TRANSITIONAL CREDIT GRIEVANCES … will end by this year?

[Mr. M. GOVINDARAJAN]

GST regime

Due to the implementation of GST with effect from 01.07.2017 all the then assessees paying service tax, central excise duty, VAT were to be compulsorily to brace the provisions of GST laws.  The GST was implemented with effect from 01.07.2017.  Due to this some transition provisions are made in GST laws.

Transition of Credit

Relating to CENVAT credit/input tax credit, Section 140 of the Act provides for transition of the same to new GST regime.  Section 140 of the Act provides that a registered person, other than a person opting to pay tax under composition scheme, shall be entitled to take, in his electronic credit ledger, the amount of CENVAT credit of eligible duties carried forward in the return relating to the period ending with the day immediately preceding the appointed day, furnished by him under the existing law within such time and in such manner as may be prescribed.  This is subject to the condition that the registered person shall not be allowed to take credit unless the said credit was admissible as CENVAT credit under the existing law and is also admissible as input tax credit under this Act.

A registered person, who was not liable to be registered under the existing law, or who was engaged in the manufacture of exempted goods or provision of exempted services, or who was providing works contract service and was availing of the benefit of notification No. 26/2012-Service Tax, dated the 20.06.2012 or a first stage dealer or a second stage dealer or a registered importer or a depot of a manufacturer, shall be entitled to take, in his electronic credit ledger, credit of eligible duties in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day, within such time and in such manner as may be prescribed, subject to the certain conditions.

Every registered person entitled to take credit of input tax under Section 140 shall, within 90 days of the appointed day i.e., 01.07.2017 submit a declaration electronically in FORM GST TRAN-1, duly signed, on the common portal specifying therein, separately, the amount of input tax credit of eligible duties and taxes, to which he is entitled under the provisions of the said section.  The Commissioner may, on the recommendations of the Council, extend the period of ninety days by a further period not exceeding ninety days.

The Commissioner extended the period for further period of 90 days and as such the said form could be filed by 27.12.2017.

Grievances

In the transition activities the registered persons suffered a lot due to glitches in the web portal and also for non provision of assistance by the Department side.  Representations made by the registered persons before the Authority was in vain and they are helpless to utilize their credit available with them on the appointed day.  Many approached High Courts/Supreme Court for remedy.

Even after completion of five years from the appointed date the problem in transition of the credit still exists.  There is no full stop for this problem. 

Case laws

The latest case laws in this regard are given below for the kind information of the readers:

In M/S. SS BRIGHT STEELS, M/S. SARO STEELS VERSUS THE UNION OF INDIA, THE ASSISTANT COMMISSIONER, GOODS AND SERVICE TAX, THE NODAL OFFICER, THE CENTRAL BOARD OF EXCISE AND CUSTOMS, GOODS AND SERVICE TAX NETWORK [GSTN] - 2022 (2) TMI 996 - MADRAS HIGH COURT the petitioner tried to transfer the input tax credit on 28.08.2017 by uploading TRAN-I.  Due to technical glitches the petitioner could not able to do the same.  The GSTN vide their reply dated 19.09.2017 informed the petitioner that the grievance of the petitioner has been resolved and if any error regarding the same persists the petitioner could revert to the helpdesk. The petitioner sent a representation on 26.11.2019 in respect of TRAN-I.  Since the same has not been disposed the petitioner filed the present writ petition before the High Court.

The Department contended that there was no scope for maintaining the TRAN-I and therefore the writ petition was devoid of merits.  The High Court observed that the credit available under the erstwhile Central Excise Act, 1944 read with CENVAT Rules, 2004 remaining unutilized on the date of implementation of GST Act the Central and State cannot be denied such credit and unless the law permits lapsing of such credit.  If there is a successful transition in terms of Section 140 of the respective GST enactments read with relevant rules such credits would have been available for discharging tax liability.

The High Court held that the amount which is to be transitioned by filing TRAN-I or TRAN-II as per Section 140 of the respective GST enactments read with Rule 117 of the respective GST Rules is to be allowed.  The High Court directed the Department to consider the representation dated 26.11.2019 of the petitioner and dispose the same within three months from the date of receipt of the order.

In M/S. SURIYA ENGINEERING WORKS VERSUS THE OFFICE OF SUPERINTENDENT OF CONTROL GST AND CENTRAL EXERCISE (THIRUVERUMBUR RANGE) 'B' WING - 2022 (3) TMI 736 - MADRAS HIGH COURT, since the petitioner could not able to upload the form TRAN-I a sum of Rs.15,75,507/- was lying unutilized for discharging liability under the respective Goods and Services Tax Act, 2017.  The petitioner filed the writ petition with the prayer to direct the Department to permit the petitioner to file or revise TRAN-I already filed either electronically or manually and consequently avail the benefits of credits. 

On the other hand the Department contended that the petitioner has not submitted any grievance as per the Standard Operating Procedure contained in the IT Grievance Redressal Committee Circular No. 39/13/2018, dated 03.04.2018 to substantiate that the petitioner facing any technical problem on account of the IT related issues and therefore the petitioner is not entitled for the relief.  There was no technical difficulty in the common portal for a registered user and therefore no concession can be extended to the petitioner.  The writ petition was filed belatedly and filed after a lapse of three years implying that the petitioner has given up its rights. 

The High Court observed that the credit availed under the provisions of erstwhile indirect tax laws are indefeasible and are intended to reduce the cascading effect of the tax to the benefit of the consumers.  There is no lapsing of such unutilized credit.  Therefore the High Court allowed the writ petition and directed the department to verify the records and returns of the petitioner under the Central Excise Act and if the credit had been unutilized on the cutoff date i.e., 01.07.2017 the Department shall suitably credit into the electronic credit ledger of the petitioner the amount which had remained unutilized and would not be transitioned under the GST regime.

In THE COMMISSIONER OF GOODS AND SERVICES TAX VERSUS M/S AMRIT CEMENT LIMITED - 2022 (5) TMI 974 - MEGHALAYA HIGH COURT, the petitioner was receiving manpower and the like services during the service tax regime.  The petitioner paid the service tax for the quarter ending March 2017 and also for the quarter ending June 30, 2017 on 23.10.2017 i.e., after the appointed day 01.07.2017.  The service tax due was rendered by the petitioner under the  applicable reverse charge mechanism, where under it is the service recipient rather than the service provider which is obliged to deposit the tax directly.  The petitioner claimed the CENVAT credit in the GST regime.

A show cause notice was issued by the Department on 31.07.2019.  In the show cause notice the Department contended that the claim of CENVAT credit to the tune of Rs.2.18 crores cannot be granted since the payment of service tax was not paid by the petitioner before the appointed day for GST i.e., 01.07.2017.  Therefore the petitioner was not entitled to utilize the said amount in GST regime.  The order was passed on 18.06.2020 by Adjudicating Authority and the same was upheld by the Joint Commissioner.  The Joint Commissioner agreed with the show cause notice that for an assessee to obtain CENVAT credit the service tax corresponding thereto ought to have been received by the Revenue prior to the appointed date i.e., 01.07.2017.  The Joint Commissioner further observed that double benefit had been obtained by the petitioner in terms of locational exemption applicable and CENVAT credit.

The petitioner filed a writ petition before the High Court since no Tribunal has been constituted under the GST laws.  The petitioner submitted the following before the High Court-

• In terms of Section 140(1) a qualified registered person is entitled to take the amount of CENVAT credit carried forward in the return relating to the period immediately prior to the appointed data as furnished by such person under the existing law.
• The return pertaining to the quarter immediately preceding the appointed date was filed on 24.10.2017 a day after the service tax component pertaining to the payment was tendered by the petitioner together with a GST TRAN-1 form duly filled up.
• Rule 117 requires every registered person entitled to take credit of input tax to submit a declaration electronically in the specified form GST TRAN-I within 90 days of the appointed day. The said period was extended by Commissioner till 27.12.2017.  Therefore it is evident that the relevant TRAN-I form was filed by the petitioner within the time limit permitted.
• According to the Service Tax Rules as amended the original return for the quarter ending 30.06.2017 has to be file by August 15 and the revised return in this regard can be filed within 45 days from the date of filing of original return.   If there is delay in filing the return the late fee is to be filed subject to a maximum of Rs.20,000/-. 

The High Court observed that in the event of relevant provision or any other incidental convoluted rule required the return to be filed prior to the appointed date, the Revenue’s contention would have held good.  The eligibility to obtain CENVAT credit depends upon what is indicated in the return and as long as the return is in order the CENVAT credit cannot be denied.  In this case there is no dispute of correctness of the return.  The eligibility to obtain CENVAT credit, in terms of Section 140 is based on whether the matter is reflected in the return which is filed as per the existing law in the manner prescribed and not on when the return was filed or whether the duty or tax for which CENVAT Credit is claimed had been deposited prior to the appointed date. 

The High Court dismissed the writ petition filed by the Revenue.

In ‘M/S. SRI DESIKANATHAR TEXTILES PRIVATE LIMITED VERSUS UNION OF INDIA, THE COMMISSIONER OF GST AND CENTRAL EXCISE, THE NODAL OFFICER/ASSISTANT COMMISSIONER, THE SUPERINTENDENT- 2022 (4) TMI 598 - MADRAS HIGH COURT the petitioner is a manufacturer of Grey Woven Fabric.  The petitioner purchased Cotton Grey Yarn from various parties in Tamil Nadu.  On the date of implementation of GST the petitioner had sufficient stock of raw materials and work-in-progress.  Therefore the petitioner attempted to transition the proportionate input tax credit by filing TRAN-I form electronically.  The petitioner, by mistake, filled up the details in part 7(d) of TRAN-I instead of filling the same in part 7© of the return since the petitioner is new to GST regime.   The petitioner made representation to the Department.  Since no response is there the petitioner filed a manual return on 18.06.2020 with the request to the department to allow the petitioner to transition the above credit manually into the electronic credit ledger of the petitioner.

The Revenue contended that the petitioner has approached only on 18.06.2020 i.e, long after the period of limitation.  Therefore the writ petition is liable to be dismissed.

The High Court observed that the petitioner has been regularly corresponding with the respondents and with the Help Desk of GST web-portal to ensure that the credit which was attempted to be transitioned by filing Form TRAN-I was successful. 

The High Court directed the Department to allow the input tax credit after a scrutiny and verification by a competent officer that such credit could be transitioned.  If the credit was available to be transitioned it cannot be denied.  The Department shall either allow the petitioner to file either a revised TRAN-I or directly make a credit entry in the electronic ledger of the petitioner.  The High Court also directed the petitioner to co-operate with the authorities by producing all the required documents to substantiate that the petitioner was entitled to transition. 

Supreme Court directions

The  Supreme court, in Writ petitions filed by Filco Trade Centre Private Limited and other taxpayers, have pronounced the following critical directions with respect to availment of Tran-1 and Tran-2 credit that were not filed (or incorrectly filed) before the statutory deadline-

• Considering the judgments of the High Courts under the then prevailing peculiar circumstances, any aggrieved registered taxpayer may file the relevant form or revise the already filed form, irrespective of whether the taxpayer has filed Writ petition before the High Court or whether the case of the taxpayer has been decided by Information Technology Grievance Redressal Committee.
• Access to common portal should be open in the GSTN to claim transitional credit within the 60-day window from 01.09.2022 to 30.10.2022.
• GSTN to ensure that the common portal is opened with no technical glitch during the above timeline
• The officers have been given 3 month’s (90 days) time thereafter to verify the claim of Tran credit based on merits and pass appropriate orders.
• In the event of successful order, the Tran credit so availed should be reflected in the Electronic Credit Ledger of the Taxpayer.
• GST council may issue appropriate guidelines to the field formations in scrutinizing the claims, if required.

Conclusion

From the above said case laws it can be inferred that credit cannot be denied to the registered person since the same was not allowed to lapse by the provisions of the Act.  The High Court directed in many a case to look into the matter and give remedies to the registered person.  Even manual returns are allowed by the High Court and directed the Department to transition such credit in the electronic ledger of the registered persons.  Now the Supreme Court issued directions to open the window for 60 days commencing from 01.09.2022.  It is hoped that the entire grievances and problems in respect of transitional credits will be settled and the registered persons will be eased from the difficulties and begin to run smoothly in their business activities.