2018 (10) TMI 1521 – GUJARAT HIGH COURT – 2018 (19) G. S. T. L. 430 (Guj.) , [2019] 61 G S.T.R. 20 (Guj) – Transitional Credit – validity of period of limitation – CENVAT credit of excise duty paid on capital goods which were in transit as on 01.07.2017 – inputs/capital goods – Vires of of Article 14 and 19(1)(g) of the Constitution of India – Gujarat Goods and Service Tax Act – IGST Act.
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Held that:- Subsection (5) of section 140 allows a registered person, credit of eligible duties and tax in respect of inputs or input services which were received on or after the appointed day but on which the tax was paid earlier. In absence of any matching provisions pertaining to capital goods, in a situation where the duty had been paid on purchase of goods prior to the appointed day but the goods were received on or after the appointed day, there would be no possibility of availing credit on such tax under the GST regime.
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The legislature made a clear and conscious demarcation between
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inite period of time.
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If it is accepted that there is no time period for claiming input tax credit as contained in section 19(11), the provision would become too flexible and would give rise to large number of disputes including of verification of claim of input credit. Taxing statutes contained self contains scheme of levying computation and calculation of tax. The time under which a return is to be filed for the purpose of assessment of tax cannot be dependent on the will of a dealer.
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The statute in any manner do not violate Article 14 or 19(1)(g) of the constitution – petition dismissed. – R/Special Civil Application No. 22056 of 2017 Dated:- 16-10-2018 – Mr. Justice Akil Kureshi And Mr. Justice B.N. Karia For the Petitioner(s) : Mr Anand Nainawati(5970) For the Respondent(s) : Mr Nirzar S Desai (2117), Mr Sudhir M Mehta (2058) And Notice Served(4) ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. Petitioner has prayed for a declaration that the action of the
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07.2017, a manufacturer would be entitled to take CENVAT credit of duty paid on inputs as well as on capital goods utilized in the manufacturing process, subject to conditions and restrictions provided in the CENVAT Credit Rules, 2004. With the introduction of Integrated Goods and Service Tax Act ('IGST Act' for short) and Gujarat Goods and Service Tax Act ('GGST Act' for short) with effect from 01.07.2017, such facility enabling the manufacturers to take credit of the duties paid on inputs as well as capital goods continued with certain modifications. CGST Act also contains transitional provisions as per which, unutilized CENVAT credit could be brought over to the GST regime. Such facility of migration would be available both in relation to inputs as well as capital goods. The statute also makes provisions to enable the assessee to avail the credit of duty paid on inputs which were in transit as on 01.07.2017. However, when it comes to the question of taking credit of
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ve been purchased prior to 01.07.2017 but received by an assessee after said date, from the facility of availing benefit of excise duty paid on such capital goods. In this context, counsel for the petitioner raised following contentions: I. Section 140 of the CGST Act is a transitional provision which covers the situation of migration of unutilized CENVAT credit; both pertaining to input and capital goods. This provision also enables the assessee to take credit of the excise duty paid on inputs in transit. An artificial distinction is made only with respect to the capital goods in transit which is discriminatory and arbitrary. II. It was contended that the classification between capital goods and inputs was an artificial demarcation. In order to be reasonable, such classification must have rational relation with the objects sought to be achieved. III. Reference was made to the decision in case of Shayara Bano v. Union of India and others (MINISTRY OF WOMEN AND CHILD DEVELOPMENT SECRETA
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in economics sphere and tax legislation, the legislature has grater latitude. The Court cannot strike down a statutory provision merely on the opinion that the same is unreasonable or harsh. 7. Under the erstwhile Central Excise Rules, 1944, rule 57Q was inserted vide notification dated 01.03.1994. Subrule (1) of rule 57Q essentially provided the benefit of duty paid on capital goods used by the manufacturer in his factory for payment of duty of excise leviable on its final product subject to conditions contained therein. Term capital goods defined in the definition below subrule (1). Subrule (2) of rule 57Q provided that notwithstanding anything contained in subrule (1), no credit of the specified duty paid on capital goods shall be allowed if such duty has been paid on such capital goods before first day of March 1994. Thus, this rule for the first time granted the facility of utilizing the specified duty paid on capital goods used by the manufacturer in the factory discharging its
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al goods received by the provider of output services or the manufacturer of final products can claim the credit of duty paid on such capital goods for an amount not exceeding 50% of such duty in the same financial year and the balance credit may be taken in any financial year subsequent to the financial year in which the capital goods were received in the factory of the manufacturer or the premises of the goods of output services. 9. Section 2(19) of the CGST Act defines the term capital goods as to mean the goods, the value of which is capitalized in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business. Term 'input' is defined in section 2(59) as to mean any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of a business. Section 2(62) defines the term 'input tax' in relation to a registered person as to mean the Central tax
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achinery under the provisions of the Income Tax Act, 1961, the input tax credit on the said tax component shall not be allowed. 11. Section 17 of CGST Act pertains to apportionment of credit and blocked credits. Subsection (1) of section 17 provides that where the goods or services or both are utilized by the registered person partially for the purpose of any business and partially for other purposes, the amount of credit shall be restricted to so much of the input tax as is attributable to the purposes of his business. Likewise, subsection (2) of section 17 provides that where the goods or services or both are used by the registered person partially for affecting taxable supplies including zero rated supplies and partially for exempt supplies, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero rated supplies. 12. Rule 43 of the Central Goods and Service Tax Rules, 2017 ('CGST Rules' for short) pro
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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 period of six months immediately preceding the appointed date; or (iii) where the said amount of credit relates to goods manufactured and cleared under such exemption notifications as are notified by the Government. (2) A registered person, other than a person opting to pay tax under section 10, shall be entitled to take, in his electronic credit ledger, credit of the unavailed CENVAT credit in respect of capital goods, not carried forward in a return, furnished under the existing law by him, for the period ending with the day immediately preceding the appointed day in such manner as may be prescribed: PROVIDED that the registered person shall not be allowed to take credit unless th
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he appointed day: Provided that the period of thirty days may, on sufficient cause being shown, be extended by the Commissioner for a further period not exceeding thirty days: Provided further that said registered person shall furnish a statement, in such manner as may be prescribed, in respect of credit that has been taken under this subsection. 14. These statutory provisions make a few things clear. Facility to avail credit on excise duty paid on capital goods used by the manufacturer in his factory for discharging duty liability on the finished products was made available under rule 57Q of the Central Excise Rules, 1945 with effect from 01.03.1994. This continued even under the CENVAT credit Rules, 2004, subject to conditions. As per clause, subrule (2) of rule 4 of the CENVAT credit Rules, 2004, would be restricted to a maximum of 50% of the duty paid on such capital goods in the financial year in which the capital goods were received in the factory of the manufacturer. Remaining 5
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allowed. Similarly, subsections (1) and (2) of section 17 which pertain to restriction of the tax credit when the goods or services are utilized partially for business purpose and partially for other purposes or partially for affecting taxable supplies and partially for nontaxable supplies, also makes no distinction between capital goods and inputs. Rule 43 of the CGST Rules makes detailed provision for working out such restriction on eligibility of input tax credit on capital goods to which subsections (1) or (2) of section 17 would apply. 16. However, when it comes to the transition from the central excise to GST regime, the legislature has made slightly different provisions for credit on inputs and capital goods. In this context, section 140 of the CGST Act assumes significance. Subsection (1) of section 140 enables a registered person other than a person who has opted for payment of tax on composition basis to carry forward CENVAT credit of eligible duties in relation to the perio
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t of which has been paid by the supplier under the existing law, subject to the condition that the invoice or any other duty or tax paying document of the same was recorded in the books of account of such person within a period of thirty days from the appointed day. As per the proviso to subsection (5) such period could be extended by the Commissioner for a further period not exceeding thirty days on sufficient cause being shown. 17. Very clearly thus subsection (5) of section 140 allows a registered person, credit of eligible duties and tax in respect of inputs or input services which were received on or after the appointed day but on which the tax was paid earlier. In absence of any matching provisions pertaining to capital goods, in a situation where the duty had been paid on purchase of goods prior to the appointed day but the goods were received on or after the appointed day, there would be no possibility of availing credit on such tax under the GST regime. 18. It can thus be seen
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rangements. Chapter XX of the CGST Act, as noted, contains transition provisions. Section 140 contained in the said chapter makes detailed provisions for transitional arrangements for input tax credit. Subject to contentions and in the manner as may be prescribed, the unused tax credit would be migrated to the GST regime. This section also would enable a registered person to claim credit of the duty paid prior to the appointed day on the inputs even though the inputs may be received after the appointed day. This section consciously does not provide any such facility in relation to the capital goods in transit. This demarcation itself would not be artificial, arbitrary or in any manner, discriminatory. The capital goods and inputs used in manufacturing process have always been treated differently and distinct treatment have been given under the earlier statutes. If the legislature therefore was of the opinion that in relation to capital goods in transit, duty paid before the appointed d
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s it appears that the suggestion of the respondents is that unlike inputs, the capital goods which can be in the nature of plant and machinery including highly sophisticated specially designed and manufactured machines, may take much longer time for delivery and installation after the orders are placed by the manufacturers and the legislature was not inclined to keep the issues of migration of tax credits and pending claims open for indefinite period of time. 21. In case of R.K.Garg v. Union of India and others reported in (1981) 4 SCC 675 the constitution bench of the Supreme Court held that every legislation particularly in economic matters is essentially empiric and it is based on experimentation. It was further held and observed as under: 7. Now while considering the constitutional validity of a statute said to be violative of Article 14, it is necessary to bear in mind certain well established principles which have been evolved by the courts as rules of guidance in discharge of it
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ts such as freedom of speech, religion etc. … … … 10. The court must always remember that "legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry" that exact wisdom and nice adoption of remedy are not always possible and that "judgment is largely a prophecy based on meagre and uninterpreted experience". Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method and therefore it cannot provide for all possible situations or anticipate all possible abuses. There, may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid. The courts cannot, as pointed out b
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light, the legislature can always step in and enact suitable amendatory legislation. That is the essence of pragmatic approach which must guide and inspire the legislature in dealing with complex economic issues. 22. In case of Jayam & Company v. Assistant Commissioner & Anr., reported in [2016] 15 SCC 125, the Supreme Court while upholding the validity of section 19(20) of the Tamilnadu Value Added Tax Act, 2006, made following observations: 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 fortiorari, conditions specified in section 10 must 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 Act, it is
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mited, reported in [2017] 16 SCC 28 it was held and observed that how much tax credit should be given and under what circumstances, is a domain of a legislature. 24. In a recent judgment dated 12.10.2018, in case of ALD Automative Pvt. Ltd. v. The Commercial Tax Officer, the Supreme Court confirmed the judgment of the Madras High Court upholding validity of section 19(20) of Tamilnadu Value Added Tax Act, 2006, the special provision provides that in case of any registered dealer fails to claim input tax credit in respect of any transaction of taxable purchase in any month, he shall make the claim before the end of the financial year or before 90 days from the date of purchase whichever is later. This provision thus provided time limit for a dealer to claim tax credit in respect of transaction of taxable purchase. This provision was attacked on the ground that it laid down restrictions on enjoyment of input tax credit which the main provision granting such facility does not envisage. It
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