No Denial of Input Tax Credit Due to System Failure

Software systems have to be in tune with the law, and not vice-versa, the court ruled

The Delhi High Court has said that the rights of Goods & Services Tax (GST) assessees ‘cannot be subjugated’ to the poor and inefficient software systems adopted by the authorities. The ruling is likely to benefit assessees who suffer due to technical glitches.

“The software systems adopted by the respondents have to be in tune with the law, and not vice-versa. The system limitations cannot be a justification to deny the relief, to which the petitioner is legally entitled,” the court ruled in a matter related to denial of use of unutilised input tax credit (ITC).

After the introduction of Goods & Services Tax, a special provision was made for credit accumulated under VAT, excise duty or service tax to be transited to GST. Barring registered dealer opting for composition scheme, all other assessees were given opportunity to avail themselves of the transitional credit. However, there were some conditions. First, the credit will be available only if the returns for the last six months, that is, from January 2017 to June 2017 were filed in the previous regime (VAT, excise and service tax returns had been filed). Second, Form TRAN 1 (to be filed by registered persons under GST, may be registered or unregistered under old regime) has to be filed by December 27, 2017, to carry forward the input tax credit. Third, Form TRAN 1 can be rectified only once.

Inaction of respondents

In a petition filed with the HC, the grievance of the petitioner was that due to the inaction of the respondents (State GST authority) and their failure to allow smooth migration of the credit standing in the account of unutilised input tax, the petitioner could not use and exploit the ITC while making exports in the months of July and August, 2017. Accordingly it was forced to shell out over ₹1.37 crore which would not have been the case, had it been able to utilise its ITC which had accumulated even prior to the enforcement of the GST regime.

The court heard both the sides and observed that the petitioner cannot be made to suffer on account of failure on the part of the respondents in devising smooth transition to GST regime w.e.f. July 1, 2017 from the erstwhile indirect taxation structure. “The business activity in the country cannot be expected to come to a standstill, only to await the respondents making the GST system workable,” it said.

According to the court, the failure of the respondents in first putting a workable system in place, before implementing the GST regime, reflects poorly on the concern that they have shown to the difficulties that the trade faced throughout the length and breadth of the country. “Unfortunately, even after passage of over two years, the respondents have not remedied their omissions and failures by taking corrective steps. They continue to take shelter in the limitations in, and the inability of their software systems to grant refund, despite the same being justified,” the court said.

[23-12-2019]