Facts of the Case

The petitioner, M/S Tikona Infinet Private Limited, an internet service provider, entered into a Business Transfer Agreement dated 17.08.2017 with M/s Tikona Digital Network Pvt. Ltd. (TDN), under which TDN's business was transferred to the petitioner along with an accumulated, unutilised input tax credit balance exceeding Rs.3,13,68,997/-. Under Section 18(3) of the GST Act read with Rule 41 of the CGST Rules, such a transfer required the transferor to file Form GST ITC-02 electronically. As the functionality for filing Form ITC-02 was not available on the common portal (then in its nascent months) despite the petitioner communicating this to the jurisdictional authority, and faced with acute working capital pressure, the petitioner manually accepted and availed the transferred ITC through GSTR-3B instead. After a lapse of nearly five years, a show cause notice dated 28.02.2023 was issued demanding the differential ITC of Rs.2,88,35,905.60/- along with interest and penalty, noting a mismatch between the ITC reflected in GSTR-2A (Rs.2,22,24,921.08/-) and the ITC availed (Rs.5,10,60,826.68/-). Despite the petitioner's detailed reply, the respondent confirmed the demand by order dated 17.04.2023.

Issues Involved

  1. Whether the petitioner's objections to the show cause notice were duly considered before confirming the demand.
  2. Whether the demand could be sustained where the transfer mechanism prescribed (Form GST ITC-02) was itself non-functional on the portal at the relevant time, forcing a manual workaround.

Petitioner's Arguments

(The petitioner's written reply, considered by the Court, argued that the functionality for Form ITC-02 was unavailable on the common portal during the relevant period, that the non-availability had been communicated to the jurisdictional Assessing Authority without response, and that the manual adjustment was a necessity forced by acute working-capital pressure rather than any attempt to evade scrutiny.)

Respondent's Arguments

  • The Revenue's counsel argued that the petitioner's objections had in fact been considered, that the order recorded that a personal hearing opportunity was afforded but not availed, and that no illegality attached to the impugned order.

Court Order / Findings

  • On perusing the petitioner's reply and the impugned order, the Court found prima facie that the petitioner's objections had not actually been considered and that the order had been passed on technicalities.
  • The Court held that the stand of the respondent rejecting the claim, in the wake of the admitted fact that the GST common portal's ITC-02 functionality was not online, could not be justified — the portal being in its nascent stage during the initial months of GST implementation was an admitted circumstance beyond the petitioner's control.
  • The impugned order dated 17.04.2023 was set aside, with liberty to the respondent to pass a fresh order after considering the petitioner's objections and affording a hearing, strictly in accordance with law.
  • The petitioner was directed to cooperate in the proceedings and avoid unnecessary adjournments.

Important Clarification

  • Where a statutorily prescribed GST portal functionality (such as Form GST ITC-02 for business-transfer credit) was genuinely unavailable during the early months of GST implementation, and the assessee had flagged the non-availability to the department, a demand raised years later purely on the technical ground of using an alternate manual route (rather than examining the underlying entitlement) is liable to be set aside for fresh, reasoned adjudication.
  • An order confirming a demand while merely reciting that objections were considered — without actually engaging with them — will not survive judicial scrutiny.

Sections Involved

  • Section 18(3), Central Goods and Services Tax Act, 2017 – transfer of unutilised input tax credit on account of sale, merger, demerger, amalgamation, lease or transfer of business.
  • Rule 41, Central Goods and Services Tax Rules, 2017 – procedure for filing Form GST ITC-02 to effect such a transfer.

Decision – In Favour of

The decision is in favour of the Assessee — the demand order was set aside and remanded for fresh consideration of the petitioner's objections after a hearing.

Case Details

Court: High Court of Judicature at Allahabad
Case No.: Writ Tax No. 859 of 2023
Neutral Citation: 2023:AHC:152051-DB
Coram: Chief Justice Pritinker Diwaker and Justice Ashutosh Srivastava
Date of Order: 25.07.2023

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