What is Tran-1?
i. Every registered person who is entitled to carry forward input tax credit (ITC) from earlier regime to GST regime is required to submit declaration in TRAN-1 electronically.
ii. Format of TRAN-1 has been provided under CGST Rules and is available in electronic format on GST common portal.
iii. Section 140(3), (4) & (5) of CGST Act r/w Rule 117 of the CGST Rules prescribed time to file return called Tran-1 claiming closing balance as per returns and fresh credit based on the availability of stock &availability of original copy of duty/tax paid documents.
Background of General issues
i. Assessment Notices
In the recent time (during FY 2020-21) a large amount of unreasonable assessment notices has been issued from the revenue department to the Taxpayers. As the notice requires all the previous records to be available making it a tiresome issue for the taxpayer to provide the details again for the sake of Investigation.
ii. Failure to file Tran-1 Due to Technical Glitch
Many taxpayers couldn’t file TRAN-01 due to poor connectivity and various technical glitches on the common portal and various other reasons which were beyond their control. In such a case Gujrat High court give direction to the nodal officer for revise filing of Tran-1 and Tran-2 form. Relied on M/S Siddharth Enterprises vs The Nodal Officer /SCA/5758/2019.
iii. Proof of technical Glitch
In numerous cases the genuine tax payers are not allowed to file a revise Tran-1 form in such cases the department expecting the taxpayers to record their technical glitch and refuse them for filing revise Tran1 form. Further, in this way department infringes the rulings of the Apex Court. Relied on Union of India Vs Brand Equity Treaties Limited & Or’s. Appeal N. 7425-7428/2020.
iv. Unreasonable and arbitrary Timeline
Every registered person who was required to file FORM GST TRAN-1 concerning availment of unutilized input tax credit of duties and taxes paid under the Service tax regime Imposing stringent timelines is unreasonable and ultimately leads to deprivation of credit to such registered person.
Tran1 Judicial Pronouncements
- Due to the aforementioned issues Taxpayers across India for sake of relaxations Knocks the door of Judiciary. Results into plethora of Judgements in which the sole issue revolves around the present Tran-1.
- Many High courts held the decision in the favor of Taxpayers. Findings and resolution of the same are as follows:
1. Technical grounds cannot lead to the denial of credit:
a. There is no term ‘technical glitch’ defined in the GST Act or Rules made thereunder. However, the GST Network and the department in the shadow of “technical glitch” are making the taxpayers suffer as they are unable to file TRAN-1 on time. Relies on: M/S JAY BEE INDUSTRIES VERSUS UNION OF INDIA AND OTHERS 2019 (11) TMI 1245.
b. Many Hon’ble High Courts have taken the view that, the mere fact that the taxpayers cannot establish that the inability to upload the required details or revise the same was on account of a system error that was occasioned by the GST Authorities, cannot be a reason for denying him the substantive benefit of carrying forward the credit earned by him under the erstwhile regime. Relies on: In the decision of Kerala High court 2019 (12) TMI 1088.
c. The GST Council is not following the orders of the various High Court directions to re-open the portal for filing TRAN-1 or to accept the manual TRAN-1. The department is very much sitting on the proof of ‘technical glitch’ to allow the taxpayers to file or revise the TRAN-1. Relies on: Union of India Vs Brand Equity Treaties Limited & Ors. Appeal N. 7425-7428/2020.
d. 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 – Relies on: AADINATH INDUSTRIES & ANR. VERSUS UNION OF INDIA & ORS. [2019 (10) TMI 91 – DELHI HIGH COURT].
e. Till present date due to the defects in the system/glitches on the portal, the taxpayer is unable to fill up the TRAN-1 Form and furnish the details on the portal despite repeated and best efforts made by them. Somehow if they achieve their goal, the department issue notices to taxpayer under Tran1 to show the proof regarding records and documentation.
2. Procedural Rule cannot override Substantive Act.
i. Relies on R.R. Distributors (P.) Ltd. v. Commissioner of Central Tax, GST, Delhi North – [2021] 129 where it was held that genuine mistakes while filling up details of credit in TRAN-1 Form should not preclude taxpayers from having claims examined by the authorities in accordance with law.
ii. It is a settled law that a procedure should not run contrary to the substantive right in the policy. If the procedural norms are in conflict with the policy, then the policy will prevail and the procedural norms to the extent they are in conflict with the policy, are liable to be held bad in law. Relies On the decision of Madras High Court 2016 (4) TMI 185 – MADRAS HIGH COURT.
iii. Himachal Pradesh High Court in M/S JAY BEE INDUSTRIES VERSUS UNION OF INDIA AND OTHER 2019 (11) TMI 1245 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”.
iv. Therefore, the HC of Gujarat in Siddharth Enterprises v. Nodal Officer 2019 (9) TMI 319 – GUJARAT HIGH COURT has discussed the above issue at length and has come to the conclusion that the entitlement of credit of eligible duties on the purchases made in the pre-GST regime as per the then existing CENVAT credit rules is a vested right and, therefore, it cannot be taken away by virtue of Rule 117 of the CGST Rules, 2017, with retrospective effect for failure to file the form TRAN-01 within the due date, i.e. 27.12.2017.
3. Right to property
i. Gujrat High Court held that tax credit is the property of the tax payers and they have absolute right. Right to property is a constitutional right as per Article 300A provides that no person shall be deprived of property saved by authority of law.
ii. CENVAT credit earned under the erstwhile Central Excise Law is the property of the tax payers and it cannot be appropriated for merely failing to file a declaration in the absence of Law in this respect. It could have been appropriated by the government by providing for the same in the CGST Act but it cannot be taken away by virtue of merely framing Rules in this regard. Relied on (para 42) M/S SIDDHARTH ENTERPRISES THROUGH PARTNER MAHESH LILADHAR TIBDEWAL VERSUS THE NODAL OFFICER 2019 (9) TMI 319.
4. Vested Right
i. In the view of Gujrat high court in 019 (9) TMI 319, it was held that. 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. Such action violates the mandate of Article 19(1)(g) of the Constitution of India.
ii. The Punjab & Haryana high court in ADFERT TECHNOLOGIES PVT. LTD. VERSUS UNION OF INDIA AND ORS. 2019 (11) TMI 282 held that, The Respondent authorities were having complete record of already registered persons and at present they are free to verify fact and figures of any Petitioner thus in spite of being aware of complete facts and figures, the Respondent cannot deprive Petitioners from their valuable right of credit.
iii. Therefore, from the above we can conclude that it is a settled legal position that right to carry forward tax credit is a vested substantive right which cannot change by the new tax laws.
5.Arbitrariness violates Article 14
i. Section 16 of the CGST Act, 2017 allows the entitlement to take input tax credit in respect of the post-GST purchase of goods or services within return to be filed under Section 39 for the month of September following the end of financial year to such purchase or furnishing of the relevant annual return, whichever is earlier.
ii. Whereas, Rule 117 allows time-limit only up to 27th December 2017 to claim transitional credit on pre-GST purchases. Therefore, disallowing such vested right is offensive against Article 14 of the Constitution as it goes against the essence of doctrine of legitimate expectation. Relies on: (Para 14) M/S SIDDHARTH ENTERPRISES THROUGH PARTNER MAHESH LILADHAR TIBDEWAL VERSUS THE NODAL OFFICER 2019 (9) TMI 319.
iii. It is arbitrary, irrational and unreasonable to discriminate in terms of the time limit to allow the availment of the input tax credit with respect to the purchase of the goods and services made in the pre-GST regime and post-GST regime and the same could be termed as violative of Article 14 of the Constitution of India. Relies on: ADFERT TECHNOLOGIES PVT. LTD. VERSUS UNION OF INDIA AND ORS. 2019 (11) TMI 282
Closing Remarks
FAVOURABLE JUDGMENTS BUT ZERO BENEFIT.
- To the utmost surprise the GST Authorities have not opened the e-portal pursuant to any HC order. And in order to pay the taxes through credit, it is paramount that the credit should flow into the electronic ledger. Thus, alternatively even though the Court has directed the Authorities to allow the taxpayers to file TRAN-01 manually and allow them to pay taxes by adjusting the credit, it is still not practically possible to pay taxes without the credit flowing into the electronic ledger.
Conclusion
- Tax Payers who are getting Tran1 notices for assessment of the records can take a defense reply with abovementioned judgements.
- The main objective of this Article is to make readers aware of the fact that carry forward of their input credit from erstwhile tax regime into GST regime is vested right which cannot be taken away by non-filing, error while filing e.g., in the Tran1 form.
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