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THE INSIGHT

One Last opportunity to claim transitional credits
By Shweta Jain, Partner RSA Legal Solutions
Nov 30, 2019

INDIA moved from a multi tax system to single tax system GST in 2017. Apart from many challenges that came in this transition phase, one of the biggest challenges was to transition the credits lying in the books. In order to provide smooth transition, CGST Act had sections 139 to 142 read with relevant rules to deal with the situation. GST system was sought to be a complete automated system which ideally would not involve the manual intervention. Therefore, all forms under GST are required to be filed in online in soft form. Provisions required that to carry forward the credits, one is required to file the Form Tran-1 on the GST portal.

Initially the due date Form TRAN-1 was set to be 27.12.2017. The form and the IT systems carried its own set of problems and glitches which were faced by the taxpayers and they could not file Form GST TRAN – 1 in the prescribed time limit. As a result, many taxpayers could not file Form GST TRAN – 1 and their credits got stuck leading to a huge capital loss. Numerous petitions have been filed across the country and the Hon'ble High courts have time & again directed the Government either to reopen the portal or to allow the manual filing of the forms.

In light of these developments and acknowledging the genuine problems faced by the taxpayers, the Government has provided a window enabling the taxpayers to file the Form GST Tran-1 till 31.03.2019 and which is now extended till 31.12.2019 [Notification 49/2019-CT dated 09.10.2019 refers]. This facility is available only to the persons who have attempted to file the FORM GST TRAN-1 within the initial due date i.e., 27.12.2017 but could not file the same due to technical glitches in the portal and further has digital evidence to prove the same. Hence, taxpayers who can substantiate electronic audit trail and have digital evidence like screenshots, help desk correspondence, etc., can take benefit of this date extension and avail the earlier missed out transitional credits now.  For this, the taxpayer is required to make an application to the Nodal officer of the IT redressal committee, not beyond 31.12.2019 who after satisfying himself with the genuineness of the taxpayer and the issue, shall allow him to file the form GST Tran-1.

However, the aforesaid relief cannot be availed by other taxpayers who have no proof of earlier filing with technical glitches. Such taxpayers could be any of the following:

Have already filed GST Tran – 1 but have made errors or mistakes in filing and TRAN-1 and could not revise

Attempted filing TRAN-1 online within the due date but could not possess digital evidence like screenshots, help desk correspondence, etc.

Did not file TRAN-1 until now due to various reasons such as lack of awareness and ignorance, lack of IT infrastructure, inexperience of accountants in filing such complex forms, etc.

The question arises, is there any way out for the other taxpayers also or they should consider their credits lying in the books as lost. These taxpayers do not have any option but to approach the High court and file the writ petition. The various High Courts have time and again upheld the credit eligibility of the taxpayers holding that the credit was a vested right of the taxpayer which cannot be taken by mere procedural glitches. A series of such decisions are given below, which will enable the taxpayer to approach the High to get his vested right.

a. Adfert Technologies Pvt. Ltd. Vs Union of India & Ors. (Punjab & Haryana High Court) – TOG-906-HC-P&H-GST-2019 - key legal points that were determined in this case are:

The Introduction of Rule 117(1A) & Rule 120A and absence of any time period prescribed under Section 140 of the Act indicate that there is no intention of the Government to deny carry forward of unutilized credit of duty/tax already paid on the ground of time limit.

GST is an electronic-based tax regime and most of the people of India are not well conversant with electronic mechanisms.

Unutilized credit arising on account of duty/tax paid under erstwhile Acts is vested right which cannot be taken away on procedural or technical grounds.

The revenue authorities were having a complete record of already registered persons and at present, they are free to verify facts and figures of any Petitioner thus in spite of being aware of complete facts and figures, the revenue department cannot deprive petitioners from their valuable right of credit.

By not allowing the right to carry forward the CENVAT credit for not being able to file the form GST TRAN-1 within the due date may severely dent the writ-applicants working capital and may diminish their ability to continue with the business and such action violates the mandate of Article 19(1)(g) of the Constitution

b. Siddharth Enterprises Vs NODAL Officer (Gujarat High Court) - TOG-618-HC-GUJ-GST-2019 - it was held that The right to carry forward credit is a right or privilege, acquired and accrued under the repealed Central Excise Act, 1944 (1 of 1944) and it has been saved under Section 174(2)(c) of the CGST Act, 2017 and, therefore, it cannot be allowed to lapse under Rule 117 of the CGST, 2017, for failure to file declaration form GST Tran-1 within the due date, i. e. 27. 12. 2017.

c. Krish Automotors Pvt. Ltd. Vs UOI and others (Delhi High Court)TOG-675-HC-DEL-GST-2019 - a direction was issued to the Respondents to permit the Petitioner to either submit the TRAN-1 form electronically by opening the electronic portal for that purpose or allow the Petitioner to tender said form manually on or before 15th  October, 2019 and thereafter, process the Petitioner? s claim for ITC in accordance with law.

d. In the case of  Tara Exports Vs Union of India (Madras High Court) - TOG-301-HC-MAD-GST-2018  it was held that 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 evidence. 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.

e. In the case of  Uninav Developers Pvt. Ltd. v. UOI (Delhi High Court) - TOG-503-HC-DEL-GST-2019,  it was held 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 law where they are unable to even connect with the system on account of network failures or other failures.

f. In the case of  Blue Bird Pure Pvt. Ltd. Vs Union of India & Ors. (Delhi High Court) - TOG-511-HC-DEL-GST-2019, it was held that transitional credit cannot be denied due to inadvertent error and directed to allow the rectification of Form Tran-1.

These are just few of the positive decisions by various High Courts. It is thus clear that the credit is a vested right and cannot be denied merely because of procedural difficulty. Hence, if a taxpayer had availed the credit in the erstwhile regime but not utilized it has not been able to transition to the GST regime, it is high time that they look forward to the way of filing of writ petition and claim their vested right.