GST Portal Glitch? Court Orders Government to Let Taxpayer Claim Transition Credit

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Case Name

M/s Modern Motor Works vs Union of India and Others

Court Name: High Court of Punjab & Haryana at Chandigarh

Case No.: CWP No. 8370 of 2020

Date of Decision: 19th June 2020

Key Takeaways

1. CENVAT/VAT credit is a vested property right — The court affirmed that credit accumulated under the old tax regime (Central Excise Act, 1944 / VAT) is a constitutional right under Article 300A of the Constitution of India and cannot simply be taken away by delegated legislation (i.e., by framing rules).

2. Rule 117(1A) is arbitrary and discriminatory — While the court didn’t formally strike down Rule 117(1A), it agreed with the Delhi High Court’s finding that the rule, as interpreted by the government, violates Article 14 of the Constitution (right to equality) because it unfairly restricts benefits only to taxpayers who can prove a “technical glitch on the common portal.”

3. "Technical difficulty" must be interpreted broadly — The court agreed that “technical difficulty” is not limited to glitches on the GST portal alone. It includes difficulties faced by taxpayers due to lack of internet access, low bandwidth, lack of computer skills, and the overall complexity of the new GST system.

4. Government cannot apply double standards — The government repeatedly extended deadlines for itself and for others, so it cannot deny the same benefit to taxpayers who genuinely couldn’t file due to technical challenges.

5. Practical relief granted — If the government fails to open the portal, the petitioner is allowed to claim the ITC (Input Tax Credit) directly in their GSTR-3B return for July 2020.

Issue

The central legal question: Can the government deny a taxpayer the right to carry forward accumulated VAT/CENVAT credit into the GST regime simply because they failed to upload Form GST TRAN-1 by the deadline, especially when the failure was due to technical difficulties?

More specifically:

• Is Rule 117(1A) of the Haryana GST Rules, 2017 — which restricts deadline extensions only to cases of “technical difficulties on the common portal” — valid and constitutional?

• Does denying this credit violate Article 14 (equality) and Article 300A (right to property) of the Constitution of India?

Facts

• Before GST (pre-July 2017): M/s Modern Motor Works, a partnership firm dealing in automobile spare parts, was registered under the VAT Acts of Punjab, Haryana, and Chandigarh. They had accumulated tax credits (VAT paid on inputs/stock) under the old system.

• GST came into effect on 1st July 2017. Under the new GST regime, taxpayers were allowed to carry forward their old tax credits into the new system — but they had to do this by filing Form GST TRAN-1 on the GST portal.

• The deadline was 31st December 2017. The petitioner could not upload TRAN-1 by this date. The reason? Technical glitches and difficulties with the GST portal.

• Rule 117(1A) of the Haryana GST Rules, 2017 allowed the Commissioner to extend the deadline — but only for taxpayers who faced “technical difficulties on the common portal,” and only on the recommendation of the GST Council.

• On 1st January 2020, the government did extend the deadline to 31st March 2020 (via Annexure P-18). However, the petitioner still couldn’t upload the form and approached the High Court.

• The petitioner filed CWP No. 8370 of 2020 before the Punjab & Haryana High Court, challenging Rule 117(1A) and seeking permission to upload TRAN-1.

Arguments

Petitioner’s Arguments (M/s Modern Motor Works):

1. Covered by existing precedent: The petitioner’s counsel, Mr. Sandeep Goyal, argued that this issue is already settled by the Punjab & Haryana High Court’s own judgment in Adfert Technologies Pvt. Ltd. vs Union of India (2019-TIOL-2519-HC-P&H-GST), where the court had allowed similar petitions.

2. Delhi High Court also supports this view: The Delhi High Court in Brand Equity Treaties Ltd. and others vs. Union of India (2020-TIOL-900-HC-Del-GST) had followed the Punjab & Haryana High Court’s decision and permitted taxpayers to file TRAN-1 by 30th June 2020.

3. Rule 117(1A) is arbitrary: The restriction in Rule 117(1A) — limiting extensions only to “technical glitches on the common portal” — is vague, unreasonable, and violates Article 14 of the Constitution.

4. Credit is a vested right: The CENVAT/VAT credit already accrued is a property right under Article 300A of the Constitution and cannot be taken away by a delegated rule.

5. Government cannot have double standards: The government itself was unprepared for GST implementation, yet it expects taxpayers to have been fully ready from day one. This is unfair.

Respondents’ Arguments (Union of India and Others):

• The respondents’ counsels (Mr. Saurabh Goel for Union of India, Mr. Pankaj Gupta for Punjab, and Mr. Sandeep Singh Mann for Haryana) could not contradict the petitioner’s position. They accepted that the issue is squarely covered by the judgments in Adfert Technologies and Brand Equity.

• The government’s general stance (as reflected in the Delhi HC judgment quoted) was that “technical difficulty” should be interpreted narrowly — only as a glitch logged on the GST portal system.

Key Legal Precedents

1. Adfert Technologies Pvt. Ltd. vs Union of India (2019-TIOL-2519-HC-P&H-GST)

• This is the foundational precedent for this case. A Division Bench of the Punjab & Haryana High Court (which included Justice Jaswant Singh, one of the judges in the present case) had allowed a bunch of petitions on the same issue — taxpayers unable to upload TRAN-1 due to technical difficulties.

• The Supreme Court dismissed the SLP filed by the Revenue against this decision on 28th February 2020, effectively upholding it.
• The court in the present case followed this precedent directly.

2. Brand Equity Treaties Ltd. and others vs. Union of India (2020-TIOL-900-HC-Del-GST)

• The Delhi High Court followed the Punjab & Haryana High Court’s decision in Adfert Technologies and permitted taxpayers to file TRAN-1 by 30th June 2020.

• The Delhi HC held that the government "cannot adopt different yardsticks while evaluating the conduct of the taxpayers and its own conduct, acts and omissions."

• It also held that Sub-Rule (1A) of Rule 117 is arbitrary, vague, and unreasonable, and violates Article 14 of the Constitution.

3. SKH Sheet Metals Components vs. Union of India — WP© 13151 of 2019 (Delhi High Court, order dated 16.06.2020)

• The Delhi High Court, just days before this judgment (on 16th June 2020), approved its earlier opinion in Brand Equity and permitted petitioners to file/revise TRAN-1 by 30th June 2020.

4. A.B. Pal Electricals (Supra) — Referenced by Delhi HC in Brand Equity

• The Delhi High Court cited this case to emphasize that credit standing in favour of the assessee is a vested property right under Article 300A of the Constitution and cannot be taken away by prescribing a time-limit for availing the same.

Key Legal Provisions Referenced:

Rule 117(1A) of Haryana GST Rules, 2017

Allows extension of TRAN-1 deadline only for “technical difficulties on common portal” — held to be arbitrarily applied

Article 14 of the Constitution of India

Right to equality — violated by discriminatory application of Rule 117(1A)

Article 300A of the Constitution of India

Right to property — CENVAT/VAT credit is a vested property right

Central Goods and Services Tax Act, 2017 (CGST Act)

The overarching GST law under which TRAN-1 was required

Central Excise Act, 1944

Under which CENVAT credit had accrued before GST

Limitation Act, 1963

Referenced to show that civil rights can be enforced within 3 years — taxpayers shouldn’t lose rights for missing a 90-day window

Judgment

The Petitioner — M/s Modern Motor Works — WON.

What did the Court decide?

1. The petition was allowed. The court followed the precedents set in Adfert Technologies Pvt. Ltd. (Supra) and Brand Equity Treaties Ltd. (Supra).

2. The court did NOT strike down Rule 117(1A) — but it held that denying unutilized credit to dealers who cannot furnish evidence of attempting to upload TRAN-1 would violate both Article 14 and Article 300A of the Constitution.

3. Orders passed by the Court:

• The Respondents are directed to permit the Petitioner to upload TRAN-1 on or before 30th June 2020.

• If the Respondents fail to open the portal, the Petitioner is at liberty to avail the ITC in question in GSTR-3B of July 2020.

• The Respondents retain the right to verify the genuineness of the claims made by the Petitioner.

Court’s Reasoning:

• The government’s repeated extensions of the TRAN-1 deadline (for cases it considered “technical glitches”) actually vindicates the petitioner’s claim — because denying credit to those who can’t prove a portal-logged glitch is discriminatory.

• The CENVAT credit already accrued is a vested right and cannot be forfeited merely because of a procedural deadline.

• The government cannot hold taxpayers to a stricter standard than it holds itself.

FAQs

Q1: What is Form GST TRAN-1 and why is it so important?

TRAN-1 is a transition form that taxpayers had to file when GST was introduced in July 2017. It allowed them to carry forward tax credits (like VAT or CENVAT) accumulated under the old tax regime into the new GST system. Missing this form meant losing potentially significant tax credits.

Q2: Why couldn’t the petitioner just file the form on time?

The petitioner faced technical difficulties with the GST portal. The GST system was brand new, and many taxpayers — including large corporations — struggled with the online system due to portal glitches, low internet bandwidth, lack of technical knowledge, and the sheer complexity of the new system.

Q3: What is Rule 117(1A) and why was it challenged?

Rule 117(1A) of the Haryana GST Rules, 2017 allows the Commissioner to extend the TRAN-1 deadline, but only for taxpayers who faced “technical difficulties on the common portal.” The petitioner challenged this because the government was interpreting “technical difficulty” very narrowly — only as glitches logged on the GST portal — which excluded many genuine cases.

Q4: Did the court declare Rule 117(1A) unconstitutional?

No, the court did not formally strike down Rule 117(1A). However, it agreed with the Delhi High Court’s finding that the rule, as applied by the government, is arbitrary and violates Article 14 (equality) of the Constitution.

Q5: What does Article 300A have to do with tax credits?

Article 300A of the Constitution protects the right to property. The courts held that CENVAT/VAT credit already accrued in a taxpayer’s account is their property — a vested right — and the government cannot take it away simply by imposing a procedural time limit through delegated legislation (rules).

Q6: What happens if the government doesn’t open the portal by 30th June 2020?

The court gave a practical alternative — if the portal isn’t opened, the petitioner can claim the ITC directly in their GSTR-3B return for July 2020.

Q7: Can the government verify the petitioner’s claims?

Yes! The court specifically noted that the Respondents are free to verify the genuineness of the claims made by the Petitioner. So the relief is granted, but it’s not a blank cheque — the government can still check if the credit claimed is legitimate.

Q8: Does this judgment help other taxpayers in similar situations?

Absolutely. This judgment follows a line of similar decisions (Adfert Technologies, Brand Equity, SKH Sheet Metals) and contributes to a growing body of case law protecting taxpayers who couldn’t file TRAN-1 due to genuine difficulties. Many similar petitions have been disposed of by courts directing the government to open the portal.

Hearing conducted through Video Conferencing.

1. The Petitioner through instant petition is challenging vires of

Rule 117(1A) of Haryana GST Rules, 2017 (for short ‘Rules’) and seeking

direction to Respondent to permit Petitioner to electronically upload form

TRAN-I in order to avail credit of excess VAT reflected in Returns, as due

to technical glitches on the GST Portal, the petitioner could not file Form

TRAN-I.

2. The Petitioner-a partnership firm, engaged in the business of

trading of spare parts of automobiles, is registered with Respondent-GST

Authorities under Central Goods and Services Tax Act, 2017 (for short

‘CGST Act’). The Petitioner prior to 01.07.2017 i.e. date of introduction of

GST was registered under VAT Act in force in the States of Punjab,

Haryana and Chandigarh. The Petitioner was entitled to claim credit of the

duties paid on inputs and credit of the Value Added Tax in respect of inputs

held in stock reflected in the Returns, for which it was required to furnish

information in Form GST TRAN-1. However Petitioner failed to upload

TRAN-I by last date i.e. 31.12.2017. As per sub-Rule (1A) of Rule 117 of

the Rules, the Commissioner on the recommendation of the Council may

extend date for submitting the declaration, in respect of registered persons

who could not submit declaration by the due date on account of technical

difficulties. The Respondents in exercise of power conferred by sub-Rule

(1A) of Rule 117 of the Rules, by order dated 01.01.2020 (Annexure P-18)

has extended date for filing TRAN-I till 31.03.2020.

3. Counsel for the Petitioner contended that issue involved is

squarely covered by judgment of this Court in the case of Adfert

Technologies Pvt. Ltd. Vs Union of India 2019-TIOL-2519-HC-P&H-

GST. The SLP filed against aforesaid decision stands dismissed. Delhi High

Court in the case of Brand Equity Treaties Ltd. and others vs. Union of

India 2020-TIOL-900-HC-Del-GST following decision of this Court and

various other High Courts has permitted Petitioners to file TRAN-I on or

before 30.06.2020. Delhi High Court has further directed Respondents to

permit all other similarly situated tax payers to file TRAN-I on or before

30.06.2020. Delhi High Court has further vide order dated 16.06.2020 in

SKH Sheet Metals Components vs. Union of India WP(C) 13151 of 2019

approved its earlier opinion in the case of Brand Equity and permitted

Petitioners to file TRAN-I till 30.06.2020.

4. Notice of motion.

5. Mr.Saurabh Goel, Junior Panel counsel accepts notice on behalf

of respondents 1 to 3 and 6; Mr.Pankaj Gupta, Addl. AG Punjab accepts

notice on behalf of respondent no.4; while Mr.Sandeep Singh Mann,

Addl.AG Haryana accepts notice on behalf of respondent no.5. They are

unable to controvert the fact that the issue in hand is squarely covered by

the judgment of this Court in Adfert Technologies Pvt. Ltd. (Supra) and

of the Delhi High Court in the case of Brand Equity (Supra).

6. Having heard learned Counsel for the parties and perused the

cited judgments, we are of the considered opinion that issue involved is

squarely covered by judgments of this Court as well as of the aforesaid

judgments of Delhi High Court.

7. A Division Bench of this Court consisting one of us (Jaswant

Singh J) vide order dated 4.11.2019 allowed a bunch of petitions which

included CWP No. 30949 of 2018 titled as Adfert Technologies Pvt. Ltd.

Vs Union of India. The revenue assailing decision of this court filed SLP

before Hon’ble Supreme Court which stands dismissed vide order dated

28.02.2020. Following opinion in Adfert Technologies (Supra) a number

of writ petitions involving identical question have been disposed of by this

Court, wherein Respondents have been directed to open portal so that

assessee may upload TRAN-I and in case Respondent fails to open portal,

Petitioners have been permitted to take ITC in monthly return GSTR-3B.

Division Bench of Delhi High Court in the case of SKH Sheet Metals

Components vs. Union of India WP(C) 13151 of 2019, vide order dated

16.06.2020 has permitted Petitioner to revise TRAN-I on or before

30.06.2020. Delhi High Court while passing aforesaid order has relied upon

its recent decision in Brand Equity Treaties Ltd. and others vs. Union of

India (Supra) wherein Court had held that Government cannot adopt

different yardsticks while evaluating conduct of the tax payers and its own

conduct, acts and omissions. It would be profitable to extract relevant

paragraphs of judgment of Delhi High Court in Brand Equity:

“18. In above noted circumstances, the arbitrary classification,

introduced by way of sub Rule (1A), restricting the benefit only to

taxpayers whose cases are covered by "technical difficulties on

common portal" subject to recommendations of the GST Council, is

arbitrary, vague and unreasonable. What does the phrase "technical

difficulty on the common portal" imply? There is no definition to this

concept and the respondent seems to contend that it should be

restricted only to "technical glitches on the common portal". We,

however, do not concur with this understanding. "Technical difficulty"

is too broad a term and cannot have a narrow interpretation, or

application. Further, technical difficulties cannot be restricted only to

a difficulty faced by or on the part of the respondent. It would include

within its purview any such technical difficulties faced by the

taxpayers as well, which could also be a result of the respondent's

follies. After all, a completely new system of accounting; reporting of

turnover; claiming credit of prepaid taxes; and, payment of taxes was

introduced with the implementation of the GST regime. A basket of

Central and State taxes were merged into a single tax. New forms

were introduced and, as aforesaid, all of them were not even

operationalised. Just like the respondents, even the taxpayers required

time to adapt to the new systems, which was introduced as a

completely online system. Apart from the shortcomings in the system

developed by GSTN Ltd., the assessees also faced the challenges

posed by low bandwidth and lack of computer knowledge and skill to

operate the system. It is very unfair on the part of the respondents, in

these circumstances, to expect that the taxpayers should have been

fully geared to deal with the new system on day-one, when they

themselves were completely ill-prepared, which led to creation of a

complete mess. The respondents cannot adopt different standards –

one for themselves, and another for the taxpayers. The GST regime

heralded the system of seamless input tax credits. The successful

migration to the new system was a formidable and unprecedented task.

The fractures in the system, after its launch, became visible as

taxpayers started logging in closer to the deadline. They encountered

trouble filing the returns. Petitioners who are large and mega

corporations - despite the aid of experts in the field, could not collate

the humongous data required for submission of the statutory forms.

Courts cannot be oblivious to the fact that a large population of this

country does not have access to the Internet and the filing of TRAN-1

was entirely shifted to electronic means. The Nodal Officers often

reach to the conclusion that there is no technical glitch as per their

GST system laws, as there is no information stored/logged that would

indicate that the taxpayers attempted to save/submit the filing of Form

GST TRAN-1. Thus, the phrase "technical difficulty" is being given a

restrictive meaning which is supplied by the GST system logs.

Conscious of the circumstances that are prevailing, we feel that

taxpayers cannot be robbed of their valuable rights on an unreasonable

and unfounded basis of them not having filed TRAN-1 Form within

90 days, when civil rights can be enforced within a period of three

years from the date of commencement of limitation under the

Limitation Act, 1963.

19. The introduction of Sub rule (1A) in Rule 117 is a patchwork

solution that does not recognise the entirety of the situation. It sneaks

in an exception, without addressing situations taken note of by us.

This exception, as worded, is an artificial construction of technical

difficulties, limiting it to those existing on the common portal. It is

unfair to create this distinction and restrict it to technical snags alone.

In our view, there could be various different types of technical

difficulties occurring on the common portal which may not be solely

on account of the failure to upload the form. The access to the GST

portal could be hindered for myriad reasons, sometimes not resulting

in the creation of a GST log-in record. Further, the difficulties may

also be offline, as a result of several other restrictive factors. It would

be an erroneous approach to attach undue importance to the concept of

"technical glitch" only to that which occurs on the GST Common

portal, as a pre-condition, for an assesee/tax payer to be granted the

benefit of Sub- Rule (1A) of Rule 117. The purpose for which Sub-

Rule (1A) to Rule 117 has been introduced has to be understood in the

right perspective by focusing on the purpose which it is intended to

serve. The purpose was to save and protect the rights of taxpayers to

avail of the CENVAT credit lying in their account. That objective

should also serve other taxpayers, such as the petitioners. The

approach of the Government should be fair and reasonable. It cannot

be arbitrary or discriminatory, if it has to pass the muster of Article 14

of the Constitution. The government cannot turn a blind eye, as if

there were no errors on the GSTN portal. It cannot adopt different

yardsticks while evaluating the conduct of the taxpayers, and its own

conduct, acts and omissions. The extremely narrow interpretation that

the respondents seek to advance, of the concept of "technical

difficulties", in order to avail the benefit of Sub Rule (1A), is contrary

to the statutory mechanism built in the transitory provisions of the

CGST Act. The legislature has recognized such existing rights and has

protected the same by allowing migration thereof in the new regime

under the aforesaid provision. In order to avail the benefit, no

restriction has been put under any provisions of the Act in terms of the

time period for transition. The time limit prescribed for availing the

input tax credit with respect to the purchase of goods and services

made in the pre-GST regime, cannot be discriminatory and

unreasonable. There has to be a rationale forthcoming and, in absence

thereof, it would be violative of Article 14 of the Constitution.

Further, we are also of the view that the CENVAT credit which stood

accrued and vested is the property of the assessee, and is a

constitutional right under Article 300A of the Constitution. The same

cannot be taken away merely by way of delegated legislation by

framing rules, without there being any overarching provision in the

GST Act. We have, in our judgment in A.B. Pal Electricals (supra)

emphasized that the credit standing in favour of the assessee is a

vested property right under Article 300A of the Constitution and

cannot be taken away by prescribing a time-limit for availing the

same.

Emphasis Supplied

In the above findings, Delhi High Court though has not

declared Rule 117 (1A) ultra vires the constitution, nonetheless treated as

violative of Article 14 of Constitution of India being arbitrary,

discriminatory and unreasonable.

8. The Petitioner has challenged vires of Rule 117 (1A) of Rules,

however we do not think it appropriate to declare it invalid as we are of the considered opinion that Petitioner is entitled to carry forward Cenvat Credit accrued under Central Excise Act, 1944. The Respondents have repeatedly extended date to file TRAN-I where there was technical glitch as per their understanding. Repeated extensions of last date to file TRAN-I in case of technical glitches as understood by Respondent vindicate claim of the Petitioner that denial of unutilized credit to those dealers who are unable to furnish evidence of attempt to upload TRAN-I would amount to violation of Article 14 as well Article 300A of the Constitution of India.

9. In view of decision of this Court in the case of Adfert

Technologies Pvt. Ltd. (Supra) and Delhi High Court in the case of Brand

Equity Treaties Ltd. (Supra) present petition deserves to be allowed and

accordingly allowed. The Respondents are directed to permit Petitioner to

upload TRAN-I on or before 30.06.2020 and in case Respondent fails to do

so, the Petitioner would be at liberty to avail ITC in question in GSTR-3B

of July 2020. No doubt, the respondents would be at liberty to verify

genuineness of claim(s) made by Petitioner.