GST transitional credit- End of a five- year protracted litigation

A strenuous tussle between the Government of India and the taxpayers has come to an end. With the ruling of Supreme Court in Union of India & Anr vs Filco Trade Centre Pvt Lts & Anr[1], the Hon’ble Apex Court has put to rest the long pending issue of transitional credit under the new GST regime.

As may be recalled, when Goods and Services Tax (‘GST’) was introduced in 2017, it subsumed different kinds of levies (both Central and State) such as Central Excise, Service Tax, Value Added Tax, etc. In order to enable a smooth transition, the new GST Legislation provided for a transition mechanism allowing taxpayer to carry over the accumulated input tax credits under the earlier indirect tax regime to GST. To allow such benefit, Section 140 of the Central Goods and Services Tax Act, 2017 (‘CGST Act’) provided for filing of Form Tran-1 through which the taxpayers could carry over their accumulated tax credits over to the new GST regime.

While the provisions were beneficial for taxpayers to allow easy transition, the implementation was not so smooth and easy. There were various instances of technical glitches which hampered the transition of several taxpayers to the new GST Network (‘GSTN’). What was more difficult – the tax administration was not really cooperative or receptive of such difficulties of the taxpayers, leaving the taxpayer with no other alternative but to knock on the doors of various High Courts.

Most High Courts in India did take cognizance of the plight of the taxpayers by granting relief in the form of opening up of GSTN for filing or refiling but there were some divergent views as well. It was only when the litigation increased and High Courts came up with divergent views, that the Central Board of Indirect Tax and Customs (‘CBIC’) took steps and issued a Circular No. 39/13/2018-GST dated 03 April 2018 for setting up an IT Grievance Redressal Mechanism. However, despite providing such mechanism, the onus was still on the taxpayer to demonstrate that non-filing of Form Tran-1 was on account of a technical glitch on the GST portal, and this required the taxpayer to submit necessary evidence to prove their claim. In this relation, the aforesaid circular provided:

“Problems which are proposed to be addressed through this mechanism would essentially be those which relate to Common Portal (GST Portal) and affect a large section of taxpayers. Where the problem relates to individual taxpayer, due to localised issues such as non-availability of internet connectivity or failure of power supply, this mechanism shall not be available.”

Thus, the taxpayers were still at the mercy of the tax administration to determine what would be considered a technical glitch on the GST portal, and what would be considered localised issue (as per the aforementioned circular). This led to another spate of litigation before various High Courts, again some varying outcomes.

Ultimately the matter reached Hon’ble Supreme Court for its consideration. Not that this was the first time the issue was before the Supreme Court. In the past as well, there have been instances where the Hon’ble Supreme Court granted relief to taxpayers on this issue. However, in the latest ruling, the Hon’ble Supreme Court has come out with a blanket relief for any and every taxpayer who could not either file Form Tran-1/ Form Tran-2 or could not revise the same irrespective of IT glitch and, irrespective whether the taxpayer had filed a writ petition or had filed any such application with the GST authorities.

The Supreme Court has ruled that all taxpayers can file or revise their returns within the prescribed timelines of 60 days ie between 01 September 2022 to 31 October 2022. During the said period, the GSTN will open the GST portal for such filing, and it has been directed to the authorities to ensure that there are no technical glitches in the portal during the said period.

It is important to note that the input credits will not be automatically transitioned, and that the decision will lie with the authorities who will verify each claim on merits. Also, this verification exercise must be carried out in a time bound manner, i.e., within 90 days from the date of filing of such returns. The GST authorities are required to pass appropriate orders thereon on merits after granting appropriate reasonable opportunity to the parties concerned.

While the above ruling of the Hon’ble Supreme Court is a welcome move, there are still some areas, as listed below, which may cause some discomfort to taxpayers and may result in further litigation:

–  Technical glitches: Although it has been directed that the GSTN portal be free from technical glitches, the past experience of 5 years has been otherwise. If the technical glitches continue, the entire exercise may get extended; and

–    Approach of tax authorities: It is no secret that wherever any discretion is vested with the tax authorities to decide any issue on merit, the likely outcome of it is (generally) against the taxpayer

It is likely that the GST Council may come out with guidelines for implementing the directions of the Hon’ble Supreme Court and hence, an eye may be kept out for such instructions which may assist in filing the prescribed forms.

In conclusion, the Supreme Court ruling is a big relief to the taxpayers who were forced to run from pillar to post to claim their rightfully accumulated input tax credit. It is strongly recommended that taxpayers who were unable to transition the input tax credit from the erstwhile indirect tax regime, should avail this facility within the prescribed window of two months. Preparatory work should commence at the earliest so that businesses (facing this issue) can keep the necessary information/ documents ready for filing as soon as the GSTN portal is re-opened on 1 September 2022.

If you need any further information on the above, please feel free to mail Deni Shah – Head, Global Trade and Tax Practice at deni.shah@acuitylaw.co.in.

[1] Special Leave to Appeal (C) No(s).  3270932710/2018

The information contained in this document is not legal advice or legal opinion. The contents recorded in the said document are for informational purposes only and should not be used for commercial purposes. Acuity Law LLP disclaims all liability to any person for any loss or damage caused by errors or omissions, whether arising from negligence, accident, or any other cause.