Willowood Chemicals Pvt. Ltd. vs Union Of India

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION No. 4252 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 No interpretation of the Constitution of India or any order made thereunder ?

============================================================= 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 12th / 19th September 2018

ORAL JUDGMENT (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

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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 30th 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 30th June

2017. 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, 1956. The petitioner no. 2 is a Director of the

company. The petitioner no. 1 is registered under the CGST as

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well as GGST Acts. Previously, the petitioner no. 1­Company was

registered under the Gujarat Value Added Tax Act, 2003 ["GVAT"

for short]. With the advent of GST regime with effect from 1st 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 30th June 2017. 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.

Sub­rule [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 Tran­1 within ninety days

of the appointed day. This time limit was extended from time to

time. The final extension was granted upto 27.12.2017, beyond

which the respondents did not accept any further declarations.

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2.2 Likewise, Section 140 of the GGST Act also envisages carry

forward of the tax credits available to a dealer as on 30th 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 27th 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

TRAN­1 on the official portal on 27.12.2017, 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 28.12.2017 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 :

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[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 30th 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 inter­State sales as

well as branch transfers or export sales, unless necessary

declarations in Forms­C, 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 30th 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 :

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[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

inter­State 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". Sub­section [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

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amendment. On this basis, it was argued that the tax credit at the

disposal of the petitioners as on 30th 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 16­3­1995 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

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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 co­relation 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

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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

667.

4.2 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 inter­State transaction illegal or void. It would only result in

denying the manufacturer, the benefit of reduced rate of tax. Page 9 of 62

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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 sub­rule [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

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contained in the parent Act pertaining to transfer of un­utilized 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

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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 three­Judge 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.

4.10 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

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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 inter­State

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

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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 intra­State 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 27th 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

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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 sub­section (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.

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(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

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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 sub­rule. 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

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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 sub­section 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

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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 sub­section [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. 18433 of 2017 with

SCA 20185/2017 :: decided on 5th 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.

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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 11th September 2018. In such

affidavit, it is stated that the Government of India has come out

with a Circular dated 3rd April 2018 providing certain guidelines to

see that genuine cases of difficulties faced are resolved.

Thereafter, sub­rule 1A is inserted in Rule 117 by Notification

dated 10th September 2018, which reads as under :­

"[1A] Notwithstanding anything contained in sub­rule [1], the Commissioner may, on the recommendations of the Council, extend the date for submitting the declaration electronically in FORM GST TRAN­1 by a further period not beyond 31st 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 sub­

rule [4], wherein below Clause (b) in sub­clauses (iii), the following

proviso is inserted :

"Provided that the registered persons filing the declaration in FORM GST TRAN-1 in accordance with

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sub-rule [1A], may submit the statement in FORM GST TRAN-2 by 30th April 2019."

6. Before examining rival contentions, we may recall that the

Government of India has amended Rule 117 of the CGST Rules by

inserting sub­rule [1A] which provides that notwithstanding

anything contained in sub­rule [1], the Commissioner may on

recommendation of the Council, extend the date of submitting

declaration electronically in FORM GST TRAN­1 by a further

period not beyond 31st 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 31st March 2019.

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

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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 Degree­holders and Diploma­

holders 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

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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

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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 14."

9. 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.

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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 1st July 2017. 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

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(iii) where the said amount of credit relates to goods manufactured and cleared under such exemption notifications as are notified by the Government."

"140. (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:

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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

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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. [GHN­51 GST­2001 S.49 [355] TH, dated the 31st December 2001, [GHN­24] VAT 20123/S.40 [1](8)­TH, dated the 11th 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, sub­section [3] of Section 5, Section 6, Section 6A or sub­section [8] of Section 8 of the Central Sales Tax Act, 1956 which is not

Page 28 of 62 C/SCA/4252/2018 JUDGMENT

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, 1957."

11. 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". Sub­rule [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 TRAN­1, 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 C/SCA/4252/2018 JUDGMENT

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 sub­section [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 sub­section [1] of Section 140

lays down circumstances under which such credit shall not be

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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 sub­section (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, 1957.

13. The combined effect of further proviso and the proviso

following such further proviso to sub­section (1) of Section 140 of

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the GGST Act is that a dealer who fails to issue necessary

prescribed forms in support of inter­State 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 inter­State trade or commerce." Sub­section [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 C/SCA/4252/2018 JUDGMENT

description referred to in sub­section (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. Sub­section [4] of Section 8, however, provides that the

provisions of sub­section [1] shall not apply to any sale in the

course of inter­State 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 sub­section [1] of Section 13 of

the CST Act, 1956, the Central Government has framed the Central

Sales Tax [Registration and Turnover] Rules, 1957. Sub­rule (1) of

Rule 12 contained therein provides that a declaration and the

certificate referred to in sub­section [4] of Section 8 shall be in

Forms C and D respectively. Sub­rule (5) of Rule 12 provides that

the declaration referred to in sub­section (1) of Section 6A shall be

in Form­F. This rule, thus, prescribes the forms in which necessary

Page 33 of 62 C/SCA/4252/2018 JUDGMENT

declarations of inter­State sales would be made. Sub­rule (7) of

Rule 12 provides that declaration in Form­C or Form­F 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 sub­rule (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 inter­State sales and other similar

transactions inviting reduced tax, existed even then. As noted,

sub­section [1] of Section 8 of the CST Act, 1956 envisaged tax at a

reduced rate on the inter­State sales. Sub­section [4] of Section 8 of

the CST Act, however, provided that sub­sec. [1] shall not apply to

any sale in the course of inter­State trade or commerce unless the

Page 34 of 62 C/SCA/4252/2018 JUDGMENT

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 Form­C

before 16th February 1961; in the said case. In absence of any such

time­limit, it was the duty of assessee to furnish declaration in

Form­C 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 C/SCA/4252/2018 JUDGMENT

assessee. In the case of Yamaha Motor Escorts Limited v. State of

Uttar Pradesh & Ors., [Supra], the High Court held that non

production of Form­C or D would not make the inter­State

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

inter­State 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 sub­section

(1) of Section 7 and sub­section (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

sub­section [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 C/SCA/4252/2018 JUDGMENT

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 C/SCA/4252/2018 JUDGMENT

concerned, we may refer to provisions contained in the CGST Act.

19. As noted, under sub­section [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 sub­section [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 semi­finished or finished goods held in stock on the

appointed day; subject to conditions contained in clauses [i] to [v]

therein. Sub­section [10] of Section 140 provides that the amount of

credit under sub­sections [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 sub­sections [1]

and [3] of Section 140 to argue that the expression "in such manner

Page 38 of 62 C/SCA/4252/2018 JUDGMENT

as may be prescribed" used in sub­section [1] was missing in sub­

section [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 sub­section [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. Sub­rule (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 sub­rule [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 27th

December 2017. A limited extension has thereafter been granted by

the Government by inserting sub­rule [1A] in Rule 117,

Page 39 of 62 C/SCA/4252/2018 JUDGMENT

authorizing the Commissioner to extend the date for submitting

the declaration electronically by a further period not beyond 31st

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 recommendation for such extension. Effectively

thus, the last date for filing the declaration under sub­rule [1] of

Rule 117 in general class of persons remained 27th December 2017.

For cases falling under sub­rule [1A] of Rule 117, the same could

be extended maximum upto 31st March 2019. As per the

petitioners, this prescription of time limit per se is ultra vires the

provisions of the Act and the Constitution of India.

21. In essence, sub­rule [1] of Rule 117 lays down a time­limit for

making declaration only upon making of which, a person could

take benefit of tax credit in terms of Section 140 of the CGST Act.

We are conscious that sub­sections [1] and [3] of Section 140 of the

CGST Act use somewhat different phraseology. Under sub­section

[1] the legislature has provided that the benefit of credit in the

electronic credit ledger would be available to a registered person

Page 40 of 62 C/SCA/4252/2018 JUDGMENT

in such manner; as may be prescribed. In contrast, sub­section [3]

of Section 140 grants facility of credit in electronic ledger of the

specified duties to the specified class of persons; subject to

conditions laid down under clauses (i) to (v) of the said sub­

section. It is only in the proviso below clause (v) of sub­section [3]

that the legislature has provided that where a registered person,

other than a manufacturer or a supplier of services, is not in

possession of an invoice or any other documents evidencing

payment of duty in respect of inputs, then, such registered person

shall; subject to such conditions, limitations and safeguards as may

be prescribed, including that the said taxable person shall pass on

the benefit of such credit by way of reduced prices to the recipient,

be allowed to take credit at such rate and in such manner as may

be prescribed. For apparent reasons, this proviso does not apply to

all cases and its effect is local, to cover cases where a person is not

in possession of an invoice or any other documents evidencing

payment of duty in respect of inputs.

22. We can however not be oblivious to Section 164 of the CGST

Act, which is the rule making power and reads as under :

Page 41 of 62

C/SCA/4252/2018 JUDGMENT

"164. Power of Government to make rules :

[1] The Government may, on the recommendations of the Council, by notification, make rules for carrying out the provisions of this Act.

[2] Without prejudice to the generality of the provisions of sub­section (1), the Government may make rules for all or any of the matters which by this Act are required to be, or may be, prescribed or in respect of which provisions are to be or may be made by rules.

[3] The power to make rules conferred by this section shall include the power to give retrospective effect to the rules or any of them from a date not earlier than the date on which the provisions of this Act comes into force.

[4] Any rules made under sub­section (1) of sub­ section (2) may provide that a contravention thereof shall be liable to a penalty not exceeding ten thousand rupees."

23. Under sub­section [1] of Section 164 of the CGST Act, thus,

the Government on recommendations of the Council, by

notification, could make rules "for carrying out the provisions of the

Act". This rule making power is thus couched in the widest possible

manner empowering the Government to make the rules for carrying out

the provisions of the Act." Sub­section [2] to Section 164 is equally

widely worded, when it provides that, "without prejudice to the

Page 42 of 62 C/SCA/4252/2018 JUDGMENT

generality of the provisions of sub­section (1), the Government may make

rules for all or any of the matters which by this Act are required to be, or

may be, prescribed or in respect of which provisions are to be, or may be

made by the rules." Sub­section [3] of Section 164, to which we are

not directly concerned, nevertheless provides that the power to

make rules conferred in the said section would include the power

to give retrospective effect to such rules.

24. It is in exercise of this rule making power, the Government

has framed the CGST Rules, 2017 in which; as noted, sub­rule (1)

of Rule 117 has prescribed, besides other things, the time limit for

making declaration in the prescribed form for every dealer entitled

to take credit of input tax under Section 140. Sub­rule [1] of Rule

117 thus applies to all cases of credits which may be claimed by a

registered person under section 140 of the Act and is not confined

to sub­section [3]. This plenary prescription of time limit within

which necessary declarations must be made is, in our opinion,

neither without authority nor unreasonable.

25. Section 140 of the Act envisages certain benefits to be carried

forward during the regime change. As is well­settled, the reduced

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rate of duty or concession in payment of duty are in the nature of

an exemption and is always open for the legislature to grant as

well as to withdraw such exemption. As noted in case of Jayam &

Company [Supra], the Supreme Court had observed that input tax

credit is a form of concession provided by the legislature and can

be made available subject to conditions. Likewise, in the case of

Reliance Industries Limited [Supra], it was held and observed that

how much tax credit has to be given and under what

circumstances is a domain of the legislature. In case of Godrej &

Boyce Mfg. Co. Pvt. Limited [Supra], the Supreme Court had upheld

a rule which restricts availment of MODVAT credit to six months

from the date of issuance of the documents specified in the

proviso. The contention that such amendment would take away an

existing right was rejected.

26. While the entire tax structure within the country was thus

being replaced by a new frame­work, it was necessary for the

legislature to make transitional provisions. Section 140 of the

CGST Act, which is a transitional provision, essentially preserves

all taxes paid or suffered by a dealer. Credit thereof is to be given

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in electronic credit register under the new statute, only subject to

making necessary declarations in prescribed format within the

prescribed time. As noted, sub­section [1] of Section 164 of the

CGST Act authorizes the Government to make rules for carrying

out the provisions of the Act on recommendations of the Council.

Sub­section [2] of Section 164 further provides that without

prejudice to the generality of the provisions of sub­section [1], the

Government could also make rules for all, or any of the matters,

which by this Act are required to be or may be prescribed or in

respect of which, provisions are to be or may be made by the rules.

Combined effect of the powers conferred to subordinate

legislature under sub­sections [1] and [2] of Section 164 of the

CGST Act would convince us that the prescription of time limit

under sub­rule [1] of Rule 117 of the CGST Rules is not ultra vires

the Act. Likewise, such prescription of time limit cannot be stated

to be either unreasonable or arbitrary. When the entire tax

structure of the country is being shifted from earlier framework to

a new one, there has to be a degree of finality on claims, credits,

transfers of such credits and all issues related thereto. The

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petitioners cannot argue that without any reference to the time

limit, such credits should be allowed to be transferred during the

process of migration. Any such view would hamper the effective

implementation of the new tax structure and would also lead to

endless disputes and litigations. As noted in case of USA Agencies

[Supra], the Supreme Court had upheld the vires of a statutory

provision contained in the Tamil Nadu Value Added Tax Act

which provided that the dealer would have to make a claim for

input tax credit before the end of the financial year or before

ninety days of purchase; whichever is later. The vires was upheld

observing 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. Thus, merely because the

rule in question prescribes a time frame for making a declaration,

such provision cannot necessarily be held to be directory in nature

and must depend on the context of the statutory scheme.

27. Issue can be looked at from slightly different angle. Granting

tax credit is an integral part of computation and collection of tax.

Tax collection is an important element of budgetary allocations

Page 46 of 62 C/SCA/4252/2018 JUDGMENT

and estimation of the Union and the States. Such consideration of

tax credits at such large scale cannot be allowed to linger on

indefinitely which would have a direct effect on the tax collection,

estimates and budgetary allocations and in turn, revenue deficit.

28. In this context, we may refer to the Constitution Bench

decision of the Supreme Court in the case of Mafatlal Industries

Limited & Ors. vs. Union of India & Ors., reported in [1997] 5

SCC 536. In such judgment, various issues concerning the refund

applications under the Central Excise and Customs and other

taxing statutes came up for consideration before the Nine­Judge

Bench of the Supreme Court. Before adverting to the majority

opinion expressed by B.P Jeevan Reddy, J., we may note a short

precursor to this judgment. In case of Sales Tax Officer, Banaras

& Ors. vs. Kanhaiya Lal Mukundlal Saraf, [AIR 1959 SC 135], the

Constitution Bench of the Supreme Court considered the term

"mistake" used in Section 72 of the Contract Act, 1872 in the

context of payment of tax. It was held and observed that true

principle is that if one party under mistake - whether of fact or

law, passed to another party money which is not due by contract

Page 47 of 62 C/SCA/4252/2018 JUDGMENT

or otherwise, that money must be repaid. The mistake lies in

thinking that the money paid was due when in fact it was not due

and that mistake if established entitles the party who paid the

money to recover it back from the party receiving the same. It was

further observed that once it is established that the payment; even

though it be of the taxes has been made by the party labouring

under a mistake of law, the party is entitled to recover the same

and no distinction can be made in respect of the tax liability and

other liabilities. Merely because the State has not retained the

monies paid as Sales tax by the assessee but merely expended it in

ordinary course of business of the State will make no difference to

the position under Section 72 of the Contract Act.

29. With the aid of this judgment in the case of re­Kanhaiya Lal

Mukundlal Saraf [Supra], often times, the parties would bring a

proceeding before the Court of law for refund of tax after a

number of years of collection on the ground that some other party

had challenged the levy before Court and succeeded therein. In

case of Tilokchand Motichand v. H.B Munshi, CST, reported in

[1969] 1 SCC 110, the Constitution Bench of the Supreme Court,

Page 48 of 62 C/SCA/4252/2018 JUDGMENT

however, expressed somewhat different view. It was a case in

which the Sales Tax Officer had forfeited a sum of Rs. 26,563/= of

the petitioner, who thereupon had filed a writ petition before the

High Court challenging such order. The petition was dismissed on

28th November 1958. The appeal was dismissed by Division Bench

of the High Court on 7th July 1959. Later on, by a judgment dated

2nd December 1963, the Gujarat High Court held that the relevant

provision of the Bombay Sales Tax Act under which the amount

was collected was valid. The Supreme Court, however, by

judgment dated 29th March 1967 struck down the provision as

being infringement of Article 19 [1] of the Constitution of India.

The petitioner thereupon filed a petition directly before the

Supreme Court under Article 32 of the Constitution. The Supreme

Court dismissed the petition. Hidayatulla CJ., observed that, "the

utmost expedition is the sine quo non for a claim under Article 32. The

party aggrieved must move the Court at the earliest possible time and

explain satisfactorily all semblance of delay." It was further observed

that, "..there is no question of a mistake of law entitling the petitioner to

invoke analogy of the Article in the Limitation Act". Page 49 of 62

C/SCA/4252/2018 JUDGMENT

30. Both these judgments of the Supreme Court in the case of

Kanhaiya Lal Mukundlal Saraf [Supra] and Tilokchand Motichand v.

H.B Munshi, CST [Supra] came up for consideration before the 9­

Judge Bench in the case of Mafatlal Industries Limited & Ors.,

[Supra]. Mr. Justice B.P Jeevan Reddy speaking for the majority,

summarized the conclusions in para 108 of the judgment. Portions

relevant for our purpose, read as under :­

"108. [i] Where a refund of tax/duty is claimed on the ground that it has been collected from the petitioner/plaintiff - whether before the commencement of the Central Excise and Customs Laws [Amendment] Act, 1991 or thereafter - by misinterpreting or misapplying the provisions of the Central Excises and Salt Act, 1944 read with Central Excise Tariff Act, 1985 or Customs Act, 1962 read with Customs Tarrif Act or by misinterpreting or misapplying any of the rules, regulations or notifications issued under the said enactments, such a claim has necessarily to be preferred under and in accordance with the provisions of the respective enactments before the authorities specified thereunder and within the period of limitation prescribed therein. No suit is maintainable in that behalf. While the jurisdiction of the High Courts under Article 226 - and of this Court under Article 32

- cannot be circumscribed by the provisions of the said enactments, they will certainly have due regard to the legislative intent evidenced by the provisions of the said Acts and would exercise their jurisdiction consistent with the provisions of the Act. The writ petition will be considered and disposed of the Act. The writ petition will be considered and disposed of in the light of and in accordance with the provisions

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of Section 11B. This is for the reason that the power under Article 226 has to be exercised to effectuate the rule of law and not for abrogating it.

The said enactments including Section 11­B of the Central Excises and Salt Act and Section 27 of the Customs Act do constitute "law" within the meaning of Article 265 of the Constitution of India and hence, any tax collected, retained or not refunded in accordance with the said provisions must be held to be collected, retained or not refunded, as the case may be, under the authority of law. Both the enactments are self­contained enactments providing for levy, assessment, recovery and refund of duties imposed thereunder. Section 11­B of the Central Excises and Salt Act and Section 27 of the Customs Act, both before and after the 1991 [Amendment] Act are constitutionally valid and have to be followed and given effect to. Section 72 of the Contract Act has no application to such a claim of refund and cannot form a basis for maintaining a suit or a writ petition. All refund claims except those mentioned under Proposition (ii) below have to be and must be filed and adjudicated under the provisions of the Central Excise and Sale Act or the Customs Act, as the case may be. It is necessary to emphasize in this behalf that Act provides a complete mechanism for correcting any errors whether or fact or law and that not only an appeal is provided to a Tribunal -

which is not a departmental organ - but to this Court, which is a civil court.

[ii] Where, however, a refund is claimed on the ground that the provisions of the Act under which it was levied is or has been held to be unconstitutional, such a claim, being a claim outside the purview of the enactment, can be made either by way of a suit or by way of a writ petition. This principle is, however, subject to an exception. Where a person approaches the High Court or the Supreme Court challenging the constitutional validity of a provision but fails, he

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cannot take advantage of the declaration of unconstitutionality obtained by another person on another ground; this is for the reason that so far as he is concerned, the decision has become final and cannot be reopened on the basis of a decision on another person's case; this is the ratio of the opinion of Hidayatullah, CJ., in Trilokchand Motichand [Supra] and we respectfully agree with it.

Such a claim is maintainable both by virtue of the declaration contained in Article 265 of the Constitution of India and also by virtue of Section 72 of the Contract Act. In such cases, period of limitation would naturally be calculated taking into account the principle underlying clause (c) of sub­section [1] of Section 17 of the Limitation Act, 1963. A refund claim in such a situation cannot be governed by the provisions of the Central Excises and Salt Act or the Customs Act, as the case may be, since the enactments do not contemplate any of their provisions being struck down and a refund claim arising on that account. In other words, a claim of this nature is not contemplated by the said enactments and is outside their purview.

[iii] xx xx xx

[iv] It is not open to any person to make a refund claim on the basis of a decision of a court or tribunal rendered in the case of another person. He cannot also claim that the decision of the Court/Tribunal in another person's case has led him to discover the mistake of law under which he has paid the tax nor can he claim that he is entitled to prefer a writ petition or to institute a suit within three years of such alleged discovery of mistake of law. A person, whether a manufacturer or importer, must fight his own battle and must succeed or fail in such proceedings. Once the assessment or levy has become final in his case, he cannot seek to reopen it nor can he claim refund without reopening such

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assessment/order on the ground of a decision in another person's case. Any proposition to the contrary not only results in substantial prejudice to public interest but is offensive to several well established principles of law. It also leads to grave public mischief. Section 72 of the Contract Act, or for that matter Section 17 [1](c) of the Limitation Act, 1963, has no application to such a claim for refund.

[v] Article 265 of the Constitution has to be construed in the light of the goal and the ideals set out in the Premable to the Constitution and in Articles 38 and 39 thereof. The concept of economic justice demands that in the case of indirect taxes like Central Excises duties and Customs duties, the tax collected without the authority of law shall not be refunded to the petitioner­plaintiff unless he alleges and establishes that he has not passed on the burden of duty to a third party and that he has himself borne the burden of the said duty.

[vi] xx xx xx xx

[vii] While examining the claims for refund, the financial chaos which would result in the administration of the State by allowing such claims is not an irrelevant consideration. Where the petitioner­plaintiff has suffered no real loss or prejudice, having passed on the burden of tax or duty to another person, it would be unjust to allow or decree his claim since it is bound to prejudicially affect the public exchequer. In case of larger claims, it may well result in financial chaos in the administration of the affairs of the State.

[viii] The decision of this Court in STO v. Kanhaiya Lal Mukundlal Saraf [Supra] must be held to have been wrongly decided in so far as it lays down or is understood to have laid down proportions contrary to the propositions enunciated in (i) and (vii) above.

It must equally be held that the subsequent

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decisions of this Court following and applying the said propositions in Kanhaiya Lal [Supra] have also been wrongly decided to the above extent. This declaration - or the law laid down in Propositions (i) to (vii) above - shall not however entitle the State to recover the taxes/duties already refunded and in respect whereof no proceedings are pending before any authority or Tribunal or Court as on this date. All pending matters shall, however, be governed by the law declared herein notwithstanding that the tax or duty has been refunded pending those proceedings, whether under the orders of an authority, Tribunal or Court or otherwise."

31. As per this decision, thus, the time limit provisions

contained in the Central Excise and Customs laws for seeking

refund of excess duty were held to be sacrosanct and were seen as

constituting law within the meaning of Article 265 of the

Constitution. Consequently, the tax collected, retained or not

refunded in accordance with such provisions would be seen as

collected, retained and not refunded under the authority of law.

The view expressed by the Supreme Court in Trilokchand

Motichand [Supra] was affirmed. It was emphatically stated that it

was not open to any person to make refund claim on the basis of a

decision of the Court or Tribunal rendered in case of another

person. Such a person cannot claim that the decision of the Court

or Tribunal in another person's case has led him to discover a

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mistake of law under which he had paid the tax. In this context, it

was observed that any proposition to the contrary not only results in

substantial prejudice to the public interest, but is offensive to several well

established principles of law. It also leads to grave public mischief. In

this context, it was also observed that while examining the claims

for refund, the financial chaos which would result in the

administration of the State by allowing such claims would not be

an irrelevant consideration. In case of large claims, the same may

result in financial chaos in the administration of the affairs of the

State. The decision in the case of STO vs. Kanhaiya Lal Mukundlal

Saraf [Supra] to the extent "it lays down or is understood to have laid

down proposition contrary to these propositions" was held to have

been wrongly decided.

32. Thus, in the economic matters of such vast scale, the wider

considerations of the State exchequer, while interpreting a

statutory provisions cannot be kept out of purview. Quite apart

from independently finding that the time limit provisions

contained in sub­rule (1) of Rule 117 of the CGST Rules is not ultra

vires the Act or the powers of the rule making authority,

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interpreting such powers as merely directory would give rise to

unending claims of transfer of credit of tax on inputs and such

other claims from old to the new regime. Under the new GST laws,

the existing tax structure was being replaced by the new set of

statutes, through an exercise which was unprecedented in the

Indian context. The claims of carry forward of the existing duties

and credits during the period of migration, therefore, had to be

within the prescribed time. Doing away with the time limit for

making declarations could give rise to multiple large­scale claims

trickling in for years together, after the new tax structure is put in

place. This would besides making the task of matching of the

credits impractical if not impossible, also impact the revenue

collection estimates. It is in this context that the Supreme Court in

the case of Mafatlal Industries Limited (Supra), after rejecting the

contention that a person can move proceedings for recovery of tax

paid upon success of some other person before the Tribunal or

Court in getting such tax collection declared illegal, was further

influenced by the fact that any such situation could lead to utter

chaos, if the claims are large. Under the circumstances, we do not

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find any substance in the petitioners' challenge to rule 117 (1) of

the CGST Rules as well as GGST Rules.

33. The contention of the counsel for the petitioners that the

saving clause inserted in the Gujarat Value Added Tax Act would

protect and preserve the tax credits of the past regime, after

introduction of the Goods and Service tax is to be noted only for

rejection. The saving clause provided that nothing done in the

amendment of the Gujarat Value Added Tax Act shall affect any

right, privilege, obligation or liability acquired, accrued or

incurred under the Act prior to coming into force of the said

amendment. Such saving has to be read and appreciated in tune

with the specific provisions made in the CGST & GGST Acts. Any

interpretation of such provisions cannot run counter to the express

legislative intent of restricting or limiting enjoyment of the existing

rules, or in other wise to make continuous enjoyment of the rights,

subject to certain safe guards and conditions.

34. Before closing, we would refer to some of the judgments

relied upon by counsel for the parties and which we felt must be

explained.

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35. In the case of Eicher Motors Ltd [Supra] and Dai Ichi Karkaria

[Supra], essentially, the conclusion of the Supreme Court, was that

the MODVAT credit in the account of a manufacturer is in the

nature of duty already paid and which cannot be taken away by

retrospective rules.

36. Reference to a decision of the Supreme Court in the case of

CIT v. B.S Srinivasa Setty [Supra] is of no avail. The ratio of the said

decision can be seen as holding that there cannot be taxing

provision without mechanism having been provided by the statute.

We do not see Section 140 (1) of the GGST Act is a charging

provision. It, in fact, enables a registered person who has not opted

for composition of tax to take credit in his electronic credit ledger,

the credit of the amount of value added tax and entry tax in

relation to the period ending immediately preceding the appointed

day. This section further provides for conditions; subject to which,

the same could be claimed.

37. The decision of Supreme Court in the cases of : (a) Sambhaji

& Ors. vs. Gangabhai & Ors. [Supra], and (b) Salem Advocate Bar

Assocaition vs. Union of India [Supra] were rendered in the context

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of the time limit prescribed under the amended CPC for the

defendant to file written statement. The Court held that the ninety

days of period provided in Rule 1 of Order VIII of CPC was

directory in nature. The situation in the said cases and the one on

hand before us are vastly different and the ratio in the said

decisions cannot be imported in the present facts of the case.

38. In the case of Mangalore Chemicals & Fertilizers Limited v.

Deputy Commissioner [Supra], the Supreme Court had observed

that while interpreting a condition precedent for exemption, there

would be distinction to be made between a procedural condition

of a technical nature and a substantive condition. We have given

elaborate reasons that the time limit provision for making

declarations in the present case is of considerable importance and

cannot be seen merely as a technical requirement. Removing such

time limit would have a potential to lead to utter economic chaos.

39. In case of State of Mysore & Ors. v. Mallick Hashim & Co.

[1974] 3 SCC 251, it was the High Court which had struck down

the rule framed by the Government providing the time limit for

filing the refund application on the ground that the section which

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granted the benefit of refund did not envisage any such time limit

that would be prescribed under the rules. The Supreme Court,

however, did not proceed on this logic. The Court held that it was

not necessary to go into this question, since sub­rules (2) and (3) of

Rule 39A of the Mysore Sales Tax Rules, 1957 were wholly

unreasonable, and therefore, cannot be sustained. Sub­rule (3) of

Rule 39­A provides that before a person is entitled to refund, he

must have to make the refund application within the time before

which he should have submitted his Sales­tax return. It was

observed that in many States, the dealers have to submit quarterly

returns. Under rule 18 of the Rules, the dealer would have to

submit its annual return within 30 days from the end of Financial

Year. Thus, if there be a sale in the course of inter­State trade has

been made on 31st March of a year, the refund application will

have to be made within 30 days from that date. The Supreme

Court was therefore of the opinion that the said rule was merely

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

that right unduly difficult.

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40. In case of Sales Tax Officer, Ponkannam & Anr. v. K.I.

Abraham, reported in AIR 1967 SC 1823, rule 6 of the Central Sales

Tax (Kerala) Rules 1957 came up for consideration, particularly in

the context of sub­section (4) of Section 8 of the CST Act, which as

we have noted earlier, imposes the requirement of a dealer who

has sold the goods in course of inter­State sale or Commerce, to

furnish necessary declarations in prescribed manner. Rule 6 of the

Central Sales Tax (Kerala) Rules, besides making other provisions,

prescribes time limit for making declarations. Such rule was

examined in light of rule making power contained in Section 13 (4)

of the CST Act, clause (e) of which provided that the State

Government may make rules for the purpose of the authority from

whom, the conditions subject to which and the fees subject to

payment of which any from declaration prescribed under sub

­Section (4) of Section 8 may be obtained, the manner in which the

form shall be kept in custody and records relating thereto

maintained. In this context, it was observed that the phrase, "in the

prescribed manner" occurring in Section 8 (4) of the Act does not

take into time­element. While concluding that the time limit

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prescribed in Rule 6 (1) was ultra vires, and therefore, assessee was

not bound to furnish declarations in Form "C" before 16th February

1961 into said case, the duty of the assessee was to furnish

declaration within a reasonable time. In the said case, since the

assessee had already furnished C­Forms before the assessment

was over, it was held that there was compliance with the

requirement of Section 8 (4) of the Act. In the present case, we have

noted the statutory provisions, the scale of operations and the

possible repercussions; if such time limit contained in Rule 117 is

annihilated and a registered person is allowed to make

declarations of the left over residuary duty of credit at the time of

migration to the new tax structure. The time limit provisions, we

have already stated more than once, under such circumstances,

cannot be seen as merely technical in nature.

In the result, petition is dismissed.

[Akil Kureshi, J.]

[B.N Karia, J.] Prakash

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