Taxpayer cannot be denied transfer of unutilized ITC due to non-operational Form ITC-02 on GST portal

HC held that the denial of transfer of unutilized ITC on the ground of non-use of Form ITC-02, when the relevant functionality on the GST portal was admittedly not operational, was unjustified. The authority had effectively non-suited the petitioner on a mere technicality without substantively considering its objections. HC ruled that taxpayers could not be penalized for system deficiencies in the nascent phase of GST implementation and that procedural requirements could not override substantive entitlement to ITC. The impugned demand and order were set aside, and the matter was remitted for fresh consideration in accordance with law.

---

---

Issues:
The legality, propriety, and correctness of the order confirming the demand and recovery of input tax credit (ITC) availed by the petitioner through Form GST-33 instead of GST ITC-02.

Details of the Judgment:
The petitioner, a registered Company providing internet services, transferred unutilized ITC balance as per Section 18(3) of the GST Act. The petitioner attempted to transfer the ITC following Rule 41 of the CGST Rules, 2017. However, the functionality for filing Form ITC-02 was not available on the common portal, which was communicated to the Assessing Authority. Facing working capital issues, the petitioner manually availed the ITC. Subsequently, a show cause notice was served, demanding differential ITC along with interest and penalty. The petitioner replied, requesting withdrawal of the notice, but the Respondent proceeded to confirm the demand without considering the reply.

Upon review, the Court found that the objections raised by the petitioner were not considered, and the order was passed on technicalities. The Respondent argued that objections were filed and a personal hearing opportunity was provided but not availed by the petitioner. However, the Court observed that the petitioner was non-suited due to the unavailability of Form ITC-02 on the GST Portal during the initial months of implementation. The Court held that the petitioner should have raised a grievance on the portal help-desk and waited for the relevant Form to go live instead of making an illegal adjustment. The Court set aside the order, directing the Respondent to pass a fresh order considering the objections and providing a hearing as per the law.

In conclusion, the writ petition was disposed of, with a direction for the petitioner to cooperate in the proceedings without unnecessary adjournments.

---