GST Portal Glitch? Court Says Taxpayers Can’t Lose Credits Due to Tech Failures

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Case Name

Leo Distributors v. The Commissioner of State GST & Others and Ting Tong International Pvt. Ltd. v. Union of India & Others

Court Name: High Court of Kerala at Ernakulam

Case No.: WP(C) No. 11424 of 2019 and WP(C) No. 18385 of 2019

Judge: The Honourable Mr. Justice A.K. Jayasankaran Nambiar

Date: Friday, 13th December 2019

Key Takeaways

1. Substantive rights cannot be defeated by procedural failures — especially when the failure was caused by the government’s own technical systems, not the taxpayer.

2. The GST portal was still in a “trial and error” phase during its early implementation, and courts across India were recognizing this reality.

3. System logs matter — The government’s own records showed that the petitioners did attempt to log in before the deadline. This was a crucial piece of evidence.

4. The court followed a consistent judicial trend — Both the Delhi High Court and the Himachal Pradesh High Court had already taken similar pro-taxpayer positions on this issue.

5. Manual filing is a valid alternative — The court recognized that if electronic filing isn’t possible, manual filing should be permitted.

6. The tax authorities retain verification rights — Even though the court allowed the filing, the authorities can still verify whether the claims are genuine.

Issue

Can the government deny a taxpayer’s legitimate, accrued tax credit (earned under the VAT regime) solely because they failed to file Form GST TRAN-1 before the deadline of 27.12.2017, when that failure was caused by a technical glitch on the government’s own GST portal?

The short answer the court gave: No, they cannot.

Facts

Background:

• Both petitioners were registered taxpayers under the Kerala Value Added Tax Act, 2003.
• When India switched to the GST regime in 2017, these businesses were entitled to carry forward the tax they had already paid on their stock/purchases under VAT into the new GST system. Think of it as a credit balance that should move with them.

The Legal Framework:

• The transition rules that govern this credit transfer are Sections 139 to 143 of the CGST/SGST Act, 2017 and Rule 117 of the SGST Rules.
• To claim this credit, taxpayers had to file a declaration in Form GST TRAN-1 on or before 27.12.2017.

What Went Wrong:

• When both businesses tried to upload their details on the GSTN web portal before the deadline, they couldn’t do it — the system had a technical glitch.

What They Did Next:

• They complained to the authorities and requested help.
• The authorities checked their system logs and confirmed that the petitioners had indeed attempted to log into the system before the deadline.

The Government’s Response:

• Despite acknowledging the login attempts, the authorities said the petitioners fell under “Category B2” — meaning their login attempt was recorded, but they couldn’t prove the failure was due to a system error on the government’s side. So, the credit was denied.

The Petitioners’ Challenge:

• Both businesses filed Writ Petitions in the Kerala High Court, challenging the communications that denied them the credit transfer.

Arguments

Petitioners’ Arguments (Leo Distributors & Ting Tong International):

1. They had a substantive legal right to carry forward their accrued tax credits from the VAT regime to GST — this right cannot be taken away just because of a procedural/technical failure.

2. The failure to upload was not their fault — it was caused by a technical glitch in the government’s own GST portal.

3. The government’s own system logs confirmed that they attempted to log in before the deadline of 27.12.2017.

4. Denying them the credit was unjust and arbitrary, especially since the GST system was still in its early, unstable phase.

Respondents’ Arguments (GST Authorities):

1. The petitioners did not comply with the procedural requirements before the cut-off date of 27.12.2017.

2. While the system logs showed login attempts, the petitioners could not establish that their inability to upload was specifically due to a system error caused by the respondents.

3. Under the categorization system (Category B2), the petitioners’ case required them to prove the system error was on the government’s end — which they failed to do.

4. Therefore, the credit cannot be carried forward into the GST regime.

Key Legal Precedents

The court relied on two very important judgments from other High Courts:

1. Blue Bird Pure Pvt. Ltd. v. Union of India and Others [(2019) 68 GSTR 340 (Delhi)]

• Court: Delhi High Court
• What it said: Accrued tax credits cannot be denied or varied on account of procedural defects cited by the respondents. The Delhi HC recognized that the GST system was still in a trial-and-error phase, with many dealers facing difficulties in filing returns and claiming input tax credit through the GST portal.
• How it was applied here: The Kerala HC took direct cue from this judgment, noting that the same principle applied — the petitioners’ attempts to log in were undisputed, and procedural failures shouldn’t defeat substantive rights.

2. Jay Bee Industries v. Union of India and Others (CWP No. 2169 of 2018, decided on 16.11.2019)

• Court: Himachal Pradesh High Court
• What it said: Similar to the Delhi HC judgment — accrued tax credits cannot be denied due to procedural defects. The court also acknowledged the teething troubles with the GST portal.
• How it was applied here: The Kerala HC noted that both these judgments consistently held that taxpayers should not be penalized for system failures, and directed that TRAN-1 forms be allowed to be filed either electronically or manually.

Key Statutory Provisions Referenced:

• Sections 139 to 143 of the CGST/SGST Act, 2017 — Transition provisions governing the transfer of credit
• Rule 117 of the SGST Rules — Procedural rule for filing TRAN-1

Judgment

The Petitioners Won

1. It was undisputed that the petitioners attempted to upload their details before 27.12.2017 — the system logs confirmed this.

2. It would be unfair to require the petitioners to additionally prove that the failure was due to a specific system error on the government’s side, when the government’s own logs showed the attempts were made.

3. Substantive rights cannot be defeated by procedural lapses, especially when those lapses were caused by the government’s own technical infrastructure.

Orders Made by the Court:

• The impugned communications (the letters denying the credit transfer) were quashed (cancelled).
• The respondents were directed to permit the petitioners to file their TRAN-1 Forms, either:
• Electronically (preferred — authorities must make necessary arrangements on the portal), OR
• Manually (only if electronic filing is not possible)
• Deadline given: on or before 31.12.2019
• The authorities retain the right to verify the genuineness of the petitioners’ claims.
• The claim shall not be denied solely on the ground that it was not filed before 27.12.2017.

FAQs

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

Form GST TRAN-1 is a transition declaration form that businesses had to file to carry forward their accumulated tax credits from the old VAT/Excise regime into the new GST system. Missing this filing meant losing potentially significant tax credits that businesses had legitimately earned.

Q2: What was the original deadline for filing TRAN-1?

The original deadline was 27th December 2017.

Q3: Did the court completely accept the petitioners’ version of events?

The court noted that the system logs confirmed the petitioners attempted to log in before the deadline. However, the court didn’t require them to prove the exact cause of the technical failure — it was enough that the attempt was made and the system didn’t work.

Q4: Can the tax authorities still reject the credit claims after this judgment?

Yes! The court specifically said the authorities retain the right to verify the genuineness of the claims. So if the claims turn out to be fraudulent or incorrect, they can still be rejected — just not solely because they were filed after 27.12.2017.

Q5: Does this judgment apply to all GST taxpayers who missed the TRAN-1 deadline?

Not automatically. This judgment applies specifically to these two petitioners. However, it adds to a growing body of case law (from Delhi HC and HP HC as well) that supports taxpayers who genuinely tried to file but couldn’t due to portal issues. Other taxpayers in similar situations could cite this judgment in their own cases.

Q6: What is “Category B2” that the government mentioned?

The government had categorized taxpayers who faced TRAN-1 issues into different groups. Category B2 referred to taxpayers whose login attempts were recorded in the system logs, but who couldn’t prove that the failure to upload was specifically due to a system error on the government’s side. The court found this categorization too strict and unfair.

Q7: Why were two separate cases decided together?

Both cases involved the exact same legal issue — taxpayers who couldn’t file TRAN-1 due to portal glitches and were denied their transition credits. The court found it efficient and appropriate to hear and decide them together through a common judgment.

As both these writ petitions involve a common issue they are taken

up for consideration together and disposed by this common judgment.

2. The petitioners in both these Writ Petitions were assesses under

the Kerala Value Added Tax Act, 2003, who migrated to the GST regime

pursuant to the enactment of the Central Goods and Service Tax/ State

Goods and Service Tax (CGST/SGST) Act, 2017. The petitioners,

consequent to their migration to the GST regime, were entitled to carry

forward the tax paid on purchase of goods during the VAT regime to the

GST regime and to avail credit under the latter regime. The transition

provisions, which govern the transfer of credit under the CGST/SGST Act

and Rules are Sections 139 to 143 of the Act and Rule 117 of the SGST

Rules. As part of the procedure for the transfer of credit, the petitioners

had to file a declaration in Form GST TRAN-1 on or before 27.12.2017

for the purposes of successfully migrating the credit to the GST regime.

In both these Writ Petitions, the grievance of the petitioners is

essentially that, while they attempted to upload the necessary details in

the web portal of the GSTN, they were not able to do so because of a

technical glitch that was encountered in the system. The request made

by them before the respondent authorities under the GST Act also did

not meet with any success, and the stand of the respondents was that

since the petitioners had not complied with the procedural requirements

before the cut-off date prescribed, they could not carry forward the

credit, that had accrued to them under the erstwhile regime, into the

GST regime. In these Writ petitions, the communications issued to them

by the respondents denying them the facility of transfer of accrued credit

are impugned, inter alia, on the contention that the substantial rights

available to them under the GST Act cannot be deprived solely on

account of a technical lapse that was occasioned at the instance of the

respondents.

3. Through statements filed on behalf of the respondents, it

is stated that the complaints with regard to system error and the alleged

inability of assessees to upload the necessary details for carrying

forward the credit earned by them under the erstwhile regime to the

GST regime on or before 27.12.2017, were considered by the

respondents, who have the wherewithal to ascertain whether an

assessee had in fact made an attempt to log into the system or not. It is

stated that system log maintained by the respondents clearly reveals

cases where an assessee attempted to log into the system but failed, and

also whether or not the inability of the assessee to upload the necessary

details was on account of a system error or otherwise. It is stated that

inasmuch as the system logs in the instant case reveals that the

petitioners had in fact made an attempt to log into the system before

27.12.2017, their case would be covered by category B2, in the

categorization drawn up by the respondents. It is stated that in the case

of such assessees, while their attempt at logging in would be recorded by

the system, it would have to be established that the inability to upload

the details was on account of any system error occasioned at the

instance of the respondents.

4. I have heard the learned counsel appearing for the petitioners

and the learned Standing Counsel appealing for the respondents.

5. On a consideration of the facts and circumstances of the case

and the submissions made across the bar, I find that since it is not in

dispute that the petitioners herein did attempt to upload the necessary

details in the system maintained by the respondents, and it cannot be

disputed, based on a perusal of the system log, that the petitioners did

attempt to log into the system, the mere fact that the petitioners cannot

establish that the inability to upload the required details was on account

of a system error that was occasioned by the respondents, cannot be a

reason for denying them the substantive benefit of carrying forward the

credit earned by them under the erstwhile regime. I also take note of

the decision of the Delhi High Court in Blue Bird Pure Pvt.Ltd. V.

Union of India and Others [(2019) 68 GSTR 340 (Delhi)], and the

decision of the Himachal Pradesh High Court dated 16.11.2019 in CWP

No.2169 of 2018 (Jay Bee Industries Vs. Union of India and Others),

which take the view that accrued tax credits cannot be denied or varied

on account of procedural defects cited by the respondents. In particular,

it was noticed in those judgments that the GST system was still in a trial

and error phase as far as its implementation was concerned, and there

were a large number of dealers approaching the High Court expressing

difficulties in filing return, claiming input tax credit etc., through the

GST portal. In the said cases, the Writ petitions were allowed and a

direction was issued to the respondents to permit the petitioners therein

to file the TRAN -1 Form, either electronically or manually on or before

31.12.2019 without prejudice to the right of the respondent statutory

authorities to verify the genuineness of the claim of the petitioners.

Taking cue from the said judgment, and finding that in the instant cases

also there is no dispute with regard to the attempt made by the

petitioners to log into the system on or before 27.12.2017, I allow these

Writ petitions by quashing the impugned communications, and directing

the respondents to permit the petitioners to file their TRAN-1 Forms

either electronically or manually on or before 31.12.2019. While the

respondents shall attempt to facilitate the filing of these TRAN-1 Forms

electronically by making the necessary arrangements in the web portal

an insistence on manual filing shall be only in circumstances where the

electronic filing is not possible. In either event, the respondents are at

liberty to verify the genuineness of the claim of the petitioners and the

claim shall not be denied only on the ground that the same was not filed

before 27.12.2017.

These Writ Petitions are allowed on the above lines.

Sd/-

A.K.JAYASANKARAN NAMBIAR

JUDGE