ITC Cannot Be Denied For Non-Filing Of TRAN-1 Due To Transition Issues When GST Regime Came Into Effect: Delhi High Court Allows Credit Of ₹99 Lakh

The Delhi High Court held that legitimate transactional Input Tax Credit (ITC) cannot be denied when the assessee was unable to file TRAN-1 due to a GST portal glitch during the shift to the GST regime. The bench noted that since the form could not be filed in time, the distribution could not take place as per Rule 39(1)(a) of the CGST Rules within one month.

Rule 39(1)(a) of the Central Goods and Services Tax (CGST) Rules, 2017, mandates that an Input Service Distributor (ISD) must distribute the input tax credit (ITC) available in a given month within that same month.

The bench, consisting of Justices Prathiba M. Singh and Shail Jain, stated that due to a glitch in the GST portal, the assessee could not file the form TRAN-01, and since the form could not be filed in time, the distribution could not take place as per Rule 39(1)(a) of the CGST Rules within one month. Hence, the assessee cannot be deprived of the benefit of the ITC due to mere technical glitches or transitional creases which were ironed out subsequently.

In the case at hand, the assessee/petitioner was involved in the business of manufacturing general-purpose machinery.

Upon the advent of the GST regime, it obtained GST registration as an Input Service Distributor ('ISD'). The assessee has multiple business premises across the country where services are provided, and CENVAT (Central Value Added Tax) credit in the form of ITC becomes available to each of the sub-offices of the assessee.

For the period from March, 2017 to June, 2017, after the GST regime had been introduced, the assessee could file a form TRAN-1 to avail the transitional credit under Section 140 of the Central Goods and Services Tax Act, 2017.

The assessee had ITC to the tune of Rs. 99,18,972/- as a closing balance, which ought to have been carried forward under the GST regime.

However, the same could not be availed of in terms of Rule 39(1)(a) of the Central Goods and Services Tax Rules, 2017, since at the relevant point in time, the transition was not permitted on the GST portal.

After the transition took place, the credit was not reflected on the portal of the assessee, leading to repeated representations being made by the assessee for the reflection of the credit on the portal. However, the same was not allowed by the Department.

Mr. Prabhat Kumar, counsel for the assessee, argued that during March 2017 to June 2017 and from 1^st July 2017, the GST regime came into effect, and at the relevant point in time, the portal did not permit ISD to file form TRAN-1. The counsel submitted that this is an acknowledged difficulty that several ISDs have faced during the transitional period.

The revenue submitted that the matter has to be dealt with by the Delhi GST Department and not by the Central GST Department, as it is not the jurisdictional Commissionerate.

The bench, after examining Section 140(7) of the CGST Act, noted that the ITC which was available on account of any services received prior to the appointed date by the ISD shall be eligible for distribution as credit within the time and manner as may be prescribed.

It is not in dispute that after the GST regime came into effect, no specific timeline has been prescribed till date for the distribution of this credit, added the bench.

The bench held that the legitimate ITC which the assessee is entitled to distribute to its sub-offices cannot be held back due to such technical objections. The ITC, which is clearly reflected in TRAN-1, would be liable to be reflected on the Electronic Credit Ledger of the assessee for distribution within a period of three months.

The bench directed the Delhi GST Department to reflect the amount of Rs.99,18,972/- on the ECL of the assessee.

In view of the above, the bench allowed the petition.

Case Title: Clyde Pumps Pvt. Ltd. v. Union of India & Ors.

Case Number: W.P.(C) 4400/2022

Counsel for Petitioner/Assessee: Prabhat Kumar

Counsel for Respondent/Department: Piyush Beriwal

Click Here To Read/Download Order