Rule 117(4)(b)(iii) cannot deny transitional credit for technical glitches or inadvertent TRAN-1 filing mistakes

HC ruled that Rule 117(4)(b)(iii) of CGST Rules cannot deny transitional credit due to technical glitches or inadvertent mistakes in TRAN-1 filing. Following precedent in Siddharth Enterprise case, the court held that authorities must permit rectification of TRAN-1/TRAN-2 forms when software limitations prevent correct uploads. The petitioner was granted eight weeks to file corrected TRAN-1 with proper details to claim legitimate transitional credit. The show-cause notice was quashed, and petition was allowed.

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Issues Involved:

1. Validity of Rule 117 (4) (b) (iii) of the CGST Rules.
2. Petitioner's entitlement to transitional tax credit under Section 140 (3) of the CGST Act.
3. Technical glitches in the GST portal affecting the submission of GST TRAN-1 and TRAN-2 forms.
4. The impact of procedural lapses on the right to transitional credit.
5. The role of judicial directions in rectifying procedural errors in GST filings.

Issue-wise Detailed Analysis:

1. Validity of Rule 117 (4) (b) (iii) of the CGST Rules:
The petitioner challenged Rule 117 (4) (b) (iii) of the CGST Rules, arguing it was ultra-vires Section 140 (3) of the CGST Act and violated Article 14 of the Constitution of India. The petitioner claimed that the rule was contrary to the object, purpose, and scheme of the CGST Act. The court, however, did not explicitly rule on the constitutional validity of the rule but focused on the procedural aspects and the petitioner's entitlement to transitional credit.

2. Petitioner's Entitlement to Transitional Tax Credit:
The petitioner, an authorized distributor, was entitled to claim transitional tax credit for the excise duty component on goods in stock as of 30.06.2017 under Section 140 (3) of the CGST Act. The petitioner filed Form TRAN-1 but inadvertently omitted details in the column for stock with duty-paid invoices. Despite this, the transitional credit was reflected in the electronic credit ledger. The court recognized the petitioner's entitlement to transitional credit and directed the authorities to permit the petitioner to rectify the TRAN-1 form.

3. Technical Glitches in the GST Portal:
The petitioner faced technical issues when attempting to file Form GST TRAN-2, which was necessary for claiming transitional credit. The court acknowledged the technical glitches and referred to the Supreme Court's order directing the reopening of the GST portal to address such issues. The petitioner was unable to file TRAN-2 due to system errors, which the court attributed to technical glitches beyond the petitioner's control.

4. Impact of Procedural Lapses on the Right to Transitional Credit:
The court emphasized that procedural lapses, such as the failure to file forms within stipulated timelines, should not deprive a taxpayer of their substantive right to transitional credit. Citing the decision in Siddharth Enterprise, the court held that the due date for filing transitional credit claims is procedural and should not be construed as mandatory. The court directed the respondent authorities to allow the petitioner to rectify the errors in the TRAN-1 form to claim the credit.

5. Role of Judicial Directions in Rectifying Procedural Errors:
The court's judgment highlighted the judiciary's role in ensuring fairness and non-arbitrariness in state actions, particularly in tax matters. By directing the authorities to allow rectification of the TRAN-1 form, the court reinforced the principle that technical and procedural errors should not impede the exercise of legal rights. The court quashed the impugned show-cause notice and instructed the authorities to facilitate the petitioner's filing of corrected forms within eight weeks.

In conclusion, the judgment underscored the importance of balancing procedural requirements with substantive rights, ensuring that taxpayers are not unfairly penalized due to technical or inadvertent errors in compliance with GST transition provisions.

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