JULY 31, 2024

By Vijay Kumar

THIS story is about a writ containing an interesting conundrum whether the petitioner Bank which is registered under GST in Maharashtra but could not file its return in GST portal of that State because of technical glitch and filed it in the GST portal of Telangana can be saddled with demand, penalty and interest despite the fact that Bank's branch, exists in the State of Telangana. More so, when credit taken by petitioner was transferred to Maharashtra portal on the same day. The quagmire is about the scope and ambit of Section 140 of GST Act, 2017.

Dramatis Personae

The Petitioner (Standard Chartered Bank) - Trying to play by the rules but stuck in a bureaucratic traffic jam.

The GST Department: Channelling their inner stickler while wielding a hefty penalty of Rs.400 crores as their weapon of choice.

The High Court: The wise sage that intervenes to restore sanity to this legislative circus.

UNDISPUTED FACTS:

The petitioner is Standard Chartered Bank with its headquarters in Mumbai, Maharashtra and the centralized GST Registration is also in Maharashtra.

As per the GST Act with effect from 01.07.2017, the petitioner was entitled to the credit of Rs.141,26,69,646/-. The petitioner made efforts to file the Return in the official GST portal of Maharashtra, but because of technical glitch in the Maharashtra portal, their efforts went in vain. Petitioner has a branch in Telangana and on 18.10.2017, filed the returns in the Telangana Portal and took credit on the same day and transferred it on the same day to the portal of Maharashtra.

Picture this: a rainy afternoon in Maharashtra. The bank's diligent accountants huddled around their computers, ready to file their GST return. But alas! The Maharashtra GST portal decided to play hide-and-seek. It vanished faster than a sunbeam in a thunderstorm. The bank's efforts were in vain, like trying to catch raindrops in a sieve. Undeterred, our hero bank had a Plan B - a branch in the mystical state of Telangana. On a fateful day, it donned its digital raincoat, logged into the Telangana portal, and filed its returns. Lightning-fast, it transferred the credit to Maharashtra carrying hopes and dreams across state lines.

The petitioner was honoured with a pre-show cause notice on 03.09.2021 wherein it was alleged that the credit availed by the petitioner through TRAN-I return filed by the Telangana registration is ineligible and requires to be reversed along with applicable interest and penalty. The petitioner promptly filed reply on 09.09.2021 and made it clear that total transitional credit of Rs.141,26,69,646/- was transferred to Maharashtra GST registration on the same day of filing the TRAN-1 and only the differential balance of ITC amounting Rs.2,00,000/- was available in the State of Telangana.

The GST Department was pleased to issue a show-cause notice dated 29.12.2021 and the petitioner filed his detailed reply. The Department was not satisfied with the reply and passed the impugned Order-in-Original dated 31.10.2023, which is challenged by the Bank before the Telangana High Court. By this order the Department:

1. Confirmed the demand of Rs.141,26,69,646/- (Rupees One hundred and forty one crores twenty six Lakhs sixty nine thousand six hundred and forty six only)

2. Confirmed the demand of Interest on the above amount

3. Imposed a penalty of Rs.141,26,69,646/- (Rupees One hundred and forty one crores twenty-six Lakhs sixty nine thousand six hundred and forty six only)

The total Demand on the Bank would run into about 400 Crores, which is big money even for a big bank.

Contention of the petitioner: -

1. The show cause notice shows that there were technical glitches in the Maharashtra GST portal and the petitioner admittedly filed its return before due date in Telangana GST portal and transferred the credit amounting to Rs. 141,26,69,646/- to Maharashtra portal on the same date.

2. Thus, the petitioner did it under compelling circumstances and there is no prohibition under the Act for filing such return electronically in another State where branch of petitioner exists.

3. More so, the petitioner has not derived any undue benefit from the said act nor revenue suffered any loss.

4. There exists no disputed question of fact and only a question of law deserves to be answered.

5. When the return is filed in the Telangana Portal and credit got transferred on the same day to Maharashtra portal, the department has no justifiable reason to deny the same or take action against the petitioner.

6. By no stretch of imagination, the petitioner can be saddled to deposit the same amount with penalty and interest.

Stand of Revenue:

1. Section 107 of the Act provides an efficacious statutory alternative remedy. The petitioner should have availed the same.

2. The petitioner's centralised registration is in the State of Maharashtra. Thus, the petitioner should have filed the return on the GST portal of Maharashtra and not in Telangana.

3. Even assuming that the portal of Maharashtra had any technical glitch, the petitioner was not remediless, and he should have approached the higher authorities of GST Regime of Maharashtra.

4. Thus, the petition is meritless and may be dismissed.

FINDINGS of the High Court: The High Court observed:

Alternative Remedy:

The pivotal question is whether in the teeth of Section 140 of the GST Act, was there any bar or prohibition for filing return in the GST portal of Telangana where the petitioner's branch admittedly exists?

Supreme Court in M/s. Godrej Sara Lee Ltd - 2023-TIOL-11-SC-VAT, poignantly held:

where the controversy is a purely legal one and it does not involve disputed questions of fact but only questions of law, then it should be decided by the high court instead of dismissing the writ petition on the ground of an alternative remedy being available.

Since it is a pure question of law, we are not inclined to relegate the petitioner to avail the statutory alternative remedy.

Show Cause Notice:

it was an admitted fact in the show cause notice itself that the petitioner faced problem in filing return electronically because of technical glitch in the GST portal of Maharashtra.

In the impugned order, the GST Additional Commissioner reduced in writing the basic stand of the petitioner as:

- it was pointed out that electronic credit ledger establishes that M/s.SCB India has not utilised the credit in Telangana State and in fact, the credit was debited from ECL on the very same day and hence, as per the stand of the petitioner, they have not availed credit in the State of Telangana.

The Additional Commissioner rejected the stand of the petitioner mainly on the ground that the petitioner's centralised registration is in the State of Maharashtra and that nothing prevented the petitioner to file the return electronically in the portal of the same State.

Section 140 (1) of the Act envisages that a registered person shall be entitled to take, in his electronic credit ledger, the amount of CENVAT credit. Undisputedly, the registration number/Permanent Account Number of the petitioner is same nationwide. Thus, sub-section (1) of Section 140 does not permit the respondents to arrive at a conclusion that the petitioner was obliged to file return electronically only in the GST portal of Maharashtra.

The filing of return in the GST portal of Telangana and transfer of credit is squarely covered and permissible under the last proviso to sub-section (8) of Section 140.

During the course of hearing, learned counsel for the Revenue could not establish:

1. That there exists any prohibition/bar in filing the return through electronic mode in GST portal of Telangana where petitioner's branch admittedly exists.

2. The petitioner derived any undue benefit by filing return in the GST portal of Telangana and transferring the credit on the same day and the Revenue suffered any loss because of aforesaid action of the petitioner.

Pertinently, the respondents did not dispute the stand of the petitioner that because of technical glitch in the GST portal of Maharashtra, the petitioner was constrained to file return in the GST portal of Telangana. This is also not the stand of the Revenue that during the relevant time, GST portal of Maharashtra was functional and yet, the petitioner had chosen to file return in the GST portal of Telangana.

Needless to emphasise that it was the duty of the Department to keep their portal functional. If the portal was not functional or having technical glitch and because of that the petitioner was compelled to file return in the portal of Telangana, the petitioner cannot be saddled with demand, interest and penalty.

In other words, the Department cannot take benefit of its own wrong.

In Devendra Kumar v. State of Uttaranchal, the Supreme Court held that a person having done wrong cannot take advantage of his own wrong. In such a case, the legal maxim 'Nullus Commodum Capere Potest De Injuria Sua Propria' applies.

The High Court held that the very foundation of show cause notice itself is bad in law and the assumption of the Additional Commissioner that return could not have been filed in the GST portal of Telangana is not flowing from Section 140 of the Act. Therefore, the impugned action founded upon such notion is bad in law.

The High Court set aside the impugned show cause notice dated 03.09.2021 and Order-in-Original dated 31.10.2023 issued by the Additional Commissioner.

GST is so simple, and the GST officer is so powerful that a failure of the GST system (their mistake) can make an Additional Commissioner demand about 400 crores of rupees as tax, penalty and interest. If you can't repair your system, you can certainly make your taxpayer a victim.

Sometimes, life's glitches lead to unexpected adventures.

Until next week