2025 (4) TMI 1371 - AT - GST

Entitilement to transitional credit of service tax paid on advances received for future services under clause (c) of sub-section (11) of Section 142 of the CGST Act 2017 and Rule 118 of the CGST Rules 2017 - procedural error in entering the amount of service tax paid - HELD THAT - In accordance with the provisions of Rule 118 of CGST Rules and clause (c) of sub-section (11) of Section 142 of CGST Act 2017 appellant was entitled to transitional credit of Rs. 6, 15, 409/- by entering the same at Sr.No.11 of Form TRAN-1. Due to technical glitch appellant had to enter the same at Sr. No. 5 of the said form TRAN-1. The said violation of not entering the required data at Sr.No.11 but entering the same at Sr. No. 5 is only procedural and for procedural infirmity substantial right of the appellant cannot be denied. Revenue is directed to treat the data entered at Sr. No. 5 of form TRAN-1 of Rs. 6, 15, 409/- to be treated as the one that is entered at Sr. No. 11 of the said proforma. Conclusion - Entitlement to transitional credit under Section 142(11)(c) and Rule 118 of CGST Rules is substantive and cannot be defeated by procedural glitches in the GSTN portal. Appeal allowed.

Summary

The core legal questions considered in this matter are:

1. Whether the appellant was entitled to transitional credit of service tax paid on advances received for future services under clause (c) of sub-section (11) of Section 142 of the CGST Act, 2017 and Rule 118 of the CGST Rules, 2017.

2. Whether the procedural error in entering the amount of service tax paid in the incorrect field (Sr. No. 5 instead of Sr. No. 11) of Form GST TRAN-1 due to technical glitches on the GSTN portal justifies denial of transitional credit.

3. Whether the appellant's failure to produce documentary proof of attempts to enter data correctly on the portal affects entitlement to credit.

Regarding entitlement to transitional credit, the relevant legal framework comprises clause (c) of sub-section (11) of Section 142 of the CGST Act, 2017, which allows a service provider to take credit of service tax paid before 01.07.2017 on services provided after that date. Rule 118 of the CGST Rules, 2017 prescribes the procedure for claiming such credit via Form GST TRAN-1, specifically at Sr. No. 11 of the form. The appellant had paid service tax of Rs. 6,15,409/- on advances received before 01.07.2017 for services to be provided after that date and was thus eligible to claim transitional credit.

The Court noted that the appellant attempted to enter the service tax amount at Sr. No. 11 of Form TRAN-1 on two occasions but was unable to do so due to technical glitches on the GSTN portal. Instead, the appellant entered the amount at Sr. No. 5, which is intended for unutilized transitional CENVAT credit, thereby creating an impression that the credit claimed was CENVAT credit rather than service tax credit on advances. The Revenue denied the credit on the ground that no separate document as required under Rule 9 of the CENVAT Credit Rules, 2004 was produced for the claimed amount, and imposed a penalty equal to the credit amount.

The appellant's counsel relied on the Supreme Court's order in a case where multiple writ petitions were taken together, directing the GSTN to reopen the portal for filing TRAN-1 and TRAN-2 forms without technical glitches for a limited period. This was cited to demonstrate that technical difficulties in the initial GST implementation phase were recognized by the highest court, and that the appellant was a victim of such glitches.

The Revenue's representative contended that the appellant failed to produce any documentary evidence such as screenshots to prove attempts to enter data at Sr. No. 11, undermining the claim that technical glitches prevented proper filing.

The Court's interpretation emphasized that the provisions of Section 142(11)(c) and Rule 118 clearly entitled the appellant to transitional credit of service tax paid on advances. The procedural error in entering the amount at Sr. No. 5 instead of Sr. No. 11 was due to technical glitches beyond the appellant's control. The Court held that such a procedural infirmity should not result in denial of a substantive right. The Court reasoned that the nature of the credit claimed was not CENVAT credit but service tax credit on advances, and the misclassification in the form was a technical and procedural issue rather than a substantive defect.

Applying the law to the facts, the Court directed the Revenue to treat the amount entered at Sr. No. 5 as if it had been entered at Sr. No. 11, thereby allowing the appellant to avail the transitional credit of Rs. 6,15,409/-. The Court set aside the impugned order denying credit and imposing penalty.

The Court also implicitly rejected the Revenue's argument regarding lack of documentary proof of attempts to enter data correctly, prioritizing the substantive entitlement to credit over procedural formalities where technical glitches were involved.

Significant holdings include the following verbatim legal reasoning:

"The said violation of not entering the required data at Sr.No.11 but entering the same at Sr. No. 5 is only procedural and for procedural infirmity, substantial right of the appellant cannot be denied."

Core principles established are:

- Entitlement to transitional credit under Section 142(11)(c) and Rule 118 of CGST Rules is substantive and cannot be defeated by procedural glitches in the GSTN portal.

- Technical difficulties in filing transitional credit forms, especially during the initial GST rollout, should be remedied by treating misfiled data as if correctly filed, to protect taxpayers' rights.

- Procedural non-compliance caused by system errors does not justify denial of credit or imposition of penalty where the substantive credit is otherwise admissible.

Final determinations are that the appellant is entitled to transitional credit of Rs. 6,15,409/-, the denial of credit and penalty imposed by the lower authorities are set aside, and the Revenue is directed to treat the data entered at Sr. No. 5 of Form TRAN-1 as if entered at Sr. No. 11.