GST input tax credit blocked by non-functional GSTR-2 and portal limits on GSTR-3B; manual returns allowed, orders quashed.

Denial of belated ITC and rejection of returns was challenged on the ground that the statutory mechanism to claim ITC through GSTR-2 was not operational, and the online portal prevented filing of GSTR-3B unless output tax was paid, thereby obstructing ITC claims. The HC held that, absent notification/enabling of GSTR-2 and given the portal's technical restriction, the taxable person could not be faulted for non-filing; physical filing evidenced bona fides and there was no revenue loss since tax liability was paid. Consequently, the impugned orders were quashed and the matter remitted, with directions to permit manual filing of returns to enable ITC claims even where output tax is unpaid.

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Issues involved:
The issues involve the quashing of impugned orders related to belated claim of Input Tax Credit (ITC) for the financial years 2017-2018 and 2018-2019, based on the scrutiny of GSTR-3B returns filed by the petitioner, and the contention that the filing of GSTR-3B is not meant for claiming ITC.

Details of Judgment:

Issue 1: Alleged belated claim of Input Tax Credit (ITC)
The petitioner, engaged in the business of Petroleum Gases, contested the notice issued by the respondent department regarding the belated claim of ITC on the purchase of Petroleum products. The petitioner argued that the filing of GSTR-3B is not intended for claiming ITC and that the specific Form GSTR-2, meant for claiming ITC, was not notified. The petitioner maintained that the claim of belated ITC was false and misleading, as all tax liabilities were duly paid and accounted for.

Issue 2: Legal procedures and notifications
The petitioner highlighted the absence of Form GSTR-2 for claiming ITC, as per Rule 60 of the TNGST Rules, and the technical constraints preventing electronic filing due to the unavailability of the prescribed form. The petitioner emphasized that without the requisite forms being notified, the taxable person cannot be expected to file returns electronically, and the initiation of proceedings based on this was deemed unsustainable.

Issue 3: Judicial Precedents and Enabling Mechanisms
Citing judicial precedents from other High Courts, the petitioner argued for the allowance of manual filing of returns in cases where electronic filing was not feasible due to technical issues. The petitioner emphasized the need for an enabling mechanism to prevent genuine taxpayers from being prejudiced by the unavailability of necessary forms for claiming ITC.

Judgment Outcome:
The High Court, after considering the arguments presented, quashed the impugned orders and directed the respondents to permit the petitioner to file manual returns for claiming ITC on outward supplies without paying taxes. The Court stressed the importance of enabling mechanisms to facilitate the legitimate claiming of ITC by taxpayers, and remitted the matter back to the authorities for reconsideration in accordance with the law.

Conclusion:
The writ petitions were allowed, with no costs incurred by either party, and the connected miscellaneous petitions were closed, emphasizing the need for procedural fairness and enabling mechanisms in tax-related matters.

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