Facts of the Case

The Telangana High Court considered three connected writ petitions concerning transition and availment of pre-GST CENVAT/Input Tax Credit under the GST regime through FORM GST TRAN-1, including requests for reopening of the GST portal, acceptance or revision of TRAN-1, and recognition of transitional credit under Section 140 of the Central Goods and Services Tax Act, 2017 read with Rule 117 of the Central Goods and Services Tax Rules, 2017.

1. Vibgyor Drugs Pvt. Ltd. vs Union of India & Others

Vibgyor Drugs Pvt. Ltd. approached the High Court under Article 226 of the Constitution seeking a direction to the respondents to reopen the GST portal or, alternatively, accept the transitional TRAN-1 form manually. The petitioner also sought rectification of the GST return uploading system/software and restoration of Input Tax Credit of Rs. 94,80,016 stated to be lying in its books of account as on 30 June 2017.

The connected interlocutory application sought permission to utilise the said ITC and acceptance of a manually prepared TRAN-1 pending disposal of the writ petition.

2. M/s HSIL Limited vs Union of India & Others

HSIL Limited challenged Sections 140(2) and 140(5) of the CGST Act, 2017 to the extent that, according to the petitioner, those provisions 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 where duty or tax had been paid under the pre-GST regime.

The petitioner sought, inter alia:

  • a declaration concerning entitlement to Input Tax Credit for such capital goods;
  • permission to revise FORM GST TRAN-1, manually or through reopening of the portal under Rule 117 of the CGST Rules, 2017; and
  • transitional credit stated to amount to approximately Rs. 1.35 crore on capital goods in transit.

The petition also invoked constitutional protections under Articles 14 and 19(1)(g) of the Constitution of India.

3. M/s Everest Organics Limited vs Union of India & Others

Everest Organics Limited challenged the operation of Section 140 of the CGST Act, 2017 read with Rule 117 of the CGST Rules, 2017, insofar as it allegedly did not provide for transition of CENVAT credit paid after the appointed day into the electronic credit ledger.

The petitioner sought, among other reliefs:

  • reading down Section 140 to permit transition of CENVAT credit accumulated after the appointed day pursuant to proceedings under Section 174 of the CGST Act;
  • permission to avail CENVAT credit of Rs. 25,42,435 as claimed in FORM GST TRAN-1;
  • relief concerning denial of CENVAT credit of Rs. 18,75,775 on the ground that the claim had been made under an incorrect column of FORM GST TRAN-1; and
  • setting aside Order-in-Original No. 02/2021-22/Adjn-GST/Sgr dated 05 November 2021.

The constitutional challenge referred to Articles 14, 265 and 300-A of the Constitution of India.

Issues Involved

The principal issues arising from the connected petitions were:

  1. Whether taxpayers could be permitted to file, revise or correct FORM GST TRAN-1 for claiming transitional credit under the GST regime.
  2. Whether the GST common portal should be reopened to enable taxpayers to claim transitional credit.
  3. Whether a taxpayer unable to effectively claim transitional credit could seek acceptance of TRAN-1 manually.
  4. Whether transitional credit relating to capital goods received on or after the appointed day, where duty or tax had been paid under the pre-GST regime, could be claimed.
  5. Whether CENVAT 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.
  6. Whether transitional credit could be denied merely because the claim was allegedly made in an incorrect column of FORM GST TRAN-1.
  7. Whether the connected writ petitions stood covered by the Supreme Court decision in Union of India vs Filco Trade Centre Pvt. Ltd., 2022 SCC OnLine SC 912.

Petitioners’ Arguments

The petitioners, through their respective counsel, sought protection of their transitional credit claims and appropriate access to the TRAN-1 mechanism.

Their respective cases, as reflected in the reliefs recorded by the Court, included the following submissions:

  • accumulated and eligible pre-GST credit should not be lost merely because of difficulties connected with filing, revision or correction of FORM GST TRAN-1;
  • the GST portal should be reopened or manual filing should be accepted where necessary;
  • Vibgyor Drugs sought restoration/utilisation of Rs. 94,80,016 of ITC lying in its books as on 30 June 2017;
  • HSIL Limited asserted entitlement concerning transitional credit on capital goods in transit and sought credit of approximately Rs. 1.35 crore;
  • Everest Organics sought transition of CENVAT credit claimed at Rs. 25,42,435 and separately contested denial of Rs. 18,75,775 on the ground of an incorrect TRAN-1 column;
  • the relevant statutory provisions were challenged or sought to be read down to protect the claimed transitional credits; and
  • the matters were covered by the Supreme Court’s ruling in Union of India vs Filco Trade Centre Pvt. Ltd.

Respondents’ Arguments

The Union of India and the Central tax authorities were represented before the High Court by learned counsel, including counsel representing the Deputy Solicitor General of India and Standing Counsel for the Central Board of Indirect Taxes and Customs.

The common order does not record any detailed independent respondent-wise counter-submissions on the merits of each transitional credit claim. The material point expressly recorded by the Court is that the present writ petitions were submitted to be covered by the Supreme Court judgment in Union of India vs Filco Trade Centre Pvt. Ltd.

Accordingly, it would not be accurate to attribute additional detailed arguments to the respondents beyond what is expressly reflected in the common order.

Court Order / Findings

The Telangana High Court recorded that the present writ petitions were covered by the Supreme Court judgment in:

Union of India vs Filco Trade Centre Pvt. Ltd., 2022 SCC OnLine SC 912

The High Court noted the material directions flowing from the Supreme Court ruling:

  • the Goods and Services Tax Network (GSTN) was directed to open the common portal for filing the concerned forms for availing transitional credit through TRAN-1 and TRAN-2;
  • the period originally referred to was 01 September 2022 to 31 October 2022, which the common order records as having been extended to 30 November 2022;
  • GSTN was directed to ensure that there were no technical glitches during the extended period;
  • concerned officers were given 90 days thereafter to verify the veracity of the claim/transitional credit and pass appropriate orders; and
  • allowed transitional credit was to be reflected in the electronic credit ledger.

On that basis, 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..

Result:

  • W.P. Nos. 13540 & 15345 of 2018 and 8227 of 2022 were disposed of;
  • no order as to costs was made; and
  • pending miscellaneous petitions, if any, stood dismissed.

 

Important Clarification

  1. The Telangana High Court did not expressly adjudicate and finally determine the substantive admissibility of each rupee of transitional credit claimed by the three petitioners.
  2. The Court did not record an unconditional grant of:
    • Rs. 94,80,016 to Vibgyor Drugs Pvt. Ltd.;
    • Rs. 1.35 crore to HSIL Limited;
    • Rs. 25,42,435 or Rs. 18,75,775 to Everest Organics Limited.
  3. The petitions were disposed of in terms of the Supreme Court ruling in Union of India vs Filco Trade Centre Pvt. Ltd., which contemplated filing/revision of transitional credit forms followed by verification of the claims by the concerned authorities.
  4. The common order should therefore not be interpreted as a blanket judicial declaration that every transitional credit amount claimed by the petitioners stood automatically allowed.
  5. In the HSIL matter, the challenge concerning Sections 140(2) and 140(5) and capital goods in transit was part of the relief sought; however, the High Court disposed of the matter through application of the Filco Trade Centre framework rather than recording a separate detailed constitutional ruling on those provisions.
  6. In the Everest Organics matter, the challenges concerning post-appointed-day CENVAT credit, Section 174, incorrect-column reporting in TRAN-1, and the Order-in-Original formed part of the petition; the common order nevertheless disposed of the matter in terms of Filco Trade Centre rather than separately deciding each controversy through detailed findings.

Sections Involved

  • Section 140 of the Central Goods and Services Tax Act, 2017 — Transitional arrangements for Input Tax Credit
  • Section 140(2) of the CGST Act, 2017
  • Section 140(5) of the CGST Act, 2017
  • Section 174 of the CGST Act, 2017
  • Rule 117 of the Central Goods and Services Tax Rules, 2017
  • FORM GST TRAN-1
  • FORM GST TRAN-2
  • Article 14 of the Constitution of India
  • Article 19(1)(g) of the Constitution of India
  • Article 226 of the Constitution of India
  • Article 265 of the Constitution of India
  • Article 300-A of the Constitution of India
  • Section 151 of the Code of Civil Procedure, 1908 — in the interlocutory applications

Link to download the order -

https://www.mytaxexpert.co.in/uploads/1783319198_1152compressed.pdf

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