The Finance Ministry has notified retrospective amendment in the Central Goods and Services Act (CGST Act 2017). With this amendment the Centre has bought itself to disburse the pending input tax credit.

With this amendment in Section 140 of the Central Goods and Services Tax Act relating to transitional arrangements for input tax credit has formally been made effective, so as to prescribe the time limit and the manner for availing input tax credit against certain unavailed credit under the existing law. This amendment shall take effect retrospectively from July 1, 2017.

This amendment is expected to pose problems to every one except the petitioner of that ruling for claiming all pending transitional credit (technically known as input tax credit or ITC) till June 30. The Notification for the amendment says: May 18, 2020 is the date on which the provisions of section 128 of the said Act (Finance Act 2020, shall come into force.

The fine print of this amendment makes it clear that the power to prescribe a timeline now emanates from a law enacted by Parliament and not from the sub-ordinate legislation (read law). Since the Delhi High Court order focusses on rule, that is why notification will impact the claim settlement for number of businesses except the petitioners in the matter decided on May 5.

Rajat Mohan, Partner with AMRG, said that Delhi High Court’s landmark decision on Transitional Credits in favour of taxpayers would lose its grip in light of the defect occurring due to retrospective amendments brought in by the Finance Act, 2020. The Court had reasonably declared that the time limit of 3 years under the Limitation Act was relevant for transitional credit benefit, enabling all taxpayers to claim legitimate CENVAT credit till June 30, 2020.

“This ruling would have a far-reaching impact on the stressed revenue streams of the exchequer, however, now with the retrospective amendments, the tax authorities have tightened their grip around transitional credit,” he said.

Transitional credit refers to use of tax credit accumulated up to June 30, 2017, that is, last day of the erstwhile central excise and service tax regime.

After the introduction of Goods & Services Tax (GST), a special provision was made for credit accumulated under VAT, excise duty or service tax to be transited to GST. However, there were some conditions set. The credit will be available only if returns for the last six months — from January 2017 to June 2017 — were filed in the previous regime (that is if VAT, excise and service tax returns had been filed). And Form TRAN I (to be filed by registered persons under GST, may be registered or unregistered under the old regime) has to be filed by December 27, 2017, to carry forward the input tax credit which further March 31, 2019.

Later Commissioners were authorised to extend the date for submitting the declaration electronically in Form GST TRAN-1 but not beyond December 31, 2019.

The Court had ruled that the time limit for transitional credit was only ‘directory’ and not ‘mandatory’ and not only the petitioner but all assessees can claim all pending transitional credit (technically known as input tax credit or ITC) till June 30. A ‘mandatory’ rule means it must be strictly complied while ‘directory’, means it would be sufficient for it to be substantially complied.

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