The Madurai Bench of the Madras High Court has reaffirmed that unutilised CENVAT credit legitimately earned under the pre-GST regime is an indefeasible right and cannot be denied merely because the GSTN portal failed to accept or rectify the transitional TRAN-1 form.

Facts of the Case

M/S. Avatar Petro Chemicals Private Limited ("the petitioner"), a Central Excise assessee, had an accumulated CENVAT credit of Rs. 5,09,612/- under the CENVAT Credit Rules, 2004 as on June 2017. It attempted to transition this credit by filing Form TRAN-1 electronically under Rule 117 of the CGST Rules, 2017 read with Section 140 of the CGST Act, 2017. The upload was unsuccessful, with the portal repeatedly displaying a proxy error, which the petitioner captured by screenshot. On 19.04.2020, the petitioner received an e-mail from the GST help desk stating that TRAN-1 filing was no longer available as the due date was over. The petitioner accordingly filed this writ petition seeking a mandamus directing the GST Council either to reopen the portal for electronic filing of TRAN-1 or to accept it manually.

Issues Involved

  1. Whether unutilised CENVAT credit validly earned under the pre-GST regime lapses merely because TRAN-1 could not be uploaded due to a portal glitch.
  2. Whether the petitioner was entitled to transition the credit manually or through a direct credit entry despite expiry of the TRAN-1 filing window.

Petitioner's Arguments

  • A genuine attempt was made to upload TRAN-1 within time, but it was thwarted by a portal proxy error, evidenced by a contemporaneous screenshot.
  • Relied on Chogori India Retail, Kusum Enterprises, Siddharth Enterprises, Adfert Technologies, Aman Motors, Brand Equity Treaties and Heritage Lifestyle to argue that transitional credit is a vested, indefeasible right that cannot be denied for a technical failure.
  • Pointed out that the Special Leave Petition against the Delhi High Court's ruling in Brand Equity Treaties had been dismissed by the Supreme Court.

Respondent's Arguments

  • A similar relief granted by a Single Judge in an earlier writ petition was under challenge before the Division Bench, where a stay had been granted; hence reliance on the Delhi High Court's ruling was said to be inappropriate.

Court Order / Findings

  • Following its own recent orders and the Division Bench ruling in Bharat Electronics, the Court held that credit legitimately earned under the CENVAT Credit Rules, 2004 and the erstwhile Central Excise Act, 1944 is indefeasible and cannot be denied for a technical inability to upload or rectify TRAN-1.
  • Retention of such credit without statutory basis would amount to collection of tax without authority of law, contrary to Article 265 of the Constitution.
  • Procedures are the handmaiden of justice, not its mistress; substantial compliance should not be defeated by portal technicalities.
  • Directed the respondents to either allow rectification/manual filing of TRAN-1 or make a direct credit entry in the petitioner's Electronic Credit Register, after verifying that the credit was genuinely lying unutilised as on 30.06.2017, within 90 days.
  • The matter was remitted to the jurisdictional authorities to independently verify and give effect to the credit.

Important Clarification

  • Input tax credit or CENVAT credit validly earned and left unutilised under the pre-GST regime is an indefeasible right that survives transition to GST; denying its transition merely because the GSTN portal could not process or permit rectification of TRAN-1 amounts to unauthorised collection of tax.

Sections Involved

  • Section 140, CGST Act, 2017 — transitional arrangements for input tax credit.
  • Rule 117, CGST Rules, 2017 — procedure for claiming transitional credit through TRAN-1.
  • Article 265, Constitution of India — no tax shall be levied or collected except by authority of law.

Decision – In Favour of

In favour of the Assessee. The writ petition was allowed, with the department directed to enable transition of the credit through manual filing or a direct credit entry.

Related Case Laws

This ruling should be read together with Brand Equity Treaties Ltd. vs Union of India (Delhi High Court) and the Division Bench ruling in Commissioner of GST and Central Excise vs Bharat Electronics Limited (Madras High Court), both discussed in the judgment, as well as the companion order in P.Preetha (M/S.Deshini Yamaha) vs Goods and Service Tax Council decided by the same Bench on the same day.

Case Details

  • Court: Madras High Court, Madurai Bench
  • Case No.: W.P.(MD) No.7093 of 2020
  • Coram: Hon'ble Mr. Justice C. Saravanan
  • Order Date: 04.03.2022

Link to Download the Order

https://mytaxexpert.co.in/uploads/1787075648_4608compressed.pdf

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