2022 (9) TMI 1670 - HC - GST

Direction to Respondents to accept the Revised Excise Return (Annexure-D) of the Petitioner attempted to be filed for the month of June 2017 manually - denial of CENVAT Credit on inputs capital goods and input services in terms of the CENVAT Credit Rules for carrying out manufacturing activities - HELD THAT - It is not in dispute that the petitioner has fulfilled the condition of section 140(1) of the CGST Act for carry forward of the Cenvat credit to the GST regime. The denial of carry forward of such transitional credit by the respondents on the ground that manual excise return filed by the petitioner cannot be said to be valid return is without any basis. It is a trite law that computerization of return filing is merely a means for processing the disclosures and claims of the assessee in a transparent and efficient manner. However if there is any shortcoming in the computerized facility as it has occurred in the facts of the case when the petitioner was unable to file the original excise return due to some technical issues in the ACES portal and the petitioner was compelled to file return manually along with letter dated 29.07.2017 which was reminded to the respondents by the subsequent letter the petitioner cannot be denied the benefit of filing such excise return in manual form for transitional credit under section 140(1) of the CGST Act. This Court as well as other High Courts have time and again have held that where the online facility does not function appropriately alternative measures to protect the vested rights of the assessees are required to be provided. It is also a settled legal position that substantive rights cannot be curtailed for mere procedural infirmities such as manually filing of excise return. There is no denial on part of the respondents that the petitioner has filed excise return manually or there is adequate balance of Rs. 16, 43, 117/- in their Electronic Credit Ledger while filling GST return for the between July 2017 to 23.04.2020 and therefore it cannot be said that there was a wrong carry forward of transitional credit of Rs. 16, 43, 117/- by the petitioner so as to recover such transitional credit from the petitioner. The petitioner is entitled to get the transitional credit as it is a right vested by statute and merely because the petitioner was unable to file GST TRAN 1 by the due date i.e. 28.08.2017 it cannot be said that the entitlement of the credit of carry forward of eligible dues would vanish - the attempt on behalf of the respondent authority to deny the transitional credit on the ground that the petitioner has not filed valid excise return and has not paid interest on the delayed reversal of the wrongly availed input tax credit of Rs. 16, 43, 117/- in contravention of the provisions of section 140 of the CGST Act is not tenable. On accepting the revised excise return the petitioner is therefore entitled to submit the revised GST Tran-I so as to claim transitional credit under section 140(1) of the CGST Act - Petition disposed off.

Summary

The core legal questions considered by the Court in this matter were:

1. Whether the petitioner was entitled to file a revised Excise return manually after the original electronic return was filed and accepted, but before the prescribed deadline, due to technical glitches in the electronic filing portal.

2. Whether the transitional credit of CENVAT Credit claimed by the petitioner under Section 140(1) of the CGST Act was rightly denied by the respondents on the ground that the revised Excise return was not electronically filed and thus not valid.

3. Whether the denial of transitional credit and the issuance of the Show Cause Notice for recovery of the said credit along with interest and penalty was justified.

4. Whether procedural lapses such as inability to file returns electronically due to technical glitches could curtail substantive rights of the petitioner to carry forward transitional credit.

5. Whether the respondents were obligated to accept the manually filed revised Excise return and allow the transitional credit under the CGST regime.

6. Whether the petitioner was liable to pay interest on the delayed reversal of the wrongly availed Input Tax Credit.

Issue-wise Detailed Analysis:

1. Entitlement to File Revised Excise Return Manually Due to Technical Glitch

The relevant legal framework included Rule 12(8)(a) of the Central Excise Rules, 2002, which mandates that revised returns must be filed by the end of the calendar month in which the original return was filed. The petitioner attempted to file the revised return electronically within the prescribed time but was unable due to technical glitches on the ACES portal. Subsequently, the petitioner filed the revised return manually by letter dated 29.07.2017 and followed up with reminders.

The Court recognized that computerization of return filing is a procedural mechanism to facilitate transparent and efficient processing but not a substantive condition to deny rights. Precedents such as the Bombay High Court decisions in Tata Projects Ltd. vs. Deputy Commissioner of Income Tax and Shapoorji Pallonji & Co. vs. Deputy Commissioner of Income Tax emphasized that where system failures prevent electronic filing, manual acceptance is necessary to avoid undue hardship and protect vested rights. The Court noted that other High Courts have accepted manual returns filed due to technical issues and directed authorities to consider such returns.

The Court found that the petitioner's manual filing was a sufficient compliance given the circumstances and the respondents' failure to act on the manual submission was unjustified.

2. Validity of Transitional Credit Claim under Section 140(1) of the CGST Act

Section 140(1) of the CGST Act provides a transitional mechanism allowing carry forward of eligible CENVAT Credit from the pre-GST regime to the GST regime, subject to conditions such as having filed all returns under the erstwhile law and the credit not relating to exempted goods.

The petitioner claimed transitional credit of Rs. 16,43,117/- based on the revised Excise return manually filed and subsequently reflected in Form GST TRAN-1 filed on 28.08.2017. The respondents denied the claim on the basis that the original Excise return showed nil credit and the revised return was not electronically filed, thus disallowing the credit. The audit report and Show Cause Notice relied on the original return's nil balance to allege wrongful availment of credit.

The Court held that the denial was without basis, as the petitioner fulfilled all substantive conditions under Section 140(1), and the revised return, though manually filed, was duly submitted within time. The Court emphasized that the right to transitional credit is a vested substantive right and cannot be denied on mere procedural grounds such as electronic filing failure.

Reliance was placed on judgments affirming that substantive rights to credit accrue when taxes are paid and goods received, and once availed, credits become indefeasible unless reversed under law. The Court also referred to the saving clause under Section 174(2)(c) of the CGST Act, which preserves rights accrued under repealed laws, reinforcing that the petitioner's right to credit cannot be curtailed by procedural technicalities.

3. Liability to Pay Interest and Penalty on Delayed Reversal of Credit

The respondents contended that the petitioner was liable to pay interest under Section 50 of the CGST Act for delayed reversal of wrongly availed credit and penalty under Section 73(1) for wrongful availment. The petitioner had voluntarily reversed the credit in April 2020 but did not pay interest citing the GST Council's retrospective amendment clarifying interest applicability only on net tax liability after input credit deduction.

The Court observed that since the credit was not wrongly availed but was a vested right supported by the revised return, and the petitioner had adequate credit balance during the relevant period, the demand for interest and penalty was not sustainable. The Court found that the petitioner was not at fault for the delay caused by technical glitches and that the substantive right to credit should not be penalized due to procedural delays beyond the petitioner's control.

4. Procedural Lapses and Protection of Substantive Rights

The Court underscored the settled legal position that substantive rights cannot be curtailed by procedural lapses. The petitioner's inability to file revised returns electronically was due to technical glitches, and the manual filing was a bona fide attempt to comply. The Court cited precedents holding that where electronic systems fail, alternative measures must be provided to protect assessees' rights.

The Court also referred to constitutional protections under Article 300A (protection against deprivation of property without authority of law), Article 14 (right to equality), and Article 19(1)(g) (right to carry on business), emphasizing that denial of transitional credit would unjustly deprive the petitioner of property and business rights.

5. Obligation of Respondents to Accept Manual Revised Return and Allow Transitional Credit

The Court found that the respondents had acknowledged receipt of the manual revised return but failed to act on it, leading to issuance of the Show Cause Notice based on the original return alone. The Court held that the respondents were duty bound to consider the revised return and allow the transitional credit accordingly.

The Court directed the respondents to accept the revised Excise return filed manually and permit the petitioner to submit a revised Form GST TRAN-1 to claim the transitional credit under Section 140(1) of the CGST Act within twelve weeks.

6. Treatment of Competing Arguments

The respondents' argument that the petitioner had no closing balance in the original returns and thus was not entitled to transitional credit was rejected on the ground that the revised return was validly filed manually and the substantive conditions for credit were met.

The contention that interest and penalty were payable was negated by the Court's finding that the credit was not wrongly availed and that procedural delays were not attributable to the petitioner.

The petitioner's reliance on multiple High Court decisions supporting acceptance of manual returns and protection of vested rights was accepted as sound legal precedent.

Significant Holdings:

"It is a trite law that computerization of return filing is merely a means for processing the disclosures and claims of the assessee in a transparent and efficient manner. However, if there is any shortcoming in the computerized facility... the petitioner cannot be denied the benefit of filing such excise return in manual form for transitional credit under section 140(1) of the CGST Act."

"Substantive rights cannot be curtailed for mere procedural infirmities such as manually filing of excise return."

"The right to transitional credit is a vested right and cannot be defeated on account of procedural lapses or technical glitches in the electronic filing system."

"The respondents are directed to accept the revised excise return filed manually and allow the petitioner to claim transitional credit under Section 140(1) of the CGST Act."

"The denial of transitional credit and demand for interest and penalty on the ground of non-electronic filing and delayed reversal is not tenable."

The Court ultimately concluded that the petitioner was entitled to carry forward the transitional CENVAT Credit of Rs. 16,43,117/- under Section 140(1) of the CGST Act, that the manual filing of the revised Excise return was valid given the technical difficulties faced, and that the respondents must accept the revised return and allow the transitional credit accordingly. The Court also held that the petitioner was not liable for interest or penalty due to the circumstances, and directed the respondents to complete the process within twelve weeks.