THE RIGHTS OF REGISTERED PERSONS CANNOT BE SUBJUGATED TO THE POOR AND INEFFICNENT SOFTWARE SYSTEM ADOPTED BY DEPARTMENT

[DR.MARIAPPAN GOVINDARAJAN]

The Central Government introduced ‘Goods and Services Tax’ as ‘one nation – one tax’ with effect from 01.07.2017.  All the indirect taxes were subsumed in GST and therefore the assessees registered under the erstwhile indirect tax regime were to mandatory to transform to the GST regime.  They were entitled to take over the balance credit available as on 30.06.2017 to the GST regime and utilize the same in the payment of GST from July 2017 onwards.

The Government, in order to make the system transparent and also enable the ease of doing business, introduced the GST portal through which most of the activities are to be carried out by the registered persons.  But the functioning of the GST portal is not upto the mark and therefore the business entities suffered a lot.  The glitches in the GST portal could not be streamlined by the Department.   The department gave more extensions in complying with the mandatory requirements many a time.  Still the problem persists.  The date of filing annual return  for the year 2017 – 18 has been extended to 31.01.2020. 

The registered persons have been compelled to approach the High Court through writ petitions to get their grievances redressed.  Because of the inabilities contained in the system could not put the registered person in perplexity and the remedy should be done by the Department.

In ‘VISION DISTRIBUTION PVT. LTD. VERSUS COMMISSIONER, STATE GOODS & SERVICES TAX & ORS. (2019 (12) TMI 1048 - DELHI HIGH COURT)’ – WPC No. 8317/2019 – Delhi High Court, decided on 12.12.2019, the petitioner is engaged in the business of sale and purchase of mobile phones.  With the introduction of GST with effect from 01.07.2017 the petitioner registered under the provisions of GST law transferring from the erstwhile VAT law.  As on 01.07.2017 the petitioner claimed, by virtue of Section 140 of the CGST Act, the credit of ₹ 3.13 crores lying balance as on 30.06.2017 under the provisions of VAT law. 

The petitioner is to submit the balance of credit in TRAN – 1 form within 90 days from 01.07.2017 which is the appointed date for the GST law.  The petitioner was to submit the TRAN – 1 by 25.08.2017.  But the said TRAN - 1 form was not made available in the portal for filing the same.    During July 2017 the petitioner deposited tax by cash to the tune of ₹ 1.37 crores even though the petitioner was entitled to utilize the balance of credit as on 01.07.2017 to the tune of ₹ 3.13 crores. 

Therefore the petitioner filed a refund to the tune of ₹ 3.05 crores  as detailed below-

• ₹ 1.37 crores paid by cash for tax;
• Input tax credit on zero rated supplies-

• July 2017 – ₹ 50.42 lakhs;
• August 2017 – ₹ 1.17 crores.

Since the said amount has not been refunded to the petitioner, the petitioner field the present writ petition before the High Court with the prayer for the direction by the Court to issue the refund to the petitioner to the tune of ₹ 3.05 crores.

The petitioner submitted the following before the High Court-

• Due to the inaction of the Department and their failure to allow smooth migration of the credit standing in the petitioner’s account of input tax credit, the petitioner could not make use and exploit the credit while making the payment of  tax for the months of July and August 2017’
• The petitioner was forced to shell out the amount of ₹ 1.37 crores during July 2017.

The Department submitted the following before the High Court-

• The petitioner uploaded the form TRAN – 1 only during December 2017 even though it was possible for the petitioner to file the said form with effect from 25.08.2017.
• The petitioner could not utilize the accumulated transitional credit during the month of July and August 2017.
• Those who filed the form TRAN – 1 from 25.08.2017 onwards got credit in the ITC ledgers in the respective months for utilization.
• There is no provision for grant of refund of the accumulated input tax credit.
• The result of the petitioner of paying the tax in cash to the tune of ₹ 1.37 crores that the petitioner has earned ITC for the equivalent amount which is lying credit in its ITC ledger from November 2017 onwards.
• It is open to the petitioner to utilize the same in future.
• For the month of July 2017 and August 2017 there was no unutilized credit in the ledger account of the petitioner.
• There is no question of granting any refund to the petitioner at this stage.
• Rule 86(3) provides that where a registered person claims refund on any unutilized amount from the electronic credit ledger, the amount to the extent of claim is required to be debited in the said ledger.
• In case of the petitioner claims refund for the month of July and August 2017 there has to be unutilized input tax credit in the electronic credit ledger of the petitioner for the said months, which is not the case.

At this the petitioner pointed out that the ITC lying in the petitioner’s account has swollen to the tune of more than ₹ 7 crores on account of lack of avenues for it to be utilized.

The High Court heard the submissions made by both the parties.  The High Court was of the view that the petitioner could not be made to suffer on account of failure on the part of the Department in devising the smooth transition to GST regime with effect from 01.07.2017 from the erstwhile indirect taxation structure.  Since the accumulated credit to the tune of ₹ 3.17 was not reflected in his credit ledger the same could not be made use of by the petitioner and he was compelled to pay the tax by cash.  It would not be so if the Department has taken care to ensure that the petitioner was able to utilize its accumulated input tax credit in the said months.  The form TRAN – 1 was made available in the system only with effect from 25.08.2017 by the Department.  The business activity of the country could not be expected to come to a standstill.  The failure of the Department in first putting a workable system in place, before implementing GST regime, reflects poorly on the concern that the Department have shown to the difficulties, the trade faces throughout the length and breadth of the country.

The High Court further observed that even after the lapse of 2 years, the Department has not remedied its omissions and failures by taking corrective steps.  Instead the Department has taken shelter of the limitations in and the inability of the software systems to grant refund, despite the same being justified.  The High Court held that the rights of the parties cannot be subjugated to the poor and inefficient software systems adopted by the Department.  The software systems adopted by the Department have to be in tune with the law and not vice versa.   The systems limitation cannot be a ground to refuse the refund to the petitioner, which is legally entitled.

The High Court directed the Department to refund the amount of ₹ 1.17 crores paid in cash for July 2017 within 4 weeks from the date of order.  It also directed the Department to pass a reasoned order on the refund application filed by the petitioner on the input tax credit on zero rated supplies for the month of July 2017 and August 2017 for which the petitioner has submitted the required documents to the Department.