Goods & Services Tax (GST) in IndiaTransitional Credit cannot be denied merely because TRAN-1 is filed through branch GST Portal

The Hon’ble Telangana High Court in Standard Chartered Bank. vs. The Principal Commissioner of Central Tax [W.P. 648 of 2024 decided on 11.07.2024] held that the revenue cannot dispute the filing of TRAN-1, filed through GST portal of branch of taxpayer, due to technical glitch in filing at the registered GST portal could not  be denied by the Revenue.

FACTS

M/s. Standard Chartered Bank.(hereinafter referred to as the “Petitioner”) has its principal place of business in Maharashtra and the registered bank of the Petitioner is also situated in Maharashtra.

After the introduction of the Goods and Services Tax (“hereinafter referred to as “GST”),  the Petitioner was entitled to transitional credit of ₹1,41,26,69,646 (One Hundred Forty-One Crore Twenty-Six Lakh Sixty-Nine Thousand Six Hundred Forty-Six Rupees).

The Petitioner initially attempted to file its GST return through the Maharashtra GST portal but faced technical issues. As a result, it filed the return on the Telangana GST portal on 18.10.2017, since the Petitioner had a branch in Telangana. The Petitioner took the credit and immediately transferred the transitional credit to the Maharashtra GST portal on the same day.

On 08.09.2021, a pre-show cause notice was issued, alleging that the transitional credit availed through Telangana was ineligible. The Petitioner responded on 09.09.2021, explaining that the transitional credit had been transferred to Maharashtra on the same day of filing of TRAN-1, with balance of only Rs.2,00,000 (Rupees Two Lakhs Only) remaining in the state of Telangana. It provided supporting evidence through its Electronic Credit Ledger for the period from July 2017 to March 2018.

Despite the explanation, the Respondents issued a Show-Cause Notice (hereinafter referred to as “SCN”) dated 29.12.2021. The Petitioner replied to SCN on dated 27.01. 2022, but the Respondents were unsatisfied and passed an order-in-original dated 31.10.2023 (hereinafter referred to as the “Impugned Order”). The Impugned Order confirmed the demand of Rs.1,41,26,69,646, ( Rupees One Hundred Forty-One Crore Twenty-Six Lakh Sixty-Nine Thousand Six Hundred Forty-Six Only) along with interest and penalties, citing the violation of Section 140 of the Central Goods and Service Tax Act 2017(hereinafter referred to as “CGST Act”).

Being aggrieved and dissatisfied by the Impugned Order, the Petitioner has filed the present petition.

ISSUES BEFORE THE TELANGANA HIGH COURT

1. Whether the present Petition filed by the Petitioner is maintainable before the Hon’ble High Court?
2. Whether Section 140 of the CGST Act bares or prohibits the filing of TRAN-1 in the GST portal of another state where the branch of the Petitioner exists?
3. Whether the Petitioner could file a return in the GST portal of Telangana due to technical glitches on the Maharashtra portal?
4. Whether penalties and interest could be imposed despite no loss to revenue and the timely transfer of credit to Maharashtra?

CONTENTIONS OF THE PARTIES

The Petitioner contended that the TRAN-1 was filed in Telangana Portal and immediately transferred to Maharashtra GST Portal under compelling circumstances. The CGST Act nowhere prohibits filing of returns in a State where the branch of the Petitioner exists.

It was submitted  that the Petitioner did not derive any undue benefit, and the revenue did not suffer any loss.

It was  argued that the Ld. Additional Commissioner had misinterpreted the provisions, particularly Section 140(1) and 140(4) of the CGST Act, while passing the Impugned Order.

The  Petitioner relied on Chandrapur Magnet Wires (P) Ltd. vs. Collector of Central Excise, Nagpur, [JT 1995 (9) SC 568]. and submitted that when the credit was transferred to the correct portal (Maharashtra) on the same day, the department had no justifiable reason to deny the credit or impose penalties and interest.

The Respondentcontended that the present petition was not maintainable as an effective alternate remedy by way of statutory appeal   under Section 107 of the CGST Act and hence, the present Court does not have jurisdiction to entertain the present petition. However, the Respondent subsequently admitted that the case primarily involved a pure question of law.

Further, the Respondents argued that the Petitioner is centrally registered in Maharashtra and should have filed the return on the Maharashtra GST portal. Even if the portal had technical glitches, the Petitioner should have approached the higher GST authorities in Maharashtra for redressal.

It was argued that Section 140 of the CGST Act clearly specifies that returns must be filed in the state where the centralized registration of the taxpayer exists, i.e., Maharashtra. The centralized registration system aims to prevent misuse by allowing only the registered state to handle the return. Therefore, the Respondent contended that the writ petition was without merit and should be dismissed.

DECISION AND FINDINGS

The Hon’ble Telangana High Court relied upon M/s. Godrej Sara Lee Ltd. Vs. The Excise and Taxation Officer-cum-Assessing Authority & Others [2023(2) TMI 64 – SC] and held that the present petition was maintainable and the Petitioner need not avail the alternate remedy of statutory appeal as it is based on pure question of law.

 The High Court further examined the documents and held that Section 140 (1) of the CGST Act merely entitled taxpayer to avail credit of CENVAT in the Electronic Credit Ledger. Further, as the present Petitioner had centralized registration, Section 140(8) of the CGST Act also permits availment of Cenvat Credit through a different portal.

It was also held that the technical glitch faced by the Petitioner was nowhere disputed by the Respondent. It was also observed that the Petitioner had not availed anything wrongfully that may cause losses to the Revenue and hence, interest or penalty cannot also be levied. It was held that the SCN itself was bad in law and without authority of law. Hence, the SCN as well as the Impugned Order was quashed and set aside.

AMLEGALS REMARKS

The Hon’ble Telangana High Court in the case of M/s. Standard Chartered Bank vs. The Principal Commissioner of Central Tax underscores a significant principle in the realm of GST compliance. The Court’s decision to allow the transitional credit despite the filing of TRAN-1 through the Telangana GST portal, due to technical glitches in the Maharashtra portal, reflects a pragmatic approach to the challenges faced by taxpayers in navigating the GST framework. This judgment reinforces the notion that technical difficulties should not penalize taxpayers, especially when they have acted in good faith and promptly transferred credits to the appropriate portal. The Court’s emphasis on the absence of loss to revenue and the timely rectification of the filing demonstrates a balanced interpretation of the law, prioritizing fairness and the intent behind the GST provisions. Overall, this ruling is a positive development for businesses, as it clarifies that transitional credits cannot be denied solely based on procedural technicalities, thereby promoting a more taxpayer-friendly environment within the GST regime.