IN THE HIGH COURT OF GUJARAT AT AHMEDABAD. R/SPECIAL CIVIL APPLICATION No of 2018

Transcription

1 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION No of 2018 FOR APPROVAL AND SIGNATURE : HONOURABLE Mr. JUSTICE AKIL KURESHI and HONOURABLE Mr. JUSTICE B.N. KARIA ============================================================== 1 Whether Reporters of Local Papers may be allowed to see the Yes judgment? 2 To be referred to the Reporter or not? Yes 3 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 interpretation of the Constitution of India or any order made thereunder? No ============================================================= WILLOWOOD CHEMICALS PVT. LTD. Versus UNION OF INDIA ============================================================= 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 ============================================================= CORAM: HONOURABLE Mr. JUSTICE AKIL KURESHI and HONOURABLE Mr. JUSTICE B.N. KARIA 12 th / 19 th September 2018 ORAL (PER : HONOURABLE Mr. JUSTICE AKIL KURESHI) The petitioners have challenged constitutionality of second proviso to Section 140 [1] of the Gujarat Goods and Services Tax Act, 2017 [ GGST Act for short]. The petitioners have also Page 1 of 62

2 challenged the vires of Rule 117 of the Central Goods and Services Tax Rules, 2017 [ CGST Rules for short] and Rule 117 of the Gujarat Goods and 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 electronic credit ledger, available as on 30 th June 2017 in terms of Section 140 [3] of the Central Goods and Services Tax Act, 2017 [ CGST Act for short]. Similar direction is sought in connection with the carry forward of eligible credit of State tax ie., the Value Added Tax [ VAT for short] available as on 30 th June We may record that the petitioners have also in the prayer clause, included the challenge to the vires of Section 164 of the CGST Act. 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, The petitioner no. 2 is a Director of the company. The petitioner no. 1 is registered under the CGST as Page 2 of 62

3 well as GGST Acts. Previously, the petitioner no. 1 Company was registered under the Gujarat Value Added Tax Act, 2003 [ GVAT for short]. With the advent of GST regime with effect from 1 st July 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 to them as on 30 th June Section 140 of the CGST Act lays down conditions for carry forward of such tax credit. Section 164 of the CGST Act is a rule making 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 forward of tax credits under the existing law. Sub 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 granted upto , beyond which the respondents did not accept any further declarations. Page 3 of 62

4 2.2 Likewise, Section 140 of the GGST Act also envisages carry forward of the tax credits available to a dealer as on 30 th June 2017; subject to certain conditions. Rule 117 of the GGST Rules also contains a provision for filing declaration electronically of the tax credit which, as initially prescribed, had to be within ninety days from the appointed day. This was also extended simultaneously with the CGST finally upto 27 th December 2017 and beyond which there was no further extension. 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 , however, due to technical glitches in the portal, the petitioners could not upload the declaration. Similar difficulties were experienced by dealers across the country. The petitioners, therefore, approached the concerned authorities on and submitted physical declaration in the proper format. The authorities, however, conveyed that they have no power to accept physical declarations. 3. In this background, broadly stated, the petitioners grievances are as under : Page 4 of 62

5 [i] On account of technical glitches in the Government portal, despite efforts made by the petitioners for filing the declaration electronically, the same could not be done within extended time for no fault of the petitioners. Thus, the tax credit available in the accounts as on 30 th June 2017 would be lost for ever, since in absence of such declaration 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. [iii] Rules 117 of the CGST Rules and GGST Rules which prescribe the time for making a declaration of available tax credits as on 30 th June 2017 are ultra vires the Act and the rule making powers of the authority. Such time limit in any case should be read as directory and not mandatory. 4. Appearing for the petitioners, learned counsel Shri Vinay Shraff raised the following contentions : Page 5 of 62

6 [i] Second proviso to Section 140 [1] of the GGST Act is ultra 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 declarations from the purchasers, dealers and other agencies, failing which the benefit of reduced tax would not be available, though the sales may have been made in the course of inter State sell, by way of branch transfer, or for exports. In this context, our attention was drawn to the provisions of GVAT Act; and in particular, Section 11 thereof, which pertains to tax credit which a registered dealer could avail under the said Act. Our attention was also drawn to Section 100 of the GVAT Act which pertains to Repeal and Savings. Sub section [2A] was inserted 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 coming into force of the said Page 6 of 62

7 amendment. On this basis, it was argued that the tax credit at the disposal of the petitioners as on 30 th June 2017 is in the nature of accrued or vested right which could not be taken away by putting restrictions in enjoyment thereof, as was done through the second proviso to Section 140 [1] of the GGST Act. In this context, reliance was placed on the following judgments : [a] In case of Eicher Motors Limited v. Union of India., reported in 1999 [106] ELT 3 [SC] in which the Supreme Court, in 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 manufacture of further products as inputs thereto 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 may have no hesitation to hold that the Rule cannot be applied to the goods manufactured prior to 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 Page 7 of 62

8 the Supreme Court referring to the decision in case of Eicher Motors Limited [Supra] had observed as under : 17. It is clear from these Rules, as we read them, 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 excise duty on the excisable product. There is no provision in the Rules which provides for a reversal of the credit by the excise authorities except where it has been illegally 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 manufacturer 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, indefeasible. 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 any machinery for such computation, the charging provision would fail. In this respect, reliance was placed on the Page 8 of 62

9 decision of Supreme Court in case of Commissioner of Income Tax, Bangalore 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 Govind Saran Ganga Saran vs. Commissioner of Sales Tax & Ors., AIR 1985 SC 1041 and in case of Mathuram Agrawal vs. State of Madhya Pradesh, [1999] 8 SCC It was further contended that there was no allegation of the Department that there has been any default in payment of tax by the petitioners. Obtaining necessary forms from the purchasers and exporters often take a long time and only on this count, the assessee would suffer higher tax; as if the sales were made intra State. 4.3 Our attention was also drawn to a decision of Allahabad High Court in the case of Yamaha Motor Escorts Limited v. State of U.P & Ors., reported in [2011] 38 VST 115 in which the Division Bench had observed that non production of form C or D would not make inter State transaction illegal or void. It would only result in denying the manufacturer, the benefit of reduced rate of tax. Page 9 of 62

10 4.4 In this context, reliance was placed on the decision of Division Bench of this Court in the case of Indusur Global 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 manufacturers who had not paid the duty in time. It was held that in such cases to insist that the assessee must pay such duty in cash without using Cenvat credit imposed unreasonable restriction. 4.5 Reliance was also placed on a decision of the Calcutta High 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 In the context of time limit provided in Rule 117 of the 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 Page 10 of 62

11 contained in the parent Act pertaining to transfer of un utilized tax credits did not envisage any time limit for making a declaration for such purpose. Such time limit cannot be introduced through the rules unless specific powers for such purpose have been granted. Neither Section 140 of the parent Act nor 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 primary over substantive provision 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 In the context of this contention, counsel relied on decision of the Supreme Court in case of State of Mysore & Ors. vs. Mallick Hashim & Co., AIR 1972 SC 1449 in which the validity of the time Page 11 of 62

12 limit for filing revision applications contained in Rule 18 framed under the Mysore Sales Tax Act, 1957 came up for consideration. The Court was of the opinion that such rule is an attempt to deny the dealers, the refund to which they are entitled under the law or at any rate to make the enforcement of such right unduly difficult. 4.9 Reference was also made to a decision of the Supreme Court 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 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 Page 12 of 62

13 condition of a technical nature and a substantive condition. For the same purpose, reference was also made to the decision of the Supreme Court in case of 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 State of Himachal Pradesh & Ors. vs. Gujarat Ambuja Cement Limited & Anr., [2005] 142 STC 1 [SC]. 5. On the other hand, learned Advocate General led the arguments on behalf of the respondents. In the context of 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 credit in the hands of a dealer from the old regime to new regime of furnishing necessary forms establishing the factum of inter State 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 Page 13 of 62

14 defer the right of a dealer to claim benefit of reduced tax till necessary declarations are produced before the authorities. This was also the situation in the earlier statutory scheme. Our attention was drawn to the provisions of the Central Sales Tax Act and the rules framed thereunder to highlight that in the earlier tax structure also, in absence of such forms, the dealer would suffer 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 With respect to challenge to the time limit provided under 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 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 to time. All dealers across the country got time upto 27 th December 2017 ie., nearly six months to manage their affairs and make necessary declarations. When the entire tax structure was being changed in order to bring Page 14 of 62

15 uniformity, simplicity and common tax rates across the country, certain transitional difficulties are bound to surface. It was for such 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] In case of Jayam & Company v. Assistant Commissioner & Anr., 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: 11. From the aforesaid scheme of section 19 following significant aspects emerge : (a) ITC is a form of concession provided by the Legislature. It is not admissible to all kinds of sales and certain specified sales are specifically excluded. Page 15 of 62

16 (b) Concession of ITC is available on certain conditions mentioned in this section. (c) 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 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 not permissible for the dealers to argue that 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 were dealing with any other aspect de hors the issue of ITC as per section 19 of the VAT Act, possibly the arguments of Mr. Bagaria would have assumed some relevance. But, keeping in view the scope of the issue, such a plea is not admissible having regard to the plain language of sections of the VAT Act, read along with other provisions of the said Act, as referred to above. 5.3 In the case of State of Gujarat v. Reliance Industries 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 Page 16 of 62

17 circumstances is the domain of the legislature and the courts are not to linker with the same. The Court noted with approval, the observations in the case of Godrej & Boyce Mfg. Company Prvt. Limited vs. Commissioner of Sales Tax & Ors., reported in [1992] 3 SCC 624 to the effect that it is only by virtue of the rules that the assessee was entitled to a set off. It is really a concession and an indulgence. 5.4 In case of Osram Surya [P] Limited v. Commissioner of Central Excise, Indore, reported in [2002] 9 SCC 20, in which, the Supreme Court considered the challenge to the substituted second proviso to Rule 57 [4] of the MODVAT Rules which provided that the manufacturer shall not take credit after six months from the date of issuance of any documents specified in the first proviso to the said sub 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 such contention, it was observed that the plain reading of the said provision shows that it applies to those cases Page 17 of 62

18 where the manufacturer is seeking to take the credit after introduction of the rules, and the cases where the manufacturer is seeking to do so after a period of six months from the date when the manufacturer receives input. This rule does not operate retrospectively nor does it in any manner affect the right of those persons who have already taken credit before coming into force of the rule in question. It operates prospectively in regard to those manufacturers who seek to take credit after coming into force of the rule. 5.5 In case of USA Agencies [Represented by its Proprietrix, Attur Town, Salem District v. The Comercial Tax Officer, Attur [Rural] Assessment Circle, Attur., reported in [2013] 5 CST 63 in which validity of sub section 11 of Section 19 of the Tamil Nadu Value Added Tax Act came up for consideration. Section 19 pertains to input tax credit in respect of any transaction of taxable purchases in any month and provides that the dealer shall make a claim before the end of financial year or before ninety days from the date of purchase; whichever is later. In the context of this challenge, the Court considered whether section was inconsistent Page 18 of 62

19 with the charging section and whether the same was directory and not mandatory. While upholding the validity of the section, it was further held that the legislature consciously wanted to set up the time frame for availment of the input tax credit. Such conditions therefore must be strictly complied with. 5.6 In case of JCB India Limited v. Union of India., reported in [2018] 53 GSTR 197, in which Division Bench of the Bombay High Court had upheld vires of Clause (iv) of sub section [3] of Section 140 of the CGST Act imposing a condition on the first stage dealers to avail tax credit, that such credit should be in relation to invoice which is dated not earlier then 12 months preceding the appointed day. We may, however, record that in case of Filco Trade Centre Private Limited vs. Union of India [SCA No of 2017 with SCA 20185/2017 :: decided on 5 th 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. Page 19 of 62

20 5.8 In the context of petitioners grievance regarding technical glitches in the official portal preventing making of declaration, the Union of India has filed an additional affidavit of one Dr. Ashir Tyagi, Commissioner, CGST dated 11 th September In such affidavit, it is stated that the Government of India has come out with a Circular dated 3 rd 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 Notification dated 10 th September 2018, which reads as under : [1A] Notwithstanding anything contained in sub rule [1], the Commissioner may, on the recommendations of the Council, extend the date for submitting the declaration electronically in FORM GST TRAN 1 by a further period not beyond 31 st March 2019, in respect of registered persons who could not submit the said declaration by the due date on account of technical difficulties on the common portal and in respect of whom the Council has made a recommendation for such extension. 5.9 It is stated that corresponding amendment is made in subrule [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 Page 20 of 62

21 sub-rule [1A], may submit the statement in FORM GST TRAN-2 by 30 th April Before examining rival contentions, we may recall that the 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 electronically in FORM GST TRAN 1 by a further period not beyond 31 st March 2019, in respect of registered persons who could not submit the said declaration by the due date on account of technical 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 difficulties on the common portal, powers have been vested in the Commissioner to extend the time maximum upto 31 st March The petitioners grievance of not being able to file declaration on account of technical glitches in the portal; if genuine therefore, 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 Page 21 of 62

22 does not survive. We would, therefore, address such issues raised by the petitioners. 7. 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 State legislature. It is well settled that there is a presumption of constitutionality of a statute. In case of State of Jammu & Kashmir vs. Triloki Nath Khosa & Ors., reported in AIR 1974 SC 1, the Constitution Bench of the Supreme Court upheld the legislation classifying Assistant Engineers into Degree holders and Diplomaholders for the purpose of promotion. It was observed that there is a presumption of constitutionality of a statute and the burden is on one 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. 8. 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 Page 22 of 62

23 subordinate legislation. While a legislation framed by the subordinate legislature can also be questioned on the ground that 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 State legislature, it was held and observed in the case of State of A.P vs. Mc Dowell & Company & Ors., reported in [1963] 3 SCC 709 could be struck down only on two grounds viz., lack of legislative 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 unreasonable. In the later judgment in the case of Shayra Bano v. Union of India & Ors., reported in [2017] 9 SCC 1, Rohinton Fali 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 that subordinate legislation can be challenged on any 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 Page 23 of 62

24 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 In recent judgment in case of Navtej Singh Johar & Ors. vs. Union of India, [W.P (Cri.) No. 76 of 2016], the Constitution Bench of the Supreme Court struck down a portion of Section 377 of the Indian Penal Code to the extent it criminalized consensus gay sex. Dipak Mishra, CJ., noted with approval, the above quoted observations made in the case of Shayra Bano [Supra] and held that Section 377 IPC so long as it criminalizes consensual sexual act of 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 ground of manifest arbitrariness. It was observed that Section 377 IPC in penalizing consensual gay sex is manifestly arbitrary. Page 24 of 62

25 10. Keeping in mind these principles, we may take closer look at the relevant provisions. As is well known, the GST statutes were activated w.e.f 1 st July These statutes envisage uniform tax structure and subsume range of existing taxes such as Excise duty, Central Sales Tax and the Value Added Tax. Chapter 20 of the CGST Act pertains to transitional provisions. Section 139 contained in the said chapter envisages migration of registration of the 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 period of six months immediately preceding the appointed date; or Page 25 of 62

26 (iii) where the said amount of credit relates to goods manufactured and cleared under such exemption notifications as are notified by the Government (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: (i) such inputs or goods are used or intended to be used for making taxable supplies under this Act; (ii) 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; (iv) such invoices or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day; and (v) the supplier of services is not eligible for any abatement under this Act: Page 26 of 62

27 140. (10) The amount of credit under sub-sections (3), (4) and (6) shall be calculated in such manner as may be prescribed. 9. Section 164 of the CGST Act pertains to power of the Government to make rules. We would refer to this provision at an appropriate stage. In exercise of such rule making powers, the Central Government framed CGST Rules. Chapter 14 of the CGST Rules contains transitional provisions. Rule 117 contained in the said Chapter pertains to tax or duty credit carried forward under 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. 10. The GGST Act also contains Chapter 20 pertaining to Transitional Provisions. Section 139 contained therein pertains to Page 27 of 62

28 migration of existing taxpayers. Section 140 pertains to transitional arrangements for input tax credit. Relevant portion of which reads as under : 140. Transitional arrangements for input tax credit. (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 Value Added Tax, and Entry Tax, if any, 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 period of six months immediately preceding the appointed date; or [iii] where the said amount credit relates to goods sold under notification no. [GHN 51 GST 2001 S.49 [355] TH, dated the 31 st December 2001, [GHN 24] VAT 20123/S.40 [1](8) TH, dated the 11 th October 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 which is not Page 28 of 62

29 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 claims are substantiated in the manner prescribed in rule 12 of the Central Sales Tax [Registration and Turnover] Rules, Section 164 of the GGST Act gives rule making power to the Government, to which we would advert to at an appropriate stage. In exercise of such powers, the State Government framed the 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) Every registered person entitled to take credit 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, on the common portal specifying therein, separately, the amount of input tax credit to which he is entitled under the provisions of the said section: Provided that the Commissioner may, on the recommendation of the Council, extend the period of ninety days by a further period not exceeding ninety days. Page 29 of 62

30 Provided further that in the case of a claim under Section (1) of Section 140, the application shall specify separately (i) the value of claim under Section 3, sub section (30 of the section 5 Section 6 and 6A and sub section (8) of section 8 of the Central Sales Tax Act, 1956 made by the applicant; and (ii) the serial number and value of declaration in Form 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 Section of the Act, would be entitled to take, in his electronic credit ledger, credit of the amount of Value Added Tax and Entry Tax; if any, 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 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 Page 30 of 62

31 allowed. A further proviso which is referred to as the second proviso and which is under challenge provides that so much of the said credit; as is attributable to any claim relating 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, 1956 which is not substantiated in the manner and within the period prescribed in Rule 12 of the 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 available. The proviso, following this further proviso, however provides that an amount equivalent to the credit specified in the second proviso shall be refunded under the existing law, when the said claims are substantiated in the manner prescribed in Rule 12 of the Central Sales Tax [Registration and Turnover] Rules, The combined effect of further proviso and the proviso following such further proviso to sub section (1) of Section 140 of Page 31 of 62

32 the GGST Act is that a dealer who fails to issue necessary prescribed forms in support of inter 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 to the dealer. In essence, thus, these two provisos bring about a situation under which, till necessary forms in the prescribed format and in the prescribed manner under rule 12 of the Central Sales Tax [Registration and Turnover] Rules, 1957 [hereinafter to be referred to as, the Registration & Turnover Rules ] are furnished, the credit equivalent to reduced tax would not be available, but as and when prescribed forms are furnished, the amount would be refunded to the dealer. 14. 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 State trade or commerce. Sub section [1] of Section 8 provides that every dealer, who in the course of inter State trade or commerce, sells to a registered dealer, goods of the Page 32 of 62

33 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 filled and signed by the registered dealer to whom goods are sold containing prescribed particulars in the prescribed form obtained from the prescribed authority. 15. In exercise of powers under sub section [1] of Section 13 of the CST Act, 1956, the Central Government has framed the Central Sales Tax [Registration and Turnover] Rules, 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 the declaration referred to in sub section (1) of Section 6A shall be in Form F. This rule, thus, prescribes the forms in which necessary Page 33 of 62

34 declarations of inter State sales would be made. Sub rule (7) of Rule 12 provides that declaration in Form C or Form F shall be furnished to the prescribed authority within three months after 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 within such further time as that authority may permit. Thus, combined reading of the provisions contained in the CST Act, 1956 and the Registration and Turnover Rules of 1957 which held the field during the earlier regime would 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. As noted, sub section [1] of Section 8 of the CST Act, 1956 envisaged tax at a reduced rate on the inter State sales. Sub section [4] of Section 8 of 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 Page 34 of 62

35 dealer selling the goods furnishes to the prescribed authority necessary declarations in the prescribed forms. These forms have been prescribed under rule 12 of the Rules. 16. 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 respect, we may refer to judgment of the Supreme Court in case of Sales Tax Officer, Ponkunnam & Anr. vs. K.I Abraham, reported in AIR 1967 SC 1823, wherein, referring to the provisions contained in Sections 8 and 13 of the Central Sales Tax Act, 1956 and the Registration and Turnover Rules of 1957, it was held that the assessee was not bound to furnish declaration in Form C before 16 th February 1961; in the said case. In absence of any such time limit, it was the duty of assessee to furnish declaration in Form C within a reasonable time, and it was noted that in the said case, the assessee had furnished the declaration before the order of assessment was made by the Sales Tax Officer. It was, therefore, held that the benefit of such declaration had to be given to the Page 35 of 62

36 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 manufacturer the benefit of reduced rate of tax. Thus, even in the erstwhile statutory provisions, the benefit of reduced rate of tax on inter State sales, etc., was not taken away permanently for the failure of the dealer to produced necessary forms in the prescribed manner. The same was nevertheless delayed, till such forms and declarations were produced. The combined reading of sub section (1) of Section 7 and sub section (4) of Section 8 of the CST Act, 1956 and interpretation given to such provisions by the Courts ensured that even if such declarations were supplied at the later point of time, the benefit would not be denied permanently. 17. Effectively and essentially, this is what the present provisos of sub section [1] of Section 140 of the GGST Act do. As per the main provision, credit would be available on the amount of Value Added Tax and Entry Tax carried forward in the return. As per the further proviso or the second proviso, such credit to that extent Page 36 of 62

37 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 statutory provisions; as compared to the earlier position, nor the statutory provisions deny the benefit of such credit, even where necessary 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 discharging their tax liabilities. It contains conditions subject to which the benefit can be enjoyed. 18. This brings us to the petitioners challenge to rule 117 of the CGST Rules and GGST Rules. The statutory provisions being pari materia in both the Act and the Rules, in so far as this challenge is Page 37 of 62

38 concerned, we may refer to provisions contained in the CGST Act. 19. 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 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. Under sub section [3] of Section 140, a registered person, who was not liable to be registered under the existing law and other category of persons mentioned therein, would 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 conditions contained in clauses [i] to [v] therein. Sub section [10] of Section 140 provides that the amount of credit under sub 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 Page 38 of 62

39 as may be prescribed used in sub section [1] was missing in subsection [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 section [3] of Section 140. Rule 117 of the CGST Rules pertains to taxes or duty credit carried forward under any existing law or on goods held in stock on the appointed day. Sub rule (1) of Rule 117 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 the prescribed format, duly signed, on the common portal specifying separately the amount of input tax credit to which he is entitled under the provisions of the said section. Proviso to sub rule [1] envisages extension of period for making the said declaration on the recommendations of the Council. We have noted that such time limit was extended from time to time and finally upto 27 th December A limited extension has thereafter been granted by the Government by inserting sub rule [1A] in Rule 117, Page 39 of 62