duties and Customs d u t i e s , t h e t a x c o l l e c t e d wi t h o u t t he a uth o r i t y o f l a w sh a l l n o t be r e f u n d e d t o t h e p e t i t i o n e r −p l a i n t i f f u n l e s s h e a l l e g e s a n d e s t a b l i s h e s t h a t h e h as n o t p a s s e d o n t h e b u rden of duty to a third party and that he has himself borne the burden of the said duty.

[vi] xx xx xx xx [vii] While examining the claims for refund, the financial chaos which would result in the administration of the State by allowing such claims is not an irrelevant consideration. Where the petitioner −plaintiff has suffered no real loss or prejudice, having passed on the burden of tax or duty to another person, it would be unjust t o allow o r decree hi s c l a i m s i n c e i t i s b o u n d t o p r e j u d i c i a l l y affect the public exchequer. In case of larger claims, it may well result in financial chaos in the administration of the affairs of the State.

[viii] The decision of this Court in STO v. Kanhaiya Lal Mukundlal Saraf [Supra] mu s t b e h e l d t o h a v e be e n w r on g l y d ecid e d i n s o f a r as it l a y s d ow n o r i s u n d e r s t o o d t o h a v e l a i d d o w n p r o p o r t i o n s c o n t r a r y to the propositions enunciated in (i) and (vii) above.

It must equally be held that the subsequent C/SCA/4252/2018 JUDGMENT d e c i s i o n s o f t h i s C o u r t f o l l o w i n g a n d a p p l y i n g t h e said propositions in Kanhaiya Lal [Supra] have also been wrongly decided to the above e x t e n t . T h i s decla r a t io n – o r t he l a w laid d o wn i n P r o position s ( i ) to (vii) above – shall not however entitle the State to recover the taxes/duties already refunded a n d i n res p e c t w h e r e o f n o p r o c ee d in g s a r e pen d i n g be f ore a n y authorit y or Tribunal or Court as on this da t e . All p e n d i n g m a t t e r s s h a l l , h o w e v e r , b e g o v e r n e d b y t h e l a w d e c l a r e d h e r e i n n o t w i t h s t a n d i n g t h a t t h e t a x o r d u t y h a s b e e n r e f u n d e d p e n d i n g t h o s e p r o c e e d i n g s ,

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whether under the orders of an authority, Tribunal or Court or otherwise.”

31. As per this decision, thus, the time limit provisions contained in the Central Excise a n d C u s t o m s l a w s f o r s e e k i n g

refund of excess duty were held to be sacrosanct and were seen as constituting law within the meaning of Article 265 of the Constitution. Consequently, the tax collected, retained or n o t r e f u n d e d i n a c c o r d a n c e w i th s u c h p r o v i si o n s w o u l d b e se e n a s collected, retained and not refunded under the authority of law. The view expressed by the S u p r e m e C o u r t i n T r i l o k c h a n d M otichand [ Supra ] was affirmed . It was emphatically stated that it was not open to any person to make refund claim on the basis of a decision of the Court or T r i b u n a l r e n d e r e d i n c a s e o f a n o t h e r person. Such a person cannot claim that the decision of the Court or Tribunal in another p e rs o n ‘ s c a s e h a s led him to discover a C / SCA / 4252 / 2018 JUDGMENT m istake of law under which he had paid the tax . In this context , it was observed that any proposition to the contrary not only results in substantial prejudice to the public interest , but is offensive to several well esta b l ished principles of law . It also leads to grave public mischief . In this context, it was also observed that while examining the claims for refund, the financial c h a o s w h i c h w o u l d r e s u l t i n t h e a d m i n i s t r a t i o n o f t h e S t a t e b y a l l o w i n g s u c h c l a i m s w o u l d n o t b e a n i r r e l e v a n t c o n s i d e r a t i o n . In case of large claims , the same may result in financial chaos in the administration of the affairs of the State. The decision in the case of

S T O v s . K a n h a i y a L a l M u k u n d l a l Saraf [Supra] to the extent “it lays down or is understood to have laid down proposition contrary

to these propositions” was held to have been wrongly decided.

32. Thus, in the economic matters of such vast scale, the wider considerations of the State exchequer, while interpreting a statutory provisions cannot be kept out of purview. Quite apart from independently finding that the time limit provisions contained in sub − rule (1) of Rule 117 of the CGST Rules is not ultra vires the Act or the powers of the rule m a k i n g a u t h o r i t y , C / S C A / 4 2 5 2 / 2 0 1 8 J U D G M E N T interpreting such powers as merely directory would give rise to unending claims of transfer of

c r e d i t o f t a x o n i n p u t s a n d s u c h other claims from old to the new regime. Under the new GST laws, the existing tax structure was being replaced by the new set of statutes, through an exercise which was unprecedented in the Ind i a n c ont e x t . T h e clai m s o f ca r ry fo r war d o f t h e e x ist i n g d u t i e s and credits during the period of migration, therefore, had to be within the prescribed time. Doing away with the time limit for making declarations could give rise to multiple large− scale claims trickling in for years together, after the new tax structure is put in place. This would besides making the task of matching of the credits impractical if not impossible, also impact the revenue collection estimates. It is in this context that the Supreme Court in the case of M a f a tlal Ind u s t r i e s Li m i t e d ( S u p r a ) , a f t e r rej e c t i n g t h e contention that a person can move proceedings for recovery of tax paid upon success of some

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o t h e r p e r s o n b e f o r e t h e T r i b u n a l o r C o ur t i n g e t t i ng s u c h tax co l le c t i on declar e d ille g al , wa s f urt h e r i n f l u e n c e d b y t h e f a c t t ha t a n y s u c h s i t u a t i o n c o u l d l e a d t o u t t e r chaos, if the claims are large. Under the circumstances, we do not C/SCA/4252/2018 JUDGMENT f i n d a n y s u b s ta n c e i n t h e p e t i t i o n e r s ‘ c h a l l e n g e t o r u l e 1 1 7 ( 1 ) o f the CGST Rules as well as GGST Rules.

• T he c o n t e n t i o n o f th e c o u n s e l f o r t h e p e t i t i o n e r s t h a t t h e saving clause inserted in the Gujarat Value Added Tax Act would protect and preserve the tax c r e d i t s o f t h e p a s t r e g i m e , a f t e r introduction of the Goods and Service tax is to be noted only for rejection. The saving clause p r o v i d e d t h a t n o t h i n g d o n e i n t h e amendment of the Gujarat Value Added Tax Act shall affect any right, privilege, obligation or liability acquired, accrued or incurred under the Act prior to coming into force of the said a m e n d m ent . Such s a ving has t o be r e ad a n d a p pr e ci a ted i n tu n e wit h the spec i f i c p rovisions ma d e in the C GST & GG S T A c t s . Any interp r et a t i on of s u c h p r o v i s i o n s c a n n o t ru n co u n t e r t o t h e e xp r e s s l egisl a tive i n t e nt of r e s t rict i n g o r l i miti n g e njo y m e n t o f the e xist i n g r u l e s , o r i n o t her w i se to m a k e c o n t i n u o u s e n j o y m e n t o f t h e r i ght s , subject to certain safe guards and conditions.

• B e f o r e c l o s in g , w e w ou l d r e f e r t o s o m e o f t h e j u d g m en t s relied upon by counsel for the parties and which we felt must be explained.

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3 5 . I n t he c a s e o f E i c h e r Moto r s Ltd [ S u p ra ] and Dai Ich i K a r k a r i a [Supra], essentially, the conclusion of the Supreme Court, was that the MODVAT credit in the

a c c o u n t o f a m a n u f a c t u r e r i s i n t h e nature of duty already paid and which cannot be taken away by retrospective rules.

3 6 . R e f e r e n c e t o a d e c i s i on o f t h e S u preme Co u r t in t h e c a s e o f CIT v. B.S Srinivasa Setty [Supra] is of no avail. The ratio of the said decision can be seen as h o l d i n g t h a t t h e r e c a n n o t b e t a x i n g provision without mechanism having been provided by the statute. We do not see Section 140

( 1 ) o f t h e G G S T A c t i s a c h a r g i n g pro v isi o n . I t , in fact , e nab l e s a r e gistere d per s o n who has n o t op t ed for composition of tax to take credit in his electronic credit ledger, the credit of the amount of v a l u e a d d e d t a x a n d e n t r y t a x i n relat i o n to t h e p eriod ending immediately preceding the appointed day. This section further provides for conditions; subject to which, the same could be claimed.

3 7 . T he decision of Supreme Court in the cases of : ( a ) Sambhaji & Ors . v s . G a n g a b h ai & Ors . [ Supra ] , and ( b ) Salem Advocate Bar

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Assocaition vs. Union of India [Supra] were rendered in the context C/SCA/4252/2018 JUDGMENT of the time limit prescribed under the amended CPC for the defendant to file written statement. The Court held that the ninety days of period provided in R u l e 1 o f O r d e r V I I I o f C P C w a s directory in nature. The situation in the said cases and the one on hand before us are vastly d i f f e r e n t a n d t h e r a t i o i n t h e s a i d decisions cannot be imported in the present facts of the case.

• In the case of Mangalore Chemicals & Fertilizers Limited v. Deputy C o mm i s s i o n e r [ S u p r a ] , t h e S u p r e m e C o u r t h a d o b s e r v e d t h a t w h i l e i n t e r pr e t in g a c o n d i t i o n p r e c e d e n t f o r e x e m p t i o n , t h e r e w o u l d be distinction to be made between a procedural condition of a technical nature and a substantive condition. We have given elaborate reasons that the t i m e l i m i t p r o v i s i o n f o r m a k i n g declarations in the present case is of considerable importance and can n ot be seen merely as a technical requirement . Remov i n g such time limit would have a potential to lead to utter economic chaos.

• I n case of Sta t e o f M ysor e & O rs . v . Mal l ic k Hashi m & C o . [ 1 9 7 4 ] 3 SC C 2 5 1 , i t w a s t h e H ig h C o u r t which h a d s t r u c k d o w n the r u l e f r a m e d b y t h e G o v e r n m e n t p r o v i d i n g t h e t i m e l i m i t f o r filing the refund application on the ground that the section which C/SCA/4252/2018 JUDGMENT granted the benefit of refund did not envisage any such time limit that would be prescribed u n d e r t h e r u l e s . T h e S u p r e m e C o u r t , ho w eve r , di d no t p roceed on this logic . The Court held that it was not necessary to go into this question, since sub−rules (2) and (3) of Rule 39A of the Mysore Sales Tax Rules, 1957 were wholly unreasonable, and therefore, cannot be sustained. Sub− r u l e ( 3 ) o f R u l e 3 9 −A p r o v i d e s t h a t b e f o r e a p e r s o n i s e n t i t l e d t o r e f u n d , h e must have to make the refund application within the time before which he should have s u b m i t t e d h i s S a l e s −t a x r e t u r n . I t w a s observed that in many States, the dealers have to submit quarterly returns. Under rule 18 of t h e R u l e s , t h e d e a l e r w o u l d h a v e t o su b m i t i t s a n nu a l r e t u r n w i t h i n 3 0 d a y s f r o m t h e e n d o f F i n a n c i a l Year. Thus, if there be a sale in the course of inter−State trade has been made on 31st March of a year, the refund application will have to be made within 30 days from that date. The Supreme Court was therefore of the opinion that the said rule was merely an attempt to de n y t h e d e a l e r s , t h e r e f u n d t o w h i c h t he y a r e entitled under the law, or at any rate to make the enforcement of that right unduly difficult.

C/SCA/4252/2018 JUDGMENT

4 0 . I n c a s e o f S al e s T a x O f ficer , P o nkannam & A n r . v . K . I . A b r a h a m , r e p ort e d i n A I R 196 7 SC 1 82 3 , r u l e 6 o f th e C en t ral S al e s Tax (Kerala) Rules 1957 came up for consideration, particularly in the context of sub −

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Willowood Chemicals Pvt. Ltd. vs Union Of India on 19 September, 2018

s e c t i o n ( 4 ) o f S e c t i o n 8 o f t h e C S T A c t , w h i c h a s w e h a v e n o t e d e a r l i e r , i m p o s e s t h e r e q u ir e m e n t o f a d e a l e r w h o h a s s o l d t h e g o o d s i n c o u r s e o f i n t e r −S t a t e s a l e o r C o m m e r c e , t o fu r nish n e cessar y d e cla r a t i o n s i n p re s c r i be d ma n ner . Ru l e 6 o f the Central Sales Tax (Kerala) Rules, besides making other provisions, prescribes time limit for m a k i n g d e c l a r a t i o n s . S u c h r u l e w a s examined in light of rule making power contained in Section 13 (4) of the CST Act, clause (e) o f w h i c h p r o v i d e d t h a t t h e S t a t e Government may make rules for the purpose of the authority from whom, the conditions subject to which and the fees subject to payment of which any from declaration prescribed

under sub −Section (4) of Section 8 may be obtained, the manner in which the form shall be kept i n cus t o d y a n d r e c o r d s r e l a t i n g the r e t o maintained. In this context, it was observed that the phrase, “in the prescribed manner” occurring in Section 8 (4) of the Act does not take into time−element. While concluding that the time l i m i t C / S C A / 4 2 5 2 / 2 0 1 8 J U D G M E N T p r e s c r ibe d in Rul e 6 ( 1 ) w as u l t r a v ires , and there f o r e , ass e s see was not bound to furnish declarations in Form “C” before 16th February 1961 into said case, the duty of the assessee was to furnish declaration within a reasonable time. In the said case, since the assessee had already furnished C −Forms before the assessment w a s o v e r , i t wa s held t h a t t h e r e w a s c o m p l i a n c e w i t h t h e requirement of Section 8 (4) of the Act. In the present case, we have noted the statutory p r o v i s i o n s , t h e s c a l e o f o p e r a t i o n s a n d t h e possible repercussions; if such time limit contained in Rule 117 is annihilated and a registered person is allowed to make declarations of the left over residuary duty of credit at the time of migration to the new tax structure. The time limit provisions, we have already stated more than

once, under such circumstances, cannot be seen as merely technical in nature.

In the result, petition is dismissed.

[Akil Kureshi, J.] [B.N Karia, J.] Prakash

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