Facts of the Case

The Telangana High Court considered three writ petitions involving distinct but connected disputes concerning migration and availment of accumulated CENVAT/Input Tax Credit into the GST regime through FORM GST TRAN-1, including requests for reopening of the GST portal, manual acceptance or revision of TRAN-1, transitional credit relating to capital goods in transit, and credit arising or claimed after the appointed day.

In W.P. No. 13540 of 2018, Vibgyor Drugs Pvt. Ltd. sought a direction requiring the respondents to reopen the GST portal or, alternatively, accept the transitional TRAN-1 form manually, rectify the GST return uploading system/software, and restore Input Tax Credit of Rs. 94,80,016 stated to be lying in its books of account as on 30 June 2017. The interim application also sought permission to utilise that credit and submit manually prepared TRAN-1.

In W.P. No. 15345 of 2018, M/s HSIL Limited challenged Sections 140(2) and 140(5) of the CGST Act, 2017 to the extent they allegedly did not provide transitional credit for capital goods in transit on or after the appointed day, namely capital goods received on or after the appointed day though duty or tax had been paid under the pre-GST regime. The petitioner also sought permission to revise FORM GST TRAN-1, manually or through reopening of the portal under Rule 117 of the CGST Rules, 2017, and claimed transitional credit of approximately Rs. 1.35 crore.

In W.P. No. 8227 of 2022, M/s Everest Organics Limited challenged Section 140 of the CGST Act read with Rule 117 of the CGST Rules insofar as it allegedly did not provide for transition of CENVAT credit paid after the appointed day. It sought transition of credit accumulated pursuant to proceedings under Section 174 of the CGST Act, claimed CENVAT credit of Rs. 25,42,435, and separately challenged denial of Rs. 18,75,775 on the ground that the amount had been claimed under an incorrect column of FORM GST TRAN-1. The petitioner also sought setting aside of the specified Order-in-Original dated 05 November 2021.

Issues Involved

The principal issues arising from the connected petitions were:

  1. Whether taxpayers facing difficulty in filing, revising, or correctly submitting FORM GST TRAN-1 could obtain reopening of the GST common portal or permission for manual filing.
  2. Whether accumulated pre-GST CENVAT/Input Tax Credit could be transitioned under Section 140 of the CGST Act, 2017 read with Rule 117 of the CGST Rules, 2017.
  3. Whether transitional credit could be claimed in respect of capital goods received on or after the appointed day where duty or tax had been paid under the pre-GST regime.
  4. Whether credit paid or accumulated after the appointed day pursuant to proceedings under Section 174 of the CGST Act could be transitioned into the electronic credit ledger.
  5. Whether otherwise claimed CENVAT credit could be denied merely because it had been entered under an allegedly incorrect column in FORM GST TRAN-1.
  6. Whether the connected petitions stood covered by the Supreme Court judgment in Union of India vs Filco Trade Centre Pvt. Ltd., 2022 SCC OnLine SC 912.

Petitioners’ Arguments

The petitioners, through their respective claims and prayers, contended that legitimate transitional credit should not be lost because of restrictions, technical difficulties, inability to file or revise TRAN-1, the manner of reporting in the form, or the timing of receipt of capital goods or crystallisation of credit.

Vibgyor Drugs Pvt. Ltd. sought restoration and utilisation of Rs. 94,80,016 of ITC reflected in its books as on 30 June 2017 and requested reopening of the portal or manual acceptance of TRAN-1.

M/s HSIL Limited asserted that capital goods received on or after the appointed day, where tax or duty had already been paid under the pre-GST regime, should not be excluded from transitional credit. It challenged the statutory provisions to the extent of such alleged exclusion and sought revision of TRAN-1 for credit of approximately Rs. 1.35 crore.

M/s Everest Organics Limited contended that Section 140 read with Rule 117 should not operate so as to deny transition of CENVAT credit paid after the appointed day pursuant to proceedings under Section 174. It further disputed denial of Rs. 18,75,775 merely because the credit had allegedly been reported in an incorrect TRAN-1 column and sought relief regarding its broader credit claim of Rs. 25,42,435.

Respondents’ Arguments

The Union of India and the Central Tax/CBIC authorities were represented before the High Court. The common order does not record an elaborate, separate issue-wise exposition of the respondents’ submissions on the merits of each individual transitional credit claim.

The decisive submission recorded by the Court was that the present writ petitions were covered by the Supreme Court judgment in Union of India vs Filco Trade Centre Pvt. Ltd. Therefore, instead of independently adjudicating each constitutional, statutory, technical, or factual controversy, the connected petitions could be disposed of in terms of the Supreme Court’s governing directions.

Court Order / Findings

The Telangana High Court recorded that the writ petitions were covered by the Supreme Court decision in Union of India vs Filco Trade Centre Pvt. Ltd., 2022 SCC OnLine SC 912.

The High Court noted that, in Filco Trade Centre, the Supreme Court had directed GSTN to open the common portal for filing the concerned forms for availing transitional credit through TRAN-1 and TRAN-2. The common order further records the filing window as running from 01 September 2022 to 31 October 2022, subsequently extended to 30 November 2022.

The Court also noted the Supreme Court directions that:

  • GSTN should ensure absence of technical glitches during the extended period;
  • concerned officials should have 90 days thereafter to verify the veracity of the transitional credit claims and pass appropriate orders; and
  • allowed transitional credit should be reflected in the electronic credit ledger.

Accordingly, the Telangana High Court disposed of all three writ petitions in terms of the Supreme Court judgment in Union of India vs Filco Trade Centre Pvt. Ltd. There was no order as to costs, and pending miscellaneous petitions, if any, stood dismissed.

Important Clarification

The High Court did not separately decide every substantive challenge on merits, including the constitutional challenge to Sections 140(2) and 140(5), the entitlement to transitional credit for capital goods in transit, the transition of credit arising after the appointed day pursuant to Section 174 proceedings, or the effect of entering credit in an incorrect TRAN-1 column.

Instead, the Court treated the petitions as covered by the Supreme Court’s ruling in Union of India vs Filco Trade Centre Pvt. Ltd. and disposed of them in terms of that judgment. Therefore, the order should not be presented as an independent final declaration by the Telangana High Court that every disputed credit amount claimed by each petitioner was automatically admissible. The Supreme Court framework contemplated filing or revision of the relevant transitional forms, followed by verification of the claim by the concerned authorities and reflection of allowed credit in the electronic credit ledger.

Sections Involved

  • Section 140, Central Goods and Services Tax Act, 2017 – Transitional arrangements for input tax credit
  • Section 140(2), CGST Act, 2017 – Specifically challenged in W.P. No. 15345 of 2018
  • Section 140(5), CGST Act, 2017 – Specifically challenged in W.P. No. 15345 of 2018
  • Section 174, CGST Act, 2017 – Referred to concerning proceedings and credit claimed after the appointed day
  • Rule 117, Central Goods and Services Tax Rules, 2017 – Transitional credit procedure and TRAN-1-related compliance
  • Article 14, Constitution of India – Equality and non-arbitrariness
  • Article 19(1)(g), Constitution of India – Freedom to practise any profession or carry on occupation, trade or business
  • Article 265, Constitution of India – No tax except by authority of law
  • Article 300A, Constitution of India – Protection against deprivation of property save by authority of law
  • Article 226, Constitution of India – High Court writ jurisdiction
  • Section 151, Code of Civil Procedure, 1908 – Inherent powers of the Court, invoked in interlocutory applications

Link to download the order -

https://www.mytaxexpert.co.in/uploads/1783317880_1151compressed.pdf

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