Facts of the Case

INM Technologies Pvt. Ltd., respondent No. 2, was a registered dealer under the Central Goods and Services Tax Act, 2017 and had been allotted GSTIN 29AADC17257B1ZK for its business of manufacture and sale of pharmaceuticals, among other activities. Before the introduction of GST, it was registered under the Karnataka Value Added Tax Act, 2003 and paid the applicable taxes thereunder until the CGST Act came into force on 01.07.2017.

On transition to the GST regime, respondent No. 2 was permitted to carry forward credit under the CENVAT regime into the CGST regime by claiming electronic credit through the prescribed TRAN-1 form. The form was required to be uploaded by 27.12.2017.

Respondent No. 2 claimed that despite efforts to upload the relevant form and avail the transitional credit, its electronic credit ledger did not reflect the credit on the web portal. Although it claimed entitlement to carry forward input tax credit of Rs. 16,27,341/-, the portal showed a zero credit balance.

The taxpayer raised grievances and lodged complaints with the authorities seeking rectification. Several representations were also made to the concerned departmental authorities, but no effective remedy was provided. Consequently, respondent No. 2 filed W.P. No. 226277/2020 (T-RES), seeking a writ of mandamus directing the authorities to make arrangements for reflecting CENVAT credit of Rs. 16,27,341/- in its electronic credit ledger as shown in TRAN-1, or alternatively to permit submission of physical/manual copies. It also sought consideration of its complaints and representations.

The learned Single Judge allowed the writ petition, holding that under Section 140 of the CGST Act, 2017, a registered person was entitled to carry forward eligible credit from the CENVAT regime into the GST regime and that the authorities had a statutory duty to rectify the electronic ledger so as to reflect the carry-forward input tax credit. The State authorities challenged that order in writ appeal.

Issues Involved

The principal issue before the Division Bench was:

Whether the learned Single Judge was justified in issuing a writ of mandamus directing the appellants to facilitate respondent No. 2 in reflecting its input tax credit in the electronic credit ledger or, alternatively, to consider the physical hard copies furnished in that regard?

The case further involved the effect of Section 140 of the CGST Act, 2017 concerning transitional credit and the impact of the subsequent Supreme Court directions in Union of India & Anr. vs FILCO Trade Centre Pvt. Ltd. & Anr. regarding reopening of the common GST portal for filing or revising TRAN-1 and TRAN-2 forms.

Petitioner’s / Taxpayer’s Arguments

INM Technologies Pvt. Ltd. contended that:

  1. It was entitled to carry forward eligible CENVAT credit of Rs. 16,27,341/- into the GST regime.
  2. Despite efforts to upload the TRAN-1 form and claim transitional credit, the electronic credit ledger did not reflect the amount and continued to show a zero balance.
  3. Complaints and grievances were registered with the authorities, but no effective remedial action was taken.
  4. Several representations were submitted to the concerned departmental authorities without resolution.
  5. The authorities were required to facilitate reflection of the eligible transitional credit in the electronic credit ledger or permit submission of manual/physical documents.
  6. Reliance was placed on the Supreme Court judgment dated 22.07.2022 in Union of India & Anr. vs FILCO Trade Centre Pvt. Ltd. & Anr., under which GSTN was directed to open the common portal for filing the relevant forms for availing transitional credit through TRAN-1 and TRAN-2.
  7. Under the Supreme Court directions, aggrieved taxpayers were given liberty to file the relevant form or revise an already-filed form irrespective of whether they had filed a writ petition before a High Court.

Respondent’s / State Authorities’ Arguments

The State of Karnataka and its tax authorities challenged the order of the learned Single Judge and sought its setting aside in the writ appeal.

The appeal questioned the correctness of the mandamus requiring the authorities to facilitate reflection of the transitional input tax credit in the electronic ledger or to consider physical hard copies. The State appellants sought reversal of the Single Judge’s order dated 03.02.2021 passed in W.P. No. 226277/2020.

However, during consideration of the appeal, the legal position had materially developed due to the subsequent Supreme Court judgment in FILCO Trade Centre Pvt. Ltd. and the issuance of Circular No. 180/12/2022-GST dated 09.09.2022 by the Government of India.

Court Order / Findings

The Karnataka High Court Division Bench held that there was no infirmity in the judgment of the learned Single Judge.

The Court noted that the learned Single Judge had allowed the writ petition on the basis that, under Section 140 of the CGST Act, 2017, a registered person was entitled to carry forward eligible credit from the CENVAT regime into the GST regime through the electronic credit ledger and that the authorities had a statutory duty concerning rectification of the electronic ledger to reflect such carry-forward credit.

The Division Bench specifically considered the subsequent Supreme Court judgment dated 22.07.2022 in Union of India & Anr. vs FILCO Trade Centre Pvt. Ltd. & Anr. The Court recorded that the Supreme Court had directed the Goods and Services Tax Network to open the common portal for filing forms relating to transitional credit through TRAN-1 and TRAN-2 for a specified period.

The High Court further noted that the Supreme Court had granted liberty to aggrieved assessees to file the relevant form or revise an already-filed form, irrespective of whether the taxpayer had earlier filed a writ petition before a High Court. GSTN was also directed to ensure that there was no technical glitch during the relevant period.

The Court also considered Circular No. 180/12/2022-GST dated 09.09.2022, issued by the Government of India in compliance with the Supreme Court judgment. The Circular provided for opening the common portal for filing or revising TRAN-1 and TRAN-2 and permitted aggrieved registered assessees to upload the relevant declaration or revised forms.

Accordingly, the Division Bench held:

  • There was no infirmity in the Single Judge’s judgment.
  • In view of the subsequent Supreme Court judgment in FILCO Trade Centre Pvt. Ltd. and the Central Government Circular dated 09.09.2022, the writ appeal did not survive for further consideration.
  • The writ appeal was disposed of accordingly.
  • Pending interlocutory applications were also disposed of.

Important Clarification

This judgment is significant for disputes concerning transitional credit where eligible CENVAT credit was not reflected in the electronic credit ledger due to portal-related or technical difficulties.

The Division Bench did not interfere with the Single Judge’s relief and expressly found no infirmity in that judgment. At the same time, the Court recognized that the subsequent nationwide mechanism created pursuant to the Supreme Court’s decision in FILCO Trade Centre Pvt. Ltd. and Circular No. 180/12/2022-GST had provided aggrieved registered taxpayers an opportunity to file or revise TRAN-1 and TRAN-2.

A particularly important aspect is that the Supreme Court mechanism, as recorded by the Karnataka High Court, extended the opportunity to aggrieved taxpayers irrespective of whether they had filed a writ petition before a High Court. Therefore, the subsequent Supreme Court directions and implementing circular materially governed the continuing controversy concerning transitional credit claims.

Sections / Legal Provisions Involved

Section 140 of the Central Goods and Services Tax Act, 2017 – Transitional arrangements for input tax credit, including carry forward of eligible credit from the pre-GST regime into the GST regime, subject to the statutory framework.

Section 4 of the High Court Act, 1961 – Provision under which the writ appeal was filed against the order of the learned Single Judge.

TRAN-1 and TRAN-2 Framework – Statutory forms/mechanism relevant to claiming transitional credit during migration into the GST regime.

Link to download the order -https://www.mytaxexpert.co.in/uploads/1783313863_1004compressed.pdf

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