[Opinion] SC’s quick fix resolving transitional credit leaves few key issues open!

Rajat Chhabra, Ketan Tadsare & Amit Dadapure – [2022] 141 taxmann.com 231 (Article)

In one-of-a-kind mass disposal of about 400 Petitions, Supreme Court finally relieved taxpayers across industries of all their grievances surrounding Transitional Credit while deciding the matter of Filco Trade Center (P.) Ltd. The decision was quickly followed by Hon’ble Bombay High Court and Madras High Court in disposing array of Writ Petitions that concerned Transitional Credit.

The relief, by way of re-opening of common portal to file or revise TRAN-1 / TRAN-2,now benefits all aggrieved taxpayers without any pre-condition of whether in dispute or otherwise. The GSTN is instructed to re-open the common portal for all during September 01, 2022, to October 31, 2022.What’s more, it is instructed to ensure that during this period common portal does not suffer any technical glitch –which has been single biggest reason amongst all the transitional credit issues.

The court’s Order also sets out the procedure in brief and minimizes administrative jargon to effectuate its decision. It directs Jurisdictional Revenue officer to verify the claim of transitional credit within 90 days from October 31, 2022 and pass appropriate orders after affording the taxpayer a reasonable opportunity of being heard. It also instructs that transitional Credit allowed by the Jurisdictional Officer is to appear in Electronic Credit Ledger.

This judgment is certainly an appreciative move and comes as a huge respite for the entire industry. The decision provides immediate relief even to those taxpayers whose matters are pending before various forums such as Adjudicatory authorities, Tribunal, Courts, ITGRC, representations to GST Council, etc. and saves an enormous amount of taxpayer’s time, efforts and money.

The relief however comes as a quick fix focused only on the issues of transitional credit and circumvents the comprehensive consideration to all the issues before the court that needs deliberation. As a matter of fact, Hon’ble Supreme Court could have taken this opportunity to address multitude of other issues before it that have had chequered history and still remains unaddressed and open.

A quick peek into some of the High Court decisions that led into Petition before Supreme Court can help gauge the expanse of the issues before the Supreme Court, compare it with the limited scope of its decision and aid in navigating through all these issues which are left open.

Input Tax Credit – Whether a vested right or concession?

The issue of transitional credit, more often than not, was being contested by tax payers placing reliance upon Hon’ble Supreme Court’s decision in Eicher Motors Ltd. v. Union of India 1999 taxmann.com 1769 and Collector of Central Excise v. Dai Ichi Karkaria Ltd. 1999 (112) ELT 353 (SC) which settled the law of the land and held that input tax credit is to be treated as an indefeasible and a vested right. This led the argument that being indefeasible, such a right could not be wavered even for change of legislation.

This dispute resulted in divergent views across various High Courts. Some High Courts including the Delhi High Court in the case of Brand Equity Treaties Ltd. v. Union of India [2020] 116 taxmann.com 415, recognized taxpayers’ right to credit in line with the Supreme Court’s earlier decisions in Eicher Motors (supra) and Dai Ichi Karkaria Ltd. (supra).

On the other hand, the decisions of the Bombay High Court in the case of JCB India Ltd. v. Union of India [2018] 92 taxmann.com 131/67 GST 52 and Gujarat High Court in the case of Union of India v. Willowood Chemicals (P.) Ltd. [2020] 119 taxmann.com 255 held that CENVAT credit was merely a concession. This was followed in the case of Nelco Ltd. v. Union of India, [2020] 116 taxmann.com 255/81 GST 518 (Bom.), wherein the Hon’ble Bombay High Court held that availment of input tax credit under Section 140(1) of the CGST Act, 2017 is a concession attached with conditions of its exercise within the time limit. The Hon’ble Supreme Court in the case of Ald Automotive (P.) Ltd. v. CTO [2018] 91 taxmann.com 475/254 Taxaman 233 (Bom.) held that input credit is in nature of benefit/concession extended to the dealer under the statutory scheme.

Indefeasibility of tax credit system have had a direct nexus with a multitude of other issues of indirect taxation. Addressing this issue would also have lent much needed clarity for a catena of Petitions challenging constitutionality of various restrictions on credit mechanism such as:(a) Rule 36(4) of CGST Rules, which restricts availment of Input Tax Credit relating to invoices not uploaded by supplier to a specified percentage of uploaded invoices;(b) Denial of credit on account of supplier’s failure to appropriately furnish his returns/pay the duty liability; (c) Carry forward of the accumulated credits of Education Cess, Secondary Higher Education Cess & Krishi Kalyan Cess; and many more measures under GST law which aims at restricting ITC availment and/or utilization.

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