GST transitional credit saga ends in a victory of taxpayers

The judgment of the Supreme Court in Filco Trade Centre is a huge relief to the taxpayers who were running from pillar to post in claiming their transitional credits. The Supreme Court has given far reaching directions and a new window has been opened up for all those who missed the bus as well as the people who could not board the bus with their correct claims. The Supreme Court Order is a blanket order covering all categories of aggrieved assesses, thereby settling the dead lock of matters pending before various forums

One of the primary objectives of introduction of the Goods and Services tax in India was seamless and smooth flow of input tax credit at each stage of supply chain. The overlapping of the transactions and contracts during the period prior to and post introduction of GST and compliance thereof, in old regime and GST regime was an area of major concern especially for transition of the input tax credit. A specific provision was made in GST statute for transfer of credit available in respect of VAT, service tax and excise duty to GST. Sections 140 to 142 of CGST Act 2017 and Rule 117 of CGST Rules 2017 provide for availing the transitional credits by filing of TRAN-1 form.

The last date for filing the TRAN-1 forms was 27 December 2017. The Rule 120A of aforesaid CGST Rules provided for revision of the TRAN-1 by the aforesaid date. During that period, the messages were floating in social media that the due date for filing TRAN-1 would be extended but no such extension was granted. Consequently, large number of taxpayers could not file the TRAN-1 on time due to which they lost the credit. Some taxpayers faced technical errors, problems and glitches in filing the TRAN-1 forms. Some of them had taken the screen shots of the errors as the evidence of the technical glitches. Some taxpayers filed the TRAN-1 but committed clerical errors and mistakes like filing the credit details in wrong column and hence, the credit was not transited.

Since no remedy was in sight, number of taxpayers approached their jurisdictional High Courts seeking relief inter-alia, on the ground that the right to credit is a vested indefeasible right and the same cannot be restricted basis purely technical considerations. A challenge was also mounted in several of these petitions that the right to utilize the CENVAT credit duly availed is an indefeasible right and no time limit can be inserted to restrict the transition and availment of said credit under GST. Divergent views were expressed by various High Courts on this matter and therefore, the revenue department as well as the taxpayers approached Supreme Court for redressal of this grievance.

Despite GST completing half a decade of its existence, disputes regarding transitional credit were still not seeing the light of the day. Finally, the issue with respect to the carry forward of credit from the erstwhile regime and divergence of the views of various High Courts has been put to an end by the decision of Supreme Court in the case of Union of India & Ors V Filco Trade Center Pvt Ltd & others on July 16, 2022. In a historic decision the Supreme Court has granted relief to taxpayers who have not been able to transition the balance of credit in erstwhile regime due to a variety of issues mainly pertaining to technical glitches on the GSTN portal. Supreme Court has given the following direction in this case:

1. Goods and Service Tax Network (GSTN) to open a common portal for filing concerned forms for availing Transitional Credit through TRAN-1 and TRAN-2 for two months i.e. w.e.f. 01.09.2022 to 31.10.2022.

2. Considering the judgments of the High Courts on the then prevailing peculiar circumstances, any aggrieved registered taxpayer is directed to file the relevant form or revise the already filed form irrespective of whether the taxpayer has filed writ petition before the High Court or whether the case of the taxpayer has been decided by Information Technology Grievance Redressal Committee (ITGRC).

3. GSTN has to ensure that there are no technical glitches during the said time.

4. The concerned officers thereafter, to verify within 90 days, the claims of transitional credit and pass appropriate orders thereon on merits after granting appropriate reasonable opportunity to the parties concerned.

5. Thereafter, the transitional credit allowed, is to be reflected in the electronic credit ledger.

6. If required, GST Council may also issue appropriate guidelines to the field formations in scrutinizing the claims.

This judgement of the Apex Court is a welcome relief for the industry as it not only puts an end to the litigation around timelines for filing form GST TRAN-1, but it also extends this benefit to the taxpayers who had chosen not to litigate this issue. Furthermore, this judgement fortifies the view that credit once availed is an indefeasible vested right which cannot be varied especially on account of procedural problems and lapses. This judgement is a right step towards achieving the core objective of GST regime i.e. seamless flow of credit. Considering that the verification will have to be conducted by the jurisdictional officers in each State, a Circular laying down the guidelines for verification of the claims will make it easier for both the officers and tax payers. The relief that follows is exemplary as all taxpayers across the country who were struggling to get the transitional credit due to technical or non-technical glitches could now claim benefit whether they have filed writ petition or not.

Taxpayers are to be advised to file claims without waiting for the last date. It would be a misfortune if there are technical glitches again which would lead to a fresh round of litigation. If there is still a technical glitch, the taxpayers should file letters with the authorities. The GST council has been given the power to issue appropriate guidelines to the field formations to scrutinize the claims. It is hoped that this is done well before the due dates fixed for opening the portal. The trade and industry have to ensure that they do their part of the job properly as the next time around things will be extremely difficult unless they can positively prove technical glitches once again.

The Supreme Court judgement is on the principles of equity and upholds earlier judgements to allow the vested right to be carried forward. This judgement will now pave the way for conclusion of many writ petitions, filed in jurisdictional High Courts, to claim the credit. In an era where GST litigation is pending in various High Courts for release of these 'vested rights', which could not be availed at various points, mainly due to no fault of the taxpayer, this omnibus

judgement from the Apex Court will go a long way to pacify the industry and set building blocks for 'Ease of Doing Business' for the near future.

This ruling from the apex court would bring immediate relief to thousands of businesses hanging in lurch for justice on this matter of transitional credit. With this ruling all pending matters lodged in tax office, appellate authority, High court/s, Information Technology Grievance Redressal Committee, and GST council shall be quickly disposed of. This is a welcome ruling for all the taxpayers that will arrest legitimate litigation in the country on the matter of transitional credit.

As next steps the industry would need to assess their transitional credit (which they had either written off and forgotten about or claimed in partial or full) and evaluate whether this golden ticket will take them to their electronic credit ledger getting swelled or not. Now a question that crop up is- whether taxpayers who had reversed their transitional credit in books on account of not being able to file Tran-1 would have to revisit their financial statements, income tax returns and other allied filings.

Indian Industry and trade had a legitimate expectation in the form of smooth and seamless transition of pre-GST credits to GST. The assessees had to deal with complex rules, procedures, time-frame and also faced huge challenges on account of the technical glitches in the GST portal. The judgment of the Supreme Court in Filco Trade Centre is a huge relief to the taxpayers who were running from pillar to post in claiming their transitional credits. The Supreme Court has given far reaching directions and a new window has been opened up for all those who missed the bus as well as the people who could not board the bus with their correct claims. The Supreme Court Order is a blanket order covering all categories of aggrieved assesses, thereby settling the dead lock of matters pending before various forums.

(The author is the former Principal Chief Commissioner CGST Mumbai. Views expressed by the author are his personal)