The initial bout between the assessees and the authorities has concluded under the Goods and Service Tax (GST) regime. The issue is the purportedly simple transitioning of the accumulated credit into GST by using the ‘robust’ information technology infrastructure of the Goods and Services Tax Identification Number (GSTIN).
In this article, we will try to analyse whether the issue relating to transition credit has indeed been resolved and who is the likely winner of the present bout.
Background to the present dispute
FORM GST TRAN-1 was introduced to facilitate the transition of Central Value Added Tax (CENVAT) credit available with the assessee registered under the erstwhile laws. Section 140 of the Central Goods and Service Tax (CGST) Act, 2017 enabled the registered person to carry forward the eligible CENVAT credit available in their credit ledger to the input tax credit ledger of the GST by submitting a FORM GST TRAN-01. As per Rule 117 of CGST Rules, 2017, the time limit for filing the same is 90 days from the date of introduction of GST. This limit was extended from time to time and the last extended due date was December 30, 2017.
The dispute arose when a number of assesses failed to transition the eligible amounts into GST, broadly due to the following reasons-
· Inability to file due to a technical glitch on the portal;
· Indicating wrong amounts in the column due to lack of clarity;
· Short claiming of eligible amounts due to non-accounting of certain invoices.
This issue became one of the most litigated aspects under GST. A number of writ petitions were filed before the various High Courts. In a majority of the cases, the High Courts were pleased to grant relief to the assessees and directed the department to reopen the portal to enable them to file their FORM GST TRAN-1. The High Courts were of the view that the assessees cannot be denied their right to credit on technicalities such as limitation and issues with the portal.
The Central government, in the interim, attempted to resolve the issues pertaining to the technical glitches on the portal and issued a circular wherein the Central Board of Indirect Taxes and Customs (CBIC) undertook to set up a grievance redressal mechanism to address the grievances of taxpayers due to technical glitches on the GST common portal. However, the restricted scope of such redressal mechanism did not aid in resolving the issues faced by the assessee.
Supreme Court order
The aforesaid decisions of the High Courts were challenged by the department before the Supreme Court, which on July 22, disposed of all these petitions vide a common order with the following directions:
1. To open the common portal enabling the assessees for filing FORM GST TRAN-1 and TRAN-2 for the period of 2 months i.e., from 01.09.2022 to 31.10.2022.
2. Enable all the assesses to file the relevant form or revised form irrespective of whether the Assessee filed the Writ Petition, or whether the case has been decided by the Information Technology Grievance Redressal Committee (ITGRC).
3. There should be no technical glitches in the portal during the aforesaid period.
4. The concerned officers will verify and pass an order within 90 days with respect to the eligibility of the claim/transitional credit after granting reasonable opportunities to the parties.
5. Allow eligible transitional credit to be reflected in the Electronic Credit Ledger.
6. GST Council to issue appropriate guidelines for scrutinizing the claims if required.
Impact of the Supreme Court decision
The Supreme Court has given a one-time opportunity to all assessees to file/revise the Form GST Tran-1 and the same will not be contingent upon either filing of writ petition or recommendation from Information Technology Governance, Risk, and Compliance (ITGRC); it would be an option available to all assessees.
Further, the aforesaid order indicates that the scrutiny of the FORM GST TRAN-1 & TRAN-2 will be done by the relevant officer and the credit will be allowed only after such scrutiny. This is a deviation from the prevailing practice of availing credit and a post facto scrutiny of the same, which was also followed during the filing of initial TRAN-1. Hence, after availing of such credit, the department will conduct an audit to check the eligibility of such credit, which will be reflected in the electronic credit ledger only after successful scrutiny without any objection. In case any objections are raised within 90 days from the end of 60 days available for filing, the assessees will be given an opportunity to establish the eligibility of the claims made.
The way forward
While the Supreme Court decision is clearly a welcome move, it would be pertinent to keep a view of the following aspects which are likely to determine the future of this litigation:
Whether the department will be able to do scrutiny and reflect the eligible credit in the electronic credit ledger of an assessee within the time frame prescribed by the Supreme Court, as there is a likelihood of a huge number of assessees utilizing this window to avail the benefit.
The GST Council was directed to issue guidelines with respect to the scrutiny of the claims of assessees. The next schedule of the GST Council meeting being uncertain, will these deadlines be followed by the department?
Whether the department will intend to follow the strict language of Section 140 and deny the benefit in cases where the credit was not reflected in the ER-1/ST-3 or VAT-100, as the case may lead to a fresh round of litigation on the aspect of what can be allowed as an eligible credit.
Whether the GSTN system will be able to handle the filing of Form TRAN-1 and Form TRAN-2 without any technical glitches, in view of the fact that there could be a number of assessees who would make an attempt to claim back the rightful credit.
What shall be the impact of the Supreme Court judgment on the cases, where the assessees were allowed to transition the credit through GSTR-3B? Will such assessees have to reverse the credit and adopt the TRAN-1 or TRAN-2 route? If yes, could there be an interest liability for the period during which the credit was availed and reversed?
Will the scrutiny from the department give a final right to such credit or will the same be again subject to Section 73/Section 74 proceedings?
In case of any delay in payment of tax, there is an automatic interest liability. However, in the present case there has been a delay of almost 5 years in the availing and utilization of transitional credit, leading to blockage of working capital. Applying the principles of equality, shouldn’t the assessee be allowed to claim bank rate of interest from department for the delay?
Whether this entire resolution will lead to a new round of litigation, as seen in the Sabka Vishwas (Legacy Dispute Resolution) Scheme (SVLDRS) scheme, due to the lack of a friendly approach at the ground level?
The revenue involved in this issue is huge. The department will have to bear the additional cost (including an additional task force) of facilitating the filing or revision of the FORM GST TRAN-1 & TRAN-2 by assessees.
To conclude this article, it can be said that the Supreme Court has come up with simple and clear directions to be followed by the department. The proper implementation of the above directions is necessary at this stage to aid ‘ease of doing business’, and failure of the same will surely prompt a new round of litigation.
Rishab J and Sampath KM are Senior Associate and Paralegal respectively, with Shivadass & Shivadass (Law Chambers).