Petitioner's ITC reversal notice quashed after GST portal failure prevented electronic filing under Section 18(3) CGST Act

Bombay HC set aside show cause notice for reversal of ITC worth Rs. 18,30,58,995 where petitioner failed to file GST ITC-02 form electronically as required under Section 18(3) CGST Act and Rule 41 CGST Rules. Court held that GST portal was non-functional during relevant period, making electronic filing impossible. Since transferor manually filed form within stipulated 30 days and department's technical issues prevented electronic compliance, petitioner could not be faulted. Court directed respondents to consider manually filed forms expeditiously, emphasizing departmental technicalities should not defeat statutory rights.

---

---

Issues Involved:

1. Jurisdiction and validity of the show cause notice regarding the non-electronic filing of Form GST ITC-02.
2. Functionality issues of the GST portal affecting compliance.
3. Applicability of legal maxims relating to impossibility of performance.
4. Precedents from other High Courts on similar issues.
5. Manual versus electronic filing of statutory forms.
6. Procedural fairness and natural justice in tax recovery actions.

Detailed Analysis:

1. Jurisdiction and Validity of the Show Cause Notice:

The Petitioner challenged the show cause notice dated 17 August 2023, which sought to recover or reverse the Input Tax Credit (ITC) of Rs. 18,30,58,995/- due to the non-electronic filing of Form GST ITC-02. The Petitioner argued that the notice was without jurisdiction, arbitrary, and void, as the electronic filing was impossible due to functionality issues with the department's portal. It was contended that the notice was based solely on the non-electronic filing, despite the manual filing being completed, thus lacking a substantive basis for the alleged wrongful availment of ITC.

2. Functionality Issues of the GST Portal:

The Petitioner and Respondents agreed that during the relevant period, the GST portal did not support electronic filing of Form GST ITC-02. The Petitioner had manually filed the form and communicated this to the jurisdictional Assessing Authority. Despite this, the Respondents issued a show cause notice, which the court found to be arbitrary and beyond jurisdiction, as the inability to file electronically was due to the department's portal issues.

3. Applicability of Legal Maxims Relating to Impossibility of Performance:

The court referred to legal maxims such as "Lex non-cogit ad impossibilia" and "Impotentia excusat legam," which emphasize that the law does not compel the performance of impossible acts. The court held that the Petitioner could not be penalized for not filing electronically when the portal was non-functional, thus applying these maxims to excuse the non-electronic filing.

4. Precedents from Other High Courts on Similar Issues:

The court considered similar cases from the Allahabad, Gujarat, and Delhi High Courts, where the Petitioners faced identical issues due to the non-availability of Form ITC-02 functionality on the GST portal. These courts had set aside similar show cause notices, recognizing the impossibility of electronic filing and directing the Respondents to consider manual filings. The Bombay High Court followed these precedents, reinforcing the notion that statutory rights should not be denied due to technical issues beyond the taxpayer's control.

5. Manual Versus Electronic Filing of Statutory Forms:

The court acknowledged that the Petitioner had fulfilled its obligation by manually filing the necessary forms and providing all requisite details. It criticized the Respondents for not processing these manual filings and for insisting on electronic filing, which was impossible at the time. The judgment emphasized that manual filings should be accepted when electronic filing is not feasible due to technical constraints.

6. Procedural Fairness and Natural Justice in Tax Recovery Actions:

The court stressed the importance of procedural fairness and natural justice, noting that the Respondents had issued the show cause notice without considering the Petitioner's explanations and the admitted portal issues. It directed the Respondents to consider the manually filed forms and, if necessary, issue a fresh order after due consideration, ensuring the Petitioner is not unfairly prejudiced by technicalities.

Conclusion:

The Bombay High Court quashed the impugned show cause notice, directing the Respondents to consider the manually filed forms in accordance with the law. It held that the Respondents could not deny ITC benefits solely because the forms were not filed electronically, especially when the electronic filing was rendered impossible by the department's own portal issues. The judgment reinforced the principle that statutory rights should not be defeated by procedural technicalities, particularly when caused by the department's shortcomings.

---