Input Tax Credit cannot be denied due to technical glitches

[Ganeshan Kalyani]

The Goods and Service Tax has come into effect from 01.07.2017. It has subsumed large number of Central and State levies into a single tax. Various taxes like Central Excise Duty, Additional Duties, Special Duties, Service Tax, Cesses, Surcharge and State VAT, CST, Purchase Tax etc. have been merged into single tax i.e. GST.

Section 140(3) of the Central Goods and Service Tax Act, 2017 provides for transitional credit. The provision allows a registered person to carry forward the eligible duties in respect of inputs held in stock as well as those contained in the semi-finished goods & finished goods. Rule 117 of the Central Goods and Service Tax Rules, 2017, provides the manner in which the credit can be carry forward to GST regime. Every registered person entitled to take credit of input tax credit under Section 140 shall submit a declaration electronically in Form TRAN-1  on the common portal specifying therein, the amount of input tax credit. By filing the said return the credit would appear in electronic credit ledger which a taxpayer can used it to pay GST liability on outward taxable supplies.

Since the implementation of GST from 01.07.2017, the common portal www.gst.gov.in was not available/accessible for operation fully. Only few services like registration, migration were made available on the portal. Neither the GST Returns monthly/quarterly were available nor the Forms including the TRAN-1 Forms were made available, resulting in lot of administrative and practical problems, both for taxpayers and for the revenue. Also, the due date of filing TRAN-1 was extended time and again, but the system could not be set right by them and one or the other technical difficulties kept arising.

Many taxpayer could not file TRAN-1 within time and because of the same they could not claim transitional credit. In order to get justice they went to Hon'ble High Court. Some of the cases where High Court has passed an order in favor of the taxpayers are Tata Exports versus The Union of India and Others' = 2018 (9) TMI 1474 - MADRAS HIGH COURT, Bhargava Motors versus Union of India and others = 2019 (5) TMI 899 - DELHI HIGH COURT, M/S Blue Bird Pure Pvt. Ltd. versus Union of India and others’ = 2019 (7) TMI 1102 - DELHI HIGH COURT, Krish Automotors Private Limited versus Union of India and others = 2019 (9) TMI 817 - DELHI HIGH COURT, 'M/s Aadinath Industries and another versus Union of India and others’ = 2019 (10) TMI 91 - DELHI HIGH COURT, M/s. Arora & Co. versus Union of India and others’ = 2019 (11) TMI 471 - DELHI HIGH COURT,  Adfert Technologies Pvt. Ltd. versus Union of India and others = 2019 (11) TMI 282 - PUNJAB AND HARYANA HIGH COURT.

The petitioner, due to the technical glitches, could not file TRAN-1 before the due date. The petitioner made a written request to the jurisdictional GST office but they did not accepted the explanation of the petitioner. They went by the provision which states that on or before due date TRAN-1 should have been filed. Aggrieved by the order, the petitioner filed a writ petition to the Hon'ble High Court of Himachal Pradesh seeking writ of mandamus.

The petitioner is  engaged in the manufacture and sale/supply of Electrical Transformers/parts thereof etc. holding GST No. 02AACFJ9239Q2ZW. The petitioner has been subjected to appropriate levies of goods and service tax on the supplies made by it. The petitioner is also entitled to credit of input tax on the inputs as well as capital goods and input services. The input credit is also admissible in respect of the duty/tax paid on the inputs lying as such and those contained in the semi-finished goods and finished goods lying in stocks as on 30.06.2017 for being carried forward and utilized under the GST Act.

Due to the defects in the system/glitches on the portal, the petitioner was unable to fill up the TRAN-1 Form and furnish the details on the portal despite repeated and best efforts made by it. On 27.12.2017, the petitioner again tried to submit the aforesaid TRAN-1 Form, but due to system problem / glitches, could not file it. The petitioner thereafter approached its jurisdictional authorities and also submitted a letter requesting for solution of the problem.

Again, when the petitioner tried to submit the aforesaid TRAN-1 Form, there was a message appearing on the portal reflecting that the filing of declaration in TRAN-1 is not available now as the due date is over. The petitioner, therefore, filed requests/reminders dated 15.01.2018 and 05.03.2018 to the respondents for allowing it to carry forward the input tax credit on the stocks lying on 30.06.2017 at regular intervals, but the respondent rejected the petitioner's plea citing the limitation as provided under Section 117 of the CGST Rules 2017 which provides for transition of credit by filing of Form TRAN-1 within a period of 90 days from the appointed date i.e. 01.07.2017 subject to an extension of the last date by a further period not exceeding 90 days and since the Form had not been filed, the petitioner cannot be permitted to file the same after the period of limitation. As regards the allegations of the petitioner that it could not file the TRAN-1 Form and carry forward the legitimate input service tax, the same has been denied on the ground that it is not supported by any documentary evidence..

The Hon'ble High Court has heard both the sides.

It is not in dispute that there were glitches in the system which led to filing of petitions before various High Courts of the Country and these Courts have granted the relief to the taxpayers by directing the authorities to open the portal and/or receive the manually filed Forms and/or approach the Nodal Officers appointed by the Government

In this regard. Reference has been made to the following orders of the different High Courts:

Madras High Court order dated 10.09.2018 in W.P (MD) 18532 of 2018 in case titled ‘Tara Exports versus The Union of India and others’ = 2018 (9) TMI 1474 - MADRAS HIGH COURT,

(ii) Delhi High Court order dated 13.05.2019 in W.P. (C) 1280/2018 in case titled ‘Bhargava Motors versus Union of India and others’ = 2019 (5) TMI 899 - DELHI HIGH COURT,

(iii) Delhi High Court order dated 22.07.2019 in W.P. (C) 3798/2019 in case titled ‘M/S Blue Bird Pure Pvt. Ltd. versus Union of India and others’ = 2019 (7) TMI 1102 - DELHI HIGH COURT,

(iv) Delhi High Court order dated 16.09.2019 in W.P. (C)3736/2018 in case titled Krish Automotors Private Limited versus Union of India and others’ = 2019 (9) TMI 817 - DELHI HIGH COURT,

(v) Delhi High Court order dated 20.09.2019 in W.P. (C) 9775/2019 in case titled ‘M/s Aadinath Industries and another versus Union of India and others’ = 2019 (10) TMI 91 - DELHI HIGH COURT,

(vi) Delhi High Court order dated 06.11.2019 in W.P. (C) 6331/2019 in case titled ‘M/s. Arora & Co. versus Union of India and others’ = 2019 (11) TMI 471 - DELHI HIGH COURT,

(vii) a detailed judgment of the Punjab and Haryana High Court in Adfert Technologies Pvt. Ltd. versus Union of India and others, dated 04.11.2019 = 2019 (11) TMI 282 - PUNJAB AND HARYANA HIGH COURT.

In all the aforesaid judgments, it has been held that GST is a new progressive levy. One of the progressive ideal of GST is to avoid cascading taxes. GST Laws contemplate seamless flow of tax credits on all eligible inputs. The input tax credits in TRAN-1 are the credits legitimately accrued in the GST transition. The due date contemplated under the laws to claim the transitional credit is procedural in nature. Therefore, in view of the GST regime and the IT platform being new, it may not be justifiable to expect the users to back up digital evidences. Even, under the old taxation laws, it is a settled legal position that substantive input credits cannot be denied or altered on account of procedural grounds.

In the judgments referred to above, it has been judicially recognized that GST system is still in a “trial and error phase”, as far as its implementation is concerned and because of this the Courts had been approached by the dealers facing genuine difficulties in filing returns, claiming input tax credit through the GST portal. As a matter of fact, the Court acknowledged the procedural difficulties in claiming input tax credit in the TRAN-1 Form and the Court permitted the respondents “either to open the portal so as enable the petitioner to file the TRAN-1 electronically for claiming the transitional credit or accept the manually filed TRAN-1 and to allow the input credit claimed after processing the same, if otherwise eligible in law”.

Relying upon the aforesaid judgments, similar directions were issued by a learned Division Bench of the Delhi High Court in Bhargava Motors’ case (supra) and have been repeatedly reiterated thereafter in the subsequent judgments referred to above.

The judgment of the Punjab and Haryana High Court in Adfert Technologies’s case (supra) is the latest in point of time wherein the Court has agreed with the view taken by the Delhi High Court in Krish Automotors Private Limited’s case (supra).

As far as this Court is concerned, the respondents have not been able to persuade the High Court to take a view other than the one taken by the Madras, Delhi, Punjab and Haryana High Courts and, therefore, The Himachal Pradesh's High Court is in an agreement with the view taken by these High Courts wherein they have permitted the petitioner(s) before them to file TRAN-1 Forms even after 27.12.2017.

We need not to observe that a majority of the High Courts of the Country like Kerala, Madras, Bombay, Gujarat, Karanataka, Telangana, Delhi, Chhatisgarh, Rajasthan and Guwahati, have taken an identical view. A majority of the High Courts of the Country, referred to above, have taken a judicial notice of the technical glitch in uploading the Form TRAN-1 and afforded opportunities to the petitioner(s) before them for uploading these Forms by approaching Nodal Officers and some of the High Courts have also permitted the petitioner(s) to tender these forms manually.

Accordingly, the writ petition is allowed and we direct the respondents to permit the petitioner to file TRAN-1 either electronically or manually statutory form TRAN-1 on or before 31.12.2019. The respondents are at liberty to verify the genuineness of the claim of the petitioner and its claim shall not be denied only on the ground that the same was not filed by 27.12.2017.

The writ petition is disposed off in favour of the petitioner.