GST Portal Glitch? Court Says Taxpayers Can’t Lose Their Tax Credits

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Case Name

M/s Haryana Mill Store vs Union of India and Others

Court Name: High Court of Punjab & Haryana at Chandigarh

Case No.: CWP No.8371 of 2020

Date of Decision: 19th June 2020

Coram: Hon’ble Mr. Justice Jaswant Singh & Hon’ble Mr. Justice Sant Parkash

Key Takeaways

1. Technical glitches on the GST portal cannot rob taxpayers of their legitimate tax credits. The court made it clear that if the system failed the taxpayer, the taxpayer shouldn’t be penalized.

2. Rule 117(1A) of the Haryana GST Rules, 2017, which restricted extensions only to cases of “technical difficulties on the common portal,” was found to be arbitrary, discriminatory, and unreasonable — violating Article 14 of the Constitution of India.

3. CENVAT/ITC credit is a vested property right under Article 300A of the Constitution of India and cannot be taken away merely by delegated legislation (i.e., by framing rules).

4. The government cannot apply double standards — one for itself and another for taxpayers — especially when the government itself was ill-prepared for the GST rollout.

5. The court followed the landmark precedent of Adfert Technologies Pvt. Ltd. vs Union of India and the Delhi High Court’s decision in Brand Equity Treaties Ltd. vs Union of India.

6. The petitioner was given time until 30.06.2020 to upload TRAN-1, and if the portal wasn’t opened, they could claim ITC in GSTR-3B of July 2020.

Issue

The Central Legal Question:

Can the government deny a taxpayer the right to carry forward their pre-GST tax credits (ITC/CENVAT credit) simply because they couldn’t upload Form TRAN-1 by the deadline, when the failure was caused by technical glitches on the GST portal?

And more specifically:

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

Facts

• Who is the Petitioner? M/s Haryana Mill Store is a proprietary concern (a sole proprietorship) engaged in trading of paint and allied goods.

• Before GST (pre-July 2017): The business was registered under the Haryana VAT Act, 2003 and had accumulated tax credits (excess VAT paid on inputs/stock).

• GST came in on 01.07.2017. Under the new GST regime, taxpayers were allowed to carry forward their old tax credits into the new system — but they had to file Form GST TRAN-1 to do so.

• The Deadline: The last date to file TRAN-1 was 31.12.2017. The petitioner could not upload the form due to technical glitches on the GST portal.

• What the Government Did: Under sub-Rule (1A) of Rule 117, the Commissioner can extend the deadline for those who faced “technical difficulties.” The government issued an order dated 01.01.2020 extending the deadline to 31.03.2020 (Annexure P-12).

• The Problem: Despite this extension, the petitioner still couldn’t get relief because the government’s interpretation of “technical difficulty” was very narrow — they only accepted glitches that were logged in the GST system, ignoring real-world difficulties faced by taxpayers.

• The Petition: The petitioner approached the High Court challenging the vires (constitutional validity) of Rule 117(1A) and seeking permission to upload TRAN-1.

Arguments

Petitioner’s Arguments (M/s Haryana Mill Store):

1. The issue is squarely covered by the Punjab & Haryana High Court’s own earlier judgment in Adfert Technologies Pvt. Ltd. vs Union of India (2019-TIOL-2519-HC-P&H-GST).

2. The Delhi High Court in Brand Equity Treaties Ltd. and others vs. Union of India (2020-TIOL-900-HC-Del-GST) had already permitted taxpayers to file TRAN-1 up to 30.06.2020.

3. The Delhi High Court in SKH Sheet Metals Components vs. Union of India WP(C) 13151 of 2019 (order dated 16.06.2020) also permitted revision of TRAN-1 till 30.06.2020.

4. Rule 117(1A) is arbitrary and unconstitutional as it restricts the benefit only to those with “technical difficulties on the common portal” — ignoring the broader reality of taxpayers’ struggles.

5. The CENVAT credit already accrued is a vested property right under Article 300A and cannot be taken away by a mere rule.

6. The government cannot apply different standards to itself and to taxpayers — especially when the government itself was unprepared for GST implementation.

Respondents’ Arguments (Union of India & Others):

1. The respondents’ counsel accepted notice but were unable to controvert (i.e., could not dispute) that the issue was covered by the Adfert Technologies and Brand Equity judgments.

2. The government’s position was that “technical difficulty” should be interpreted narrowly — only covering glitches that were recorded/logged on the GST common portal.

3. The Nodal Officers concluded there was no technical glitch because there was no information stored/logged showing the taxpayer attempted to save/submit Form TRAN-1.

Key Legal Precedents

1. Adfert Technologies Pvt. Ltd. vs Union of India

• Citation: 2019-TIOL-2519-HC-P&H-GST; CWP No. 30949 of 2018
• Court: Punjab & Haryana High Court (Division Bench)
• Date: 04.11.2019
• What it decided: A bunch of petitions were allowed, directing the government to open the portal for uploading TRAN-1. If the portal wasn’t opened, petitioners could take ITC in monthly return GSTR-3B.
• Fate: The Revenue filed an SLP before the Supreme Court, which was dismissed on 28.02.2020 — meaning the High Court’s decision stood firm.
• Relevance here: This was the primary precedent that the current case followed.

2. Brand Equity Treaties Ltd. and others vs. Union of India

• Citation: 2020-TIOL-900-HC-Del-GST
• Court: Delhi High Court (Division Bench)
• What it decided: The Delhi HC followed the Punjab & Haryana HC’s Adfert decision and permitted taxpayers to file TRAN-1 on or before 30.06.2020. It also directed the government to allow all similarly situated taxpayers to file TRAN-1 by that date.
• Key Principle: “The Government cannot adopt different yardsticks while evaluating conduct of the taxpayers and its own conduct, acts and omissions.”
• The court held that Sub-Rule (1A) of Rule 117 was arbitrary, vague, and unreasonable, violating Article 14 of the Constitution.
• It also held that CENVAT credit is a vested property right under Article 300A of the Constitution.

3. SKH Sheet Metals Components vs. Union of India

• Citation: WP© 13151 of 2019
• Court: Delhi High Court
• Date of Order: 16.06.2020
• What it decided: Permitted petitioners to revise TRAN-1 on or before 30.06.2020, relying on the Brand Equity decision.

4. Key Legal Provisions Referenced:

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

Allows Commissioner to extend TRAN-1 deadline for those facing “technical difficulties on common portal”

Article 14 of the Constitution of India

Right to Equality — no arbitrary or discriminatory treatment

Article 300A of the Constitution of India

Right to property — no person shall be deprived of property save by authority of law

Limitation Act, 1963

Civil rights can be enforced within 3 years from commencement of limitation

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

The overarching GST law

Central Excise Act, 1944

Under which CENVAT credit had accrued

Haryana VAT Act, 2003

Under which the petitioner was previously registered

Judgment

Winner: The Petitioner — M/s Haryana Mill Store

The court allowed the petition and here’s what it ordered:

1. The Respondents are directed to permit the Petitioner to upload TRAN-1 on or before 30.06.2020.

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

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

Legal Reasoning:

• The court did not declare Rule 117(1A) as ultra vires (unconstitutional) outright, but held that the petitioner was entitled to carry forward CENVAT credit accrued under the Central Excise Act, 1944.

• The court found that the government’s repeated extensions of the TRAN-1 deadline (for what it considered “technical glitches”) actually vindicated the petitioner’s claim — because denying credit to those who couldn’t prove they attempted to upload TRAN-1 would violate Article 14 (equality) and Article 300A (property rights) of the Constitution.

• The court followed the binding precedent of Adfert Technologies (Supra) and the persuasive authority of Brand Equity Treaties Ltd. (Supra).

FAQs

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

Form TRAN-1 (GST Transition Form 1) was a form that businesses had to file when GST was introduced in July 2017. It allowed them to carry forward tax credits they had accumulated under the old tax regime (like VAT, CENVAT) into the new GST system. Missing this form meant losing those credits permanently — which could mean a significant financial loss.

Q2: What exactly is “technical difficulty” and why was it controversial?

The government interpreted “technical difficulty” very narrowly — only accepting glitches that were recorded in the GST system logs. But the courts said this was too restrictive. “Technical difficulty” is a broad term that includes offline problems, low bandwidth, lack of computer skills, and the general unpreparedness of both taxpayers and the government for the new system.

Q3: Did the court strike down Rule 117(1A)?

No, the court did not formally declare Rule 117(1A) as unconstitutional or ultra vires. However, it treated the rule as violative of Article 14 (arbitrary and discriminatory) in its application, and granted relief to the petitioner anyway.

Q4: What happens if the government doesn’t open the GST portal for the petitioner?

The court provided a safety net — if the government fails to open the portal, the petitioner can claim the ITC directly in their GSTR-3B return for July 2020.

Q5: Can the government verify the petitioner’s claims?

The court specifically noted that the Respondents are at liberty to verify the genuineness of the claims made by the Petitioner. So the credit isn’t given blindly — it’s subject to verification.

Q6: Does this judgment help other taxpayers in similar situations?

The court noted that following the Adfert Technologies decision, a number of writ petitions involving identical questions have been disposed of similarly. The Delhi High Court in Brand Equity also directed the government to allow all similarly situated taxpayers to file TRAN-1.

Q7: What is the significance of Article 300A in this case?

Article 300A of the Constitution says that no person shall be deprived of their property except by authority of law. The courts held that CENVAT/ITC credit is a vested property right — meaning the government can’t just take it away by framing a rule with an arbitrary deadline.

Q8: What was the Supreme Court’s role in this?

The Supreme Court dismissed the government’s SLP (Special Leave Petition) against the Adfert Technologies judgment on 28.02.2020, which effectively confirmed that the High Court’s approach was correct.

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 proprietary concern, engaged in the business

of trading of paint and allied goods, 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 Haryana VAT Act,2003. The Petitioner was

entitled to claim credit of the duties paid on inputs and the credit of the

value added tax in respect of inputs held in stock, 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-12) 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.Sharan Sethi, Senior Standing Counsel accepts notice on

behalf of respondents 1 to 3, 5 and 6; while Mr. Sandeep Singh Mann, Addl.

AG Haryana accepts notice on behalf of respondent no.4. 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.