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Transitional Credit and GST TRAN-1 issue: Way Forward
By Pawan Arora (Joint Partner); Gaurav Gupta (Associate) Advs. ALA Legal
Aug 08, 2019

LOSS of transitional input tax credit due to genuine reasons and restrictive transitional provisions has been a big issue since introduction of the GST Law in India. Various High Courts in plethora of judgments have provided relief to the assessees on these issues.

Recently, the Hon'ble Delhi High Court has provided reliefs to various taxpayers/ Petitioners who could not file GST FORM TRAN-1 within the due date due to technical difficulties or any other genuine reasons.

In one such case, namely Uninav Developers Pvt. Ltd. v. Union of India W.P.(C) 13772/2018 decided on 29.07.2019 - TOG-503-HC-DEL-GST-2019, the Hon'ble Delhi High Court observed that "The entire GST system is still in a trial and error phase and it will be too much of a burden to place on the Assessees to expect them to comply with the requirement of the law where they are unable to even connect with the system on account of network failures or other failures". The factual background of the case was that the Petitioner was unable to carry forward its CENVAT credit to its electronic ledger due to failure to file TRAN-1. IT Grievance Redressal Committee rejected the application of the Petitioner requesting for reopening the TRAN-1 on the ground that it attempted TRAN-1 filling but no error/ no valid error reported. In absence of evidence of a failure of system error, re-filing was not allowed. The Hon'ble Court directed the Respondents to reopen the portal or to accept the manual TRAN-1.

Thus, in cases where assessee was unable to connect with the system on account of network failure or other failures and failure in attempting filing of GST TRAN-1, he may approach to the authorities to request for re-opening of filing of GST-TRAN 1.

In another recent judgment in Bhargava Motors v. Union of India W.P. (C) No. 1280/2018 2019 SCC OnLine Del 8474 decided on 13.05.2019 - TOG-322-HC-DEL-GST-2019, wherein the Hon'ble Delhi High Court observed that GST system is still in a ‘trial and error phase' as far as its implementation is concerned. The factual background of the case was that the dealer had successfully filed TRAN-1 but his credit was not getting reflected in the Electronic Ledger. The Court directed the Respondents to reopen the portal or to accept the manual TRAN-1.

In another recent case namely Blue Bird Pure Pvt. Ltd. v. Union of India W.P. (C) 3798/2019 decided on 22.07.2019 - TOG-511-HC-DEL-GST-2019, the Petitioner inadvertently filed TRAN-1 showing available stock of goods in column 7(d) instead of column 7(a). The Hon'ble Delhi High Court observed that due to such inadvertence, the Petitioner cannot be denied credit and observed that the Petitioner was entitled to get the TRAN-1 rectified.

The taxpayers who could not file TRAN-1 within the due date due to one reason or another were offered another beacon of hope by the decision of the Hon'ble Madras High Court (Madurai Bench) in the case of Tara Exports v. Union of India W.P. (MD) No. 18532 of 2018 - TOG-301-HC-MAD-GST-2018 wherein the Court found that genuine efforts made by the Petitioner to file TRAN-1 entitled him to relief. The Court categorically held that the

"The due date contemplated under the laws to claim the transitional credit is procedural in nature. 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."

Thus, assessees who were not be able to file GST TRAN-1 within the due date may also approach to the authorities to request for re-opening of filing of GST-TRAN 1.

Ineligibility to claim Transitional credit due to Arbitrary Transitional Provisions

There are many instances where the assessees were not eligible to avail the transitional credit due to restrictive transitional provisions such as:

i. Where credit was reversed on or before 30.06.2017 due to non-payment to vendors, and not eligible to re-avail the same in case of non-payment to vendors upto 30.09.2017 [S. 140(9)].

ii. Credit of Duties paid on Capital Goods in Transit as on 30.06.2017 [S. 140(5)].

iii. Restriction to carry forward the Credit of Cesses [S. 140(1)] – Recently writ admitted by various High Courts.

iv. Limitation of 1 Year to claim the credit on duties paid on inputs in stock/ contained in semi-finished stock or Closing Stock [S.140(3)] – Held as unconstitutional by Hon'ble Gujarat High Court in the matter Filco Trade Centre Pvt. Ltd. v. Union of India - TOG-215-HC-GUJ-GST-2018. However, the judgment is challenged by department and pending before Hon'ble Supreme Court.

Way forward

It is important to note that the Hon'ble Delhi High Court has suggested the Government/ GST Network for providing robust grievance redressal mechanism to address the genuine grievances of traders instead of compelling every trader to approach the Court for relief. [Blue Bird (supra)]

Thus, in our view, the taxpayers who were not able to carry forward/ take the input tax credit in TRAN-1 due to technical glitches, or unable to connect with the system on account of network failure or other failures, or were not able to file within due date, or for any other genuine reasons, may request the authorities to allow them to claim such credit in light of the judgments passed by various High Courts of the country.

Further, ineligibility of claiming the transitional credit due to arbitrary transitional provisions restricting the transitional credit is also open to challenge before the writ courts.

[The views expressed are strictly personal.]