With the recent amendment of GST, the relief given by the Delhi High Court to GST taxpayers on the matter of pending transitional credit has been taken away by the government.
The amendment imposes a restriction on the time limit to claim transitional credit which is being notified by the government from 18th May 2020. The amendment comes into effect from 1st July 2017.
The Delhi High Court in an order passed on 5th May 2020 had allowed all taxpayers to claim transitional credit accumulated before the implementation of GST by 30th June 2020.It was a significant judgment as it extended the period for claiming input credit from 90 days to 3 years and also allowed all taxpayers to take benefits of the order. The HC ruling , if also upheld by the Supreme Court, could have meant a revenue loss to the Central government.
The High Court ruling was on the premise that Section 140 of CGST Act did not prescribe the time limit but only manner through which the Rules were to be made and credit could have been claimed. Accordingly, Rule 117 which prescribed the time limit was not basis any empowerment of the Act.
The Delhi High Court in case of Brand Equities allowed the assesse to claim the transitional credit stating that the rule is directory in nature and not mandatory as the period for filing Tran-1 (form for claiming transitional credit) is not considered by the legislature. But now the government by amending the Section 140 of the CGST Act has fixed this loopholes by nullifying the High Court order. This means many taxpayers will now have to litigate separately to avail any credit disallowed due to technical glitches or errors.
With this amendment, now, the government can successfully challenge the high court decision in Supreme Court.