DECEMBER 24, 2019

By Dr G Gokul Kishore

TRANSITIONAL credit is one of the most litigated and debated issues in GST regime. Scores of writ petitions have been filed with most of them having been ruled in favour of taxpayers. In this series, whenever important judgments have been delivered on various issues including transitional credit, endeavour has been made to draw attention of the GST Council and tax administration. This 67th part carries on this endeavour.

Rights cannot be subjugated to inefficient software

When GST was implemented in July, 2017, for almost two months, the GST portal was not ready for filing TRAN-1 form to carry forward credit lying in balance from excise and VAT laws to GST electronic credit ledger. The same became operational from 25-8-2017. Even after it became functional, only those taxpayers who had huge credit of good karma had the benefit of filing the form without any hitch. The form lacked certain tables also initially and the due date had to be extended because of the time lost in the initial months. One-time option of revision had to be provided which could not be conceived of by tax experts at the time of introduction when an important form to claim all credits of previous regime is claimed in the GST period. The last date for filing transitional forms was extended till this year for those who attempted to file such forms but could not succeed due to technical glitches. And to decide the dispute as to whether there was, in fact, an attempt to file and failure to file due to technical issue, taxpayers had to flock to High Courts trying to obtain discretionary relief to claim a right denied by the tax administration.

In the above background, in a recent case, the taxpayer had credit balance from pre-GST regime but could not transition in the initial months. For exports on payment of tax, cash had to be used. A writ petition was filed in Delhi High Court seeking refund of such amount paid. The department contended that the taxpayer had filed TRAN-1 form only in December though the online facility was available a few months earlier. Further, it was argued that there was no provision for refund of accumulated credit under GST law and the taxpayer did not have such credit in July and August, 2017.

Refund of unutilized input tax credit is admissible under CGST Act if exports are made without payment of tax. When such refund is sought, equivalent amount is required to be debited in ITC ledger. In this case, the taxpayer agreed to debit such amount. The High Court allowed refund of the tax amount paid by cash. The judgment talks about accumulation of credit during pre-GST period but does not contain any finding on the contention of the department that the taxpayer did not have unutilized ITC in relevant months. Refund of tax paid in cash could have been granted if exports are on payment of tax but in such case, claiming refund of unutilized ITC by debiting equivalent amount from the credit ledger does not arise. Writ remedy being discretionary, based on the observations of the High Court, one may comprehend the conclusion [Vision Distribution Pvt. Ltd. v. Commissioner - W.P. (C) No. 8317/2019 decided on 12-12-2019 - 2019-TIOL-2918-HC-DEL-GST

The High Court said that failure of the government in having a workable system in place before implementing GST reflected poorly on the concern that it has to the difficulties of the trade and even after two years, corrective steps have not been taken. It further noted that the tax administration continues to take shelter of the limitations and inability of software system. It held that rights of parties cannot be subjugated to the poor and inefficient software system and system limitations cannot be a justification to deny relief to which the petitioner is legally entitled to. Though this order of High Court does not say in as many words about input tax credit being a right or time-limit for filing TRAN-1 form being arbitrary, the observations on the online system are eloquent in conveying the same message.

The jurisprudence emerging from this judgment is that if the condition of debiting equivalent amount in credit ledger is complied with, then refund of ITC accumulated due to exports cannot be denied. Even if the exports are made on payment of tax due to certain compulsion, such refund is admissible. As to what amounts to such compelling circumstance, courts may have to step in as that would be a bone of contention between the taxpayer and tax department.

Transitional credit through monthly return

The judgment of Punjab & Haryana High Court in Adfert Technologies v. UOI - 2019-TIOL-2519-HC-P&H-GST allowing batch of petitions involving non-filing and incorrect filing of TRAN-1 form has been discussed widely. In this order, the High Court relied on the judgment of Gujarat High Court in Siddharth Enterprises v. The Nodal Officer - 2019-TIOL-2068-HC-AHM-GST wherein it was held that credit was a vested right and property and denial of the same would be violative of Article 300A of the Constitution and time-limit to allow credit based on the aspect of purchases made in pre-GST regime and purchases made post-GST was discriminatory and arbitrary [Discussed in Part-54 ].

Relying on its own order, the P&H High Court recently allowed a writ petition on filing of TRAN-1 form Hans Raj Sons v. UOI, Order dated 16-12-2019 - 2019-TIOL-2891-HC-P&H-GST . The High Court directed that if the petitioner is hampered in filing such form due to non-opening of GST portal by the authorities, then they shall be permitted to claim the credit in the monthly return Form GSTR-3B to be filed in January, 2020. This should provide further relief to taxpayers knocking the doors of various High Courts seeking direction to authorities to allow filing of TRAN-1 form by providing an alternative to online filing. Claiming transitional credit through GSTR-3B is welcome as the department can always seek TRAN-1 in physical form to back up such claim and subject the same to verification. This brief order takes further the jurisprudence laid down by it earlier and by Gujarat High Court on credit being vested right akin to property and cannot be alienated without appropriate provision in the statute. TRAN-1 form itself is merely procedural and once credit is held as a right, manner of claiming is not relevant.

The tax administration may well take note of these judgments as they provide clues to the interpretation of certain provisions of GST law and possible amendments, wherever required.

[To be continued…]

[The author is an Advocate. The views expressed are strictly personal.]

See Part 66