2024 (10) TMI 670 - HC - GST

Reversal of Input Tax Credit (ITC) - necessary GST IT 02 form was not filed by its transferor electronically but only manually - breach of provisions of Section 18 (3) of the CGST Act read with Rule 41 of the CGST Rules - Jurisdiction and validity of the show cause notice regarding the non-electronic filing of Form GST ITC-02 - HELD THAT - Section 18 (3) of the CGST Act provides that where there is a change in the constitution of a registered person on account of sale, merger, demerger, amalgamation, lease or transfer of the business with the specific provisions for transfer of liabilities, the said registered person shall be allowed to transfer the input tax credit which remains unutilised in his electronic credit ledger to such sold, merged, demerged, amalgamated, leased or transferred business in such manner as may be prescribed. The impugned show cause notice, after referring to Section 18 (3) of the CGST Act and Rule 41 (1) of the CGST Rules, alleges that the Petitioner has contravened the said two provisions since it has availed and utilised credit of Rs. 18,30,58,995/- (including Rs. 74,06,395/- as IGST, Rs. 15,74,90,681/- as CGST and Rs. 1,81,61,919/- as SGST) for payment of tax liability - The allegation in the impugned show cause notice might have had some substance if it had been the Respondents' case that its common portal was fully functional and TDN or the Petitioners could file Form GST ITC-02 electronically on the common portal. However, it was conceded that the GST portal was nascent during the relevant time, and GST ITC-02 was not available for filing electronically. Thus, neither the Petitioner nor TDN could be faulted for not filing Form GST ITC-02 electronically on the department s common portal. The record establishes, and in any event, it was not disputed, that TDN or the Petitioner couldn't file Form GST ITC-02 on the department s common portal during the relevant period because of the functionality issues relating to such a common portal. The Division Bench of the Rajasthan High Court in Pacific Industries Ltd Vs. Union of India 2022 (3) TMI 1304 - RAJASTHAN HIGH COURT noted that though the learned counsel representing the Respondents GST Department, vehemently and fervently opposed the Petitioner s contention, he was not in a position to dispute the fact that Form GST ITC-02A was not available on the GSTN Portal within the stipulated period of 30 days from the date of registration of the Petitioner s new business vertical and hence, the Petitioner was genuinely and bona fide prevented from uploading the same. No dispute was raised about the Petitioner manually submitting the form to the Deputy Commissioner within 30 days. In Savita Oil Technologies Ltd and Savita Polymers Ltd. Vs. The Union of India and Ors. 2023 (7) TMI 877 - BOMBAY HIGH COURT the Coordinate Bench of this Court of which one of us (Jitendra Jain, J) was a member, the Petitioner was prevented from filing an Appeal against intimations issued in Form DRC-05 because the electronic portal had not made a provision for filing an appeal against an intimation issued in Form DRC-05. The Coordinate Bench noted that an appeal statutorily lay against such intimations issued in Form DRC-05. Therefore, merely because the electronic portal does not make a provision for filing of an appeal against an intimation issued in Form DRC-05, the Petitioners cannot be faulted, and for such technical reason, it cannot be countenanced that a statutory right of appeal available to the Petitioners is rendered otiose. Accordingly, this Court directed that until an appropriate provision is made for acceptance of such appeal electronically, filing of such appeal should be permitted manually. Again, even this decision is an authority for the proposition that the technicalities, mainly when not the party but the department creates them, should not be put forth by the department to defeat the statutory rights and entitlement of the parties. Based on the facts on record and the decided cases referred to above in the case of this very Petitioner, the contention that the impugned show cause notice ought not to have been issued to the Petitioner, is accepted. The Respondents were duty-bound to take cognisance of the decisions of the Allahabad, Gujarat, and Delhi High Courts in dealing with almost identical issues concerning this Petitioner. Tthe impugned show cause notice dated 17 August 2023 is set aside - the Respondents is directed to consider, according to law, the manually filed forms by the TDN as expeditiously as possible. Petition allowed.

Summary

Issues Involved:

1. Jurisdiction and validity of the show cause notice regarding the non-electronic filing of Form GST ITC-02.
2. Functionality issues of the GST portal affecting compliance.
3. Applicability of legal maxims relating to impossibility of performance.
4. Precedents from other High Courts on similar issues.
5. Manual versus electronic filing of statutory forms.
6. Procedural fairness and natural justice in tax recovery actions.

Detailed Analysis:

1. Jurisdiction and Validity of the Show Cause Notice:

The Petitioner challenged the show cause notice dated 17 August 2023, which sought to recover or reverse the Input Tax Credit (ITC) of Rs. 18,30,58,995/- due to the non-electronic filing of Form GST ITC-02. The Petitioner argued that the notice was without jurisdiction, arbitrary, and void, as the electronic filing was impossible due to functionality issues with the department's portal. It was contended that the notice was based solely on the non-electronic filing, despite the manual filing being completed, thus lacking a substantive basis for the alleged wrongful availment of ITC.

2. Functionality Issues of the GST Portal:

The Petitioner and Respondents agreed that during the relevant period, the GST portal did not support electronic filing of Form GST ITC-02. The Petitioner had manually filed the form and communicated this to the jurisdictional Assessing Authority. Despite this, the Respondents issued a show cause notice, which the court found to be arbitrary and beyond jurisdiction, as the inability to file electronically was due to the department's portal issues.

3. Applicability of Legal Maxims Relating to Impossibility of Performance:

The court referred to legal maxims such as "Lex non-cogit ad impossibilia" and "Impotentia excusat legam," which emphasize that the law does not compel the performance of impossible acts. The court held that the Petitioner could not be penalized for not filing electronically when the portal was non-functional, thus applying these maxims to excuse the non-electronic filing.

4. Precedents from Other High Courts on Similar Issues:

The court considered similar cases from the Allahabad, Gujarat, and Delhi High Courts, where the Petitioners faced identical issues due to the non-availability of Form ITC-02 functionality on the GST portal. These courts had set aside similar show cause notices, recognizing the impossibility of electronic filing and directing the Respondents to consider manual filings. The Bombay High Court followed these precedents, reinforcing the notion that statutory rights should not be denied due to technical issues beyond the taxpayer's control.

5. Manual Versus Electronic Filing of Statutory Forms:

The court acknowledged that the Petitioner had fulfilled its obligation by manually filing the necessary forms and providing all requisite details. It criticized the Respondents for not processing these manual filings and for insisting on electronic filing, which was impossible at the time. The judgment emphasized that manual filings should be accepted when electronic filing is not feasible due to technical constraints.

6. Procedural Fairness and Natural Justice in Tax Recovery Actions:

The court stressed the importance of procedural fairness and natural justice, noting that the Respondents had issued the show cause notice without considering the Petitioner's explanations and the admitted portal issues. It directed the Respondents to consider the manually filed forms and, if necessary, issue a fresh order after due consideration, ensuring the Petitioner is not unfairly prejudiced by technicalities.

Conclusion:

The Bombay High Court quashed the impugned show cause notice, directing the Respondents to consider the manually filed forms in accordance with the law. It held that the Respondents could not deny ITC benefits solely because the forms were not filed electronically, especially when the electronic filing was rendered impossible by the department's own portal issues. The judgment reinforced the principle that statutory rights should not be defeated by procedural technicalities, particularly when caused by the department's shortcomings.