Facts:
Before introduction of Goods and Service Tax regime (“GST” for short), the petitioners’ transactions of purchase and sale of goods were covered under the Central Excise Act 1944, Central Excise Tariff Act 1985 and CENVAT Credit Rules, 2004 (“the Rules of 2004” for short). Under such statutes, a manufacturer would not bear the burden of excise duty on the product manufactured by him. If the petitioners and other similarly situated first stage dealers were not granted similar benefits in some form or the other, the petitioners’ business would become wholly unviable. If the petitioners were loaded with the burden of excise duty, the petitioners’ sales to its ultimate consumers or second stage dealers would be commercially non viable. Instead, the purchasers would be made directly from the manufacturer. The law existing prior to introduction of GST therefore, made suitable provisions to ensure that the first stage dealers like the petitioners are not burdened with the excise duty component.
The Union legislature framed different laws to usher in the GST regime in substitution of the existing Central Excise and Value Added tax provisions and certain other taxing statutes. The Central Goods and Services Tax Act, 2017 (“CGST Act” for short) was brought into effect from 1.7.2017. Section 9 thereof is a charging section providing for levy and collection of tax. Sub-section(1) of section 9 authorises collection of tax called the central goods and service tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption at the prescribed rates not exceeding twenty per cent to be paid by the taxable person. Section 16 of CGST Act pertains to eligibility and condition for taking input tax credit. Sub-section(1) of section 16 envisages entitlement of tax credit of input tax charged on any registered person on supply of goods or services or both which would be credited to electronic credit ledger of such person. Chapter XX of the CGST Act contains transitional provisions. Section 139 makes provisions for migration of the existing tax payers to the new regime. Section 140 contains provisions for transitional arrangements for input tax credit. Sub-section(3) of section 140 allows several classes of persons including first stage dealers to take credit of the eligible duties of the finished goods held in stock on the appointed day subject to conditions prescribed therein. Clause(iv) of sub-section(3) of section 140 imposes a condition that such invoices or other prescribed documents were issued not earlier than twelve months immediately preceding the appointed day. It is this condition which has aggrieved the petitioners and the constitutional validity thereof is challenged before the Court.
Issues:
On the basis of submissions made before the Gujarat Court, the following questions arise for consideration :
1) Whether the impugned provision makes an impermissible distinction between similarly situated persons forming a homogenus class?
2) Whether the provision in question without proper justification takes away the vested right of the petitioners and thus acts with retrospective effect? Question can be re-framed as to whether the legislation in question imposes a burden with retrospective effect and in absence of any justification for the same, is not a valid statute?
3) On any of the grounds above, whether clause(iv) of subsection (3) of section 140 of the CGST Act is required to be declared unconstitutional?
Held:
“We are conscious that the Bombay High Court in case of JCB India Limited and others v. Union of India and others, judgment dated 20.3.2018 in Writ Petition No. 3142/2017 = 2018-TIOL-23-HC-MUM-GST and connected matters, in which this very provision came to be challenged. The High Court dismissed the petition upholding the vires of the provisions i.e. has taken a different view.
30. To sum up we are of the opinion that the benefit of credit of eligible duties on the purchases made by the first stage dealer as per the then existing CENVAT credit rules was a vested right. By virtue of clause (iv) of sub-section (3) of section 140A such right has been taken away with retrospective effect in relation to goods which were purchased prior to one year from the appointed day. This retrospectivity given to the provision has no rational or reasonable basis for imposition of the condition. The reasons cited in limiting the exercise of rights have no co-relation with the advent of GST regime. Same factors, parameters and considerations of “in order to co-relate the goods or administrative convenience” prevailed even under the Central Excise Act and the CENVAT Credit Rules when no such restriction was imposed on enjoyment of CENVAT credit in relation to goods purchased prior to one year.
31. In the conclusion we hold that though the impugned provision does not make hostile discrimination between similarly situated persons, the same does impose a burden with retrospective effect without any justification.
32. For all these reasons we find that clause (iv) of subsection (3) of section 140 is unconstitutional. We therefore strike down the same. Petitions are allowed and disposed of.
33. At the request of learned counsel for the Revenue this judgement shall stand stayed upto 31.10.2018.”
Citation: 2018-TIOL-120-HC-AHM-GST (FILCO TRADE CENTRE PVT LTD Vs. UNION OF INDIA)