Adfert Technologies Pvt. Ltd. vs Union of India

In a common order, a total of 102 Civil Writ Petitions, all dealing with an identical issue, were disposed of together. The petitioners, who are registered under the Central/State Goods and Services Tax Act, 2017, sought a direction under Article 226 of the Constitution of India. They requested the respondents to allow the carry forward of unutilized CENVAT credit from the duty paid under the Central Excise Act, 1944, and Input Tax Credit (ITC) of VAT paid under the Punjab VAT Act, 2005, or Haryana VAT Act, 2003. This could not be carried forward due to non-filing or incorrect filing of the prescribed statutory Form TRAN-1 by the last date, December 27, 2017.

The petitioners were previously registered under the erstwhile Punjab VAT Act, 2005, or Haryana VAT Act, 2003, and/or the Central Excise Act, 1944. With the enforcement of the GST regime on July 1, 2017, these registered persons had stock of inputs and capital goods that had already incurred duty under the previous taxation statutes or had unutilized CENVAT credit under the Central Excise Act, 1944, or ITC under the State VAT Act. Section 140 of the CGST Act, 2017, allows registered persons to carry forward unutilized CENVAT credit and credit of duties/taxes paid on inputs/capital goods lying in stock. Although Section 140 did not prescribe a time limit for carrying forward unutilized credit, Rule 117 of the CGST Rules, 2017, provided a 90-day period from the appointed day (July 1, 2017), which was extended several times, with the final deadline being December 27, 2017.

Many petitioners either could not electronically load the prescribed form or loaded an incorrect form, which could not be corrected within the prescribed time. As a result, these petitions were brought before the court for consideration. The core issue revolves around the introduction of GST on July 1, 2017, and the subsequent migration from the VAT regime to the GST regime. Under Section 140 of the CGST Act, 2017, and Rule 117 of the CGST Rules, 2017, every registered person was required to electronically file FORM GST TRAN-1 for unutilized input tax credit of duties and taxes paid under the previous tax regime. According to Rule 120A of the CGST Rules, 2017, a registered person could revise their declaration once and submit the revised declaration within the time period specified in Rules 117, 118, 119, and 120 of the CGST Rules, 2017.

From the records and arguments presented by the counsel for both sides, it was found that there were two types of cases: (i) registered persons who did not or could not file TRAN-1 by December 27, 2017, and have no evidence of an attempt to load TRAN-1; and (ii) registered persons who loaded TRAN-1 by December 27, 2017, but made mistakes and want to revise the already loaded TRAN-1.

The petitioners’ counsel contended that several reasons contributed to the non-filing of TRAN-1 by December 27, 2017. These reasons included a press release showing the last date as December 31, 2017, the availability of utilities to upload TRAN-1 in September 2017 instead of July 2017, heavy workloads on accountants managing multiple assessees, a lack of proper knowledge of computer systems, and the complexity of filling different columns of TRAN-1. Regarding the incorrect loading of TRAN-1, the common argument was that those dealing with the electronic filing of TRAN-1 were not well-versed with the electronic system, and due to the multiple columns, mistakes occurred, which were unintentional.

Given these arguments and the circumstances presented, the court considered the petitions and the common challenges faced by the petitioners in filing or correctly filing the TRAN-1 form within the prescribed timeframe.

The petitioners contended that the unutilized CENVAT/Input Tax Credit (ITC) of duty/tax paid under the Central Excise Act and VAT Act constitutes a vested right that cannot be arbitrarily forfeited. They argued that any contrary interpretation would violate Articles 14 and 300A of the Constitution of India, leading to unjust double taxation, which is impermissible under any taxation regime. Prior to July 2017, the petitioners were duly registered with tax authorities under the Central Excise Act, Finance Act, 1994 (Service Tax), and/or State VAT Act. The respondent department has complete records of the petitioners’ unutilized CENVAT/ITC and, therefore, lacks the authority to deny credit on technical or procedural grounds. The petitioners emphasized that if an assessee is entitled to ITC for GST paid on inputs/capital goods purchased after July 1, 2017, there is no rational basis to deny ITC for duty/tax paid under the previous taxation regime.

Regarding the incorrect filing of TRAN-1, the petitioners argued that the respondent had permitted registered persons to file TRAN-1 by extending the deadline to March 31, 2019, provided they could submit evidence of an attempt to load TRAN-1 by December 27, 2017. Therefore, there is no justification for denying the same opportunity to those who filed incorrect TRAN-1 forms. The department can raise a demand if any person has carried forward ITC in excess of their entitlement, so there is no reason to deny a registered person the chance to revise their TRAN-1 if they have succeeded in carrying forward less credit than entitled.

Alternatively, the petitioners argued that no section or rule of the CGST Act, 2017, stipulates that unutilized ITC would lapse if TRAN-1 is not filed by the due date. Therefore, they requested that refunds in cash be sanctioned in terms of the proviso to Section 142(3) of the CGST Act, 2017, if it is determined that they are not entitled to carry forward ITC due to the failure to file TRAN-1 by December 27, 2017.

The respondent’s counsel contended that the government had extended the period to load TRAN-1 multiple times, and the petitioners were at fault for not attempting to load it by December 27, 2017. The government allowed all registered persons who could provide evidence of attempting to load TRAN-1 by December 27, 2017, to file TRAN-1 by March 31, 2019. Allowing the petitioners to load TRAN-1 at this stage would set a precedent with no end. The petitioners cannot excuse their failure by citing technical glitches since they did not attempt to load TRAN-1 by the stipulated date. The Hon’ble Gujarat High Court, in Willowood Chemicals Pvt. Ltd. v. Union of India 2018 (19) G.S.T.L. 228 (Guj.), upheld the vires of Rule 117 of the CGST Rules, 2017. Since the present petitioners are not challenging the validity of Rule 117, they are not entitled to any relief.

Regarding the incorrect filing of TRAN-1, the respondent’s counsel argued that registered persons were given one opportunity to revise TRAN-1. However, the present petitioners failed to file revised TRAN-1 by the last date prescribed under Rule 120A of the CGST Rules, 2017.

In summary, the petitioners argued that their unutilized CENVAT/ITC is a vested right protected under the Constitution and should not be forfeited due to technical or procedural issues. They pointed out the absence of a provision for the lapse of ITC if TRAN-1 is not filed by the due date and requested refunds if denied the carry forward of ITC. The respondent maintained that the petitioners failed to utilize the extended deadlines and opportunities provided and thus are not entitled to the relief sought. The Gujarat High Court’s ruling was cited to support the validity of Rule 117 of the CGST Rules, under which the petitioners’ claims were evaluated.

The petitioners, registered under the Central/State Goods and Services Tax Act, 2017, sought a directive under Article 226 of the Constitution of India, allowing them to carry forward unutilized CENVAT credit of duty paid under the Central Excise Act, 1944, and Input Tax Credit (ITC) of VAT paid under the Punjab Value Added Tax (PVAT) Act, 2005, or Haryana Value Added Tax (HVAT) Act, 2003. They failed to carry forward these credits due to the non-filing or incorrect filing of the statutory Form TRAN-1 by the stipulated deadline of December 27, 2017. The petitioners argued that their vested rights in the unutilized CENVAT/ITC should not be nullified due to technical or procedural lapses. They contended that such an interpretation would violate Articles 14 and 300A of the Constitution of India and lead to double taxation, which is impermissible in any taxation regime. The petitioners had been duly registered under the erstwhile tax regimes and claimed that the respondent department had complete records of their unutilized CENVAT/ITC. Thus, the department had no authority to deny the credit on technical grounds. Furthermore, they pointed out that the government extended the deadline to file TRAN-1 until March 31, 2019, for those who could show evidence of attempts to load TRAN-1 by December 27, 2017. They argued that similar leniency should be extended to those who filed incorrect TRAN-1 forms.

The petitioners also argued that no section or rule of the CGST Act, 2017, states that unutilized ITC would lapse if TRAN-1 is not filed by the due date. They suggested that in such cases, a refund in cash should be sanctioned per the proviso to Section 142(3) of the CGST Act, 2017. On the other hand, the counsel for the respondent maintained that the government had extended the period to load TRAN-1 multiple times and that the failure of the petitioners to load TRAN-1 by December 27, 2017, was their mistake. The government allowed those who attempted to load TRAN-1 by the deadline to file it by March 31, 2019. They argued that allowing the petitioners to file TRAN-1 now would set an endless precedent. They also pointed out that the Gujarat High Court, in Willowood Chemicals Pvt. Ltd. vs. Union of India (2018), upheld the validity of Rule 117 of the CGST Rules, 2017. Therefore, the petitioners, not challenging the vires of Rule 117, were not entitled to relief. Furthermore, on the issue of incorrect filing of TRAN-1, the counsel argued that the petitioners had been given an opportunity to revise TRAN-1 but failed to do so within the prescribed time under Rule 120A of the CGST Rules, 2017.

Before dealing with the present controversy, it is useful to look at relevant provisions of the CGST Act, 2017, and the rules made thereunder. Section 140 of the CGST Act outlines transitional arrangements for input tax credit. This section stipulates that a registered person, except those opting to pay tax under Section 10, can carry forward CENVAT credit to their electronic credit ledger if the credit is admissible under the CGST Act. However, credit is not allowed if the person has not filed all returns for the six months preceding the appointed date or if the credit relates to goods cleared under certain exemption notifications. Additionally, registered persons can take credit of unavailed CENVAT credit for capital goods if the credit was admissible under both the existing law and the CGST Act. The section also covers scenarios for registered persons not liable under the existing law or those dealing with exempted goods/services. It allows them to take credit of eligible duties for inputs held in stock, subject to conditions like eligibility for ITC under the CGST Act and possession of invoices issued within twelve months before the appointed date. The section also provides provisions for distributing ITC for services received before the appointed day by an Input Service Distributor, even if the invoices are received later.

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