Ability to carry forward transitional credit relating to pre-GST regime issues owing to taxpayers’ errors

by | Feb 22, 2019

The Goods and Service Tax (‘GST’) law finds its origin in the cause of seamless flow of credit. The GST law allowed carry forward of transitional credit subject to the filing of declaration in Form GST TRAN-1.

During the transition phase, several taxpayers could not transition their credit due to glitches in IT system of GSTN. To address these situations, the Government came up with a procedure for addressing such cases.

Apart from technical glitches, there were also cases where credit could not be transitioned due to errors on part of the taxpayers. These errors were of improper or incomplete filing of Form GST TRAN-1.

This update is to appraise you that the High Courts have entertained the cases where the taxpayers committed errors in filling Form GST TRAN-1 under writ jurisdiction.

In the case of Pragati Automation Private Limited[1], the taxpayer entered incorrect figures while filing Form GST TRAN-1. The Karnataka High Court observed that a Nodal Officer was obligated to consider all representations made by taxpayers. Accordingly, the Court directed the Nodal Officer to dispose off the matter expeditiously.

In the case of OEN India Limited and Another[2], the taxpayers filled incorrect figures while filing Form GST TRAN-1. The departmental counsel informed the Court that CBIC had decided to provide relief even in cases where errors were committed at taxpayers’ end. The relief will be subject to verification of the claims by GSTN. The Court directed CBIC to consider the claims of the taxpayers and dispose off the matter expeditiously.

In the case of Optival Health Solutions Private Limited and Another[3], the taxpayer committed errors while filing Form GST TRAN-2. The taxpayer made several attempts to rectify the errors, however, the system did not allow such rectification. The Calcutta High Court acknowledged the lacuna in the present system and observed that forms like Form GST TRAN-2 are an admission of state of affairs by a taxpayer. Any Act or Rule cannot forfeit the right of a person to substantiate an admission made by mistake. Accordingly, an opportunity should be afforded to such person to correct the mistake committed while filing the form. The Court directed the authorities to allow the taxpayer to revise the Form GST TRAN-2 electronically or accept manual submissions.

The Government has also taken cognizance of the difficulties being faced by taxpayers. In a news update, it was reported that the Government is likely to come up with a mechanism to deal with cases involving errors committed at taxpayers’ end while transitioning of credit i.e. non IT errors[4]. However, no mechanism has been brought out till date.

In the case of SKH Sheet Metals Components Private Limited[5], the departmental counsel submitted before the Bombay High Court that the CBIC is exploring a corrective mechanism for dealing with cases where the taxpayers committed errors while filing Form GST TRAN-1. Accordingly, the Court asked the departmental counsel for submission of the details of the proposed corrective mechanism on the next date of hearing.

NITYA Comments:

It is intent of the Government to condone errors committed by taxpayers in filing Form GST TRAN-1, Form GST TRAN-2 etc. Despite the noble intent, the Government is yet to bring out the scheme. We hope that the scheme is practically workable unlike the way the taxpayers are feeling for the present scheme (for non-filing of Forms because of IT glitches).

At the same breadth and de horse the scheme being brought by the Government, it is a settled jurisprudence that a substantive right cannot be taken away due to procedural lapses. This is also evident from the consistent liberal approach taken by various High Courts while dealing with such situations.

Considering the same and pending devising of any mechanism by the government, the taxpayers who could not transition the credit due to error, can consider filing writ petition before jurisdictional High Courts to get the credit before it lapses because of efflux of time.

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