Digitization Is For The Convenience Of Tax Payers Not To Harass Them; Bombay High Court On Transition Of Credit Denial Due To Technical Glitch In GST Network

Division bench of Justice Ujjal Bhuyan and Justice Abhay Ahuja was hearing a writ petition filed by BMW India Financial Services challenging the denial of transition of credit by GST authorities as being violative of Articles 14, 265 and 300-A of the Constitution of India.

Court directed the GST Maharashtra Commissionerate, GSTN and the Goods and Services Tax Council to consider the case of the petitioner and after looking into the merits of the claim, to facilitate the transition of credit of over Rs.17 lakh into the petitioner's credit ledge within four weeks.

Case Background

Petitioner is a Non-Banking Financial Company registered under the Reserve Bank of India Act, 1934 and is engaged in financing automobiles in the form of loans and financial leases to various customers in addition to acting as a corporate insurance agent for some insurance companies.

According to the petitioner company, it entered into leasing contracts with various customers in the erstwhile indirect tax regime (pre-GST) which have been continuing post introduction of Goods and Services Tax Act, 2017, i.e. post July 1, 2017. On such contracts, the petitioner had paid Service tax on 10% of the interest portion of such contract and had upfront deposited 100% Value Added Tax in the first month of the contract itself, on the entire value of rentals as per specific provisions.

Thus, petitioner contended that it is entitled to carry forward the VAT paid in terms of section 142(11)(c) of the Maharashtra GST Act, 2017 which is pari materia with section 142 (11)(c) of the Central Goods & Services Tax Act, 2017 as State Credit/VAT. The transitional VAT credit is also required to be reflected in Form GST TRAN-1 as set out under rule 118 read with rule 117 of the MGST Rules 2017.

Submissions

Appearing on behalf of BMW, Advocate Karthik Sundaram along with Advocates Ashwini, Chandni Tanna and Shrushti Relekar submitted that the proportionate VAT amount of Rs.17,07,673 pertaining to the period post July 1, 2017, but paid upfront before June 30, 2020 was to be transitioned to GST regime. The amount is reflective of the VAT paid which is eligible to be carried forward as State Tax Credit in terms of Section 142(11) (c) of the MGST Act, they argued.

Advocate Sundaram contended that on December 27, 2017 his client submitted declaration in Form GST TRAN-I for the unit in Maharashtra for transitioning credit of Rs.17,07,673 and had also received acknowledgment of the same. He submitted that post filing of the Form, petitioner also received a confirmation e-mail from 'do not reply @gst.gov.in in confirming the successful filing of the transition Form by the petitioner.

However, the entire credit of VAT/State tax of Rs.17,07,673 as reported in column 11 of the Form GST TRAN 1 was not reflected on the electronic credit ledger as the credit could not be transitioned despite submitting the form on time on the GSTN–common electronic portal in time. The said failure is due to the technical glitches in the GSTN portal as GSTN has been beset with technical glitches which has defeated the petitioner's substantive right to transition tax credit for no fault of theirs, Adv Sundaram argued.

He added that the technical glitches faced by the petitioner in the State of Maharashtra are identical to what was faced in Delhi and Haryana and thus when the appropriate relief has been given to the petitioner in those States, the same can be extended to the petitioner in the State of Maharashtra as well. Petitioners relied upon the decision of Delhi High Court in Bhargava Motors v/s. UOI 2019 (26) GSTL 164.

Senior Advocate Pradeep Jetly appeared on behalf of GSTN, GST Council and the Union of India. Whereas, AGP Dishyant Kumar appeared for the State and GST Maharashtra Commissionerate.

Sr Adv Jetly submitted that the petitioner has not produced any evidence to validate its claim of technical glitch. Still the application was timely forwarded to MAHAVIKAS Branch of the Maharashtra GST Department through proper channels and also to the GSTN. He also reiterated that the petitioner's application was put up before the first meeting of ITGRC but the same was not approved.

Adv Jetly relied on the decision of the High Court in NELCO Limited v/s. Union of India and Others to submit that unless there is a technical glitch from the GSTN side, which according to the ITGRC is not the case, the portal cannot be re-opened. He submitted that there is a clear finding on this aspect and the 1st ITGRC has not approved the petitioner's case. Thus, NELCO's decision is clearly applicable and not the decision in the case of Bhargava Motors (supra).

Order

The bench observed-

"It is not necessary for us to dwell on the case of Bhargava Motors (supra) as although there also as in this case the TRAN-1 was filed on 27th December, 2017 and the duty credit was not reflected in its electronic credit ledger, the fact that satisfied the Court was that the Petitioner had difficulty in filling up correct credit amount in the TRAN-1 form, which does not appear to be the fact in the case at hand.

In fact, in this case, the filing of Form TRAN-1 on 27th December, 2017 has been found to be successful and there is no reference to any difficulty in filling up the correct credit amount. In this case, we are not examining the issue whether the Petitioner is entitled to VAT tax credit as claimed by the Petitioner which will be examined by the authorities. What we are concerned with is that despite the admitted successful filing of Form TRAN-1 by the Petitioner on 27th December, 2017, the request of the Petitioner for transitioning of credit has not been approved by the ITGRC merely on the basis that there were no technical glitches on the GSTN side. There is no further explanation or clarification or evidence on the issue by the Respondents."

Finally, Court questioned how the GST authorities could deny the petitioner's claim for no fault of theirs-

"The whole objective of digitization is to convenience the tax payers and not to harass them. We are conscious that the GST system is still evolving in its implementation. We are of the view that merely because there were no technical glitches in the GSTN with respect to the Petitioner's TRAN-1 which was admittedly filed in time, the claim of the Petitioner, if it was otherwise eligible in law, cannot be rejected for no apparent fault on the part of the Petitioner. This cannot be the objective of the GST system or digitisation. Such a situation cannot be countenanced as it would be wholly unfair and unjust. We are, therefore, of the view that this is a fit case for invocation of our writ jurisdiction."

The bench allowed the petition but clarified that they have not examined the merits of the case nor the petitioner's claim to VAT credit.

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