Kerala HC: Transitional ITC cannot be denied under GST if non-filing was due to technical glitches

The Kerala High Court dismissed an appeal filed by the GST department against the order passed favouring M/s Merchem India Private Limited. The taxpayer has been conferred with the statutory right over the unutilised Input Tax Credit (ITC) brought forward from the previous indirect tax regime in Form GST TRAN-1. 

Previously, a single Judge gave the opportunity of hearing to the taxpayer who requested the transition of ITC that was not availed. The order was issued that ITC does not necessitate court’s interference and is safe in the eyes of the law. 

Unutilised ITC is the asset of every taxpayer, and this right cannot get defeated by any gaps in procedural norms due to technical glitches. The opportunity of hearing is to simplify the decision-making process and is a fundamental principle of natural justice. Therefore, the technical issues cannot hinder the rendering of justice.

M/s Merchem India Private Limited filed Form TRAN-1 to transfer balance CENVAT credit as of 30th June 2017 to its Electronic Credit Ledger under the GST regime. However, the petitioner could not successfully submit this form due to the technical glitch faced on 26th September 2017. The petitioner got a communication message stating that the form is processed with error and filed a complaint against this technical glitch. A writ petition was later filed as the petitioner never received a reply.

The GST department was aggrieved by the judgment in which the Judge also directed the GST Council to accept the petitioner’s request for allowing the transitional ITC not utilised as per the GST law after giving an opportunity of being heard. However, the new issue that cropped up was whether such an opportunity could be given when there is a delay in filing Form GST TRAN-1 due to technical glitches.

Accordingly, the Kerala High Court passed the order W.A. No. 570 of 2021, dated 5th July 2021 and took note of specific observations. The appellant noticed IT-related technical glitch, which prevented them from making genuine attempts to file the form by the due date prescribed by the GST rules across India. 

An IT Redressal Committee under the GST Council was formed to resolve the technical lapses. Meanwhile, the petitioner also mailed the screenshot of the error to the GST help desk and sought assistance in filing. Multiple efforts were made between 1st July 2017 and 27th December 2017 to file the Form GST TRAN-1.

The CGST Act still does not provide any provision for expiry of unutilised ITC due to non-filing of Form GST TRAN-1. Such ITC must be credited to the electronic credit ledger of the taxpayer. Any failure of submitting transitional ITC details contravenes Section 140(1) of the CGST Act and Rule 117(3) of the corresponding Rules. The tax authorities can deny such transitional credit upon satisfying the grounds mentioned in the proviso to Section 140(1) of the Act. 

The rules cannot override the provisions of the Act. Hence, technical glitches do not fall under the ambit of the grounds mentioned to deny such ITC claims. Reference was made to similar case law passed earlier concerning Adfert Technologies Pvt. Ltd. v. Union of India and others dated4th November 2019.

Therefore, the High Court passed the order favouring the taxpayer, allowing the transitional ITC to be passed onto them for utilisation under the GST law.

For any clarifications/feedback on the topic, please contact the writer at annapoorna.m@cleartax.in