GST Portal Glitch? Punjab & Haryana HC Saves Taxpayer’s ITC Rights

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Case Name

M/s Shiv Shakti Udhyog vs. Union of India and Others

Court Name: High Court of Punjab & Haryana at Chandigarh

Case No.: CWP No. 8373 of 2020

Date of Decision: 19.06.2020

Key Takeaways

1. ITC is a Vested Right, Not a Privilege: The court confirmed that CENVAT/ITC credit that has already accrued to a taxpayer is their property right protected under Article 300A of the Constitution of India. It cannot simply be taken away by a rule or deadline.

2. Technical Difficulties = Broad Interpretation: The court agreed that “technical difficulty” should not be narrowly interpreted to mean only glitches visible on the GST portal’s server logs. It includes difficulties faced by taxpayers too — like lack of internet access, low bandwidth, or unfamiliarity with the new system.

3. Rule 117(1A) is Arbitrary: While the court didn’t formally strike down Sub-Rule (1A) of Rule 117 of the Haryana GST Rules, 2017, it agreed with the Delhi High Court’s finding that the rule, as applied, was arbitrary, discriminatory, and violative of Article 14 of the Constitution.

4. Government Can’t Have Double Standards: The court emphasized that the government cannot hold taxpayers to a strict standard while being lenient about its own failures in setting up the GST portal properly.

5. Practical Relief Granted: The petitioner was given a clear, practical remedy — either upload TRAN-1 by 30.06.2020, or claim the ITC in GSTR-3B for July 2020.

Issue

The central legal question was:

Can a taxpayer be denied the right to carry forward Input Tax Credit (ITC) from the pre-GST regime simply because they failed to upload Form TRAN-1 by the deadline, especially when the failure was due to technical difficulties on the GST portal?

And more specifically:

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

Facts

• Who is the Petitioner? M/s Shiv Shakti Udhyog is a proprietary concern (a one-person business) engaged in processing cotton seeds — specifically a process called “delinting,” where fuzz is removed from the seed coat of cotton. They then sell cotton and cotton seeds in the market.

• Old Tax Regime: Before GST was introduced on 01.07.2017, this business was registered under the Punjab VAT Act, 2005. Under the old system, they had accumulated VAT credit on inputs held in stock.

• The GST Transition Problem: When GST came in, taxpayers were supposed to carry forward their old tax credits into the new GST system by filing Form GST TRAN-1. The last date to file this form was 31.12.2017.

• What Went Wrong? The petitioner could not upload TRAN-1 by 31.12.2017 due to technical glitches on the GST portal.

• Government’s Response: The government, under Sub-Rule (1A) of Rule 117, had the power to extend the deadline for filing TRAN-1 in cases of technical difficulties. They did extend the deadline — but only up to 31.03.2020 (via an order dated 01.01.2020, referred to as Annexure P-13).

• The Petitioner’s Grievance: Despite the extension, the petitioner still couldn’t file because the portal wasn’t opened for them, and the government’s narrow interpretation of “technical difficulty” excluded their situation. So they went to court.

Arguments

Petitioner’s Arguments (M/s Shiv Shakti Udhyog):

1. Covered by Precedent: The petitioner’s counsel, Mr. Sandeep Goyal, argued that this issue was 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 Supreme Court had also dismissed the government’s SLP (Special Leave Petition) against that decision.

2. Delhi HC Also Agrees: 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 HC’s decision and directed that taxpayers be allowed to file TRAN-1 on or before 30.06.2020.

3. Rule 117(1A) is Unconstitutional: The restriction in Sub-Rule (1A) that limits extensions only to “technical difficulties on the common portal” is arbitrary and unreasonable, violating Article 14 of the Constitution.

4. ITC is a Property Right: The accumulated CENVAT credit is a vested property right under Article 300A of the Constitution and cannot be taken away by a delegated legislation (a rule) without proper authority.

Respondents’ Arguments (Union of India & Others):

• The respondents (represented by Mr. Saurabh Goel, Junior Panel Counsel for respondents 1-3 and 5, and Mr. Pankaj Gupta, Additional Advocate General Punjab for respondent no. 4) were unable to controvert (i.e., they couldn’t effectively argue against) the fact that the issue was squarely covered by the Adfert Technologies and Brand Equity judgments.

• Essentially, the government had no strong counter-argument to present, given the weight of precedent against them.

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 including Justice Jaswant Singh)
• Decision Date: 04.11.2019
• Relevance: This was the landmark precedent that directly governed this case. The court had allowed a bunch of petitions and directed the government to open the portal for uploading TRAN-1. The Supreme Court dismissed the government’s SLP against this decision on 28.02.2020, making it final.

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

• Citation: 2020-TIOL-900-HC-Del-GST
• Court: Delhi High Court (Division Bench)
• Relevance: The Delhi HC followed the Punjab & Haryana HC’s decision and went further, holding that:
• Sub-Rule (1A) of Rule 117 is arbitrary, vague, and unreasonable
• “Technical difficulty” must be interpreted broadly to include difficulties faced by taxpayers, not just server-side glitches
• The government cannot adopt different yardsticks for itself vs. taxpayers
• CENVAT credit is a vested property right under Article 300A
• The restriction violates Article 14 of the Constitution

3. SKH Sheet Metals Components vs. Union of India

• Citation: WP© 13151 of 2019
• Court: Delhi High Court
• Order Date: 16.06.2020 (just 3 days before this judgment!)
• Relevance: The Delhi HC reaffirmed its position in Brand Equity and permitted the petitioner to revise TRAN-1 on or before 30.06.2020.

4. A.B. Pal Electricals (Supra)

• Relevance: Referenced within the Brand Equity judgment 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.

Key Legal Provisions Referenced:

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

Allows Commissioner to extend TRAN-1 deadline for “technical difficulties”

Form GST TRAN-1

Form for carrying forward pre-GST tax credits

Article 14 of the Constitution of India

Right to equality — no arbitrary/discriminatory treatment

Article 300A of the Constitution of India

Right to property — property cannot be taken away without legal authority

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

The main GST legislation

Central Excise Act, 1944

Under which CENVAT credit had accrued

Punjab VAT Act, 2005

Under which petitioner was previously registered

Limitation Act, 1963

Referenced to show civil rights can be enforced within 3 years

Judgment

Winner: The Petitioner (M/s Shiv Shakti Udhyog)

The court allowed the petition and here’s the reasoning and orders:

Legal Reasoning:

1. The issue was squarely covered by the Punjab & Haryana HC’s own decision in Adfert Technologies (which the Supreme Court had upheld by dismissing the government’s SLP) and the Delhi HC’s decision in Brand Equity Treaties Ltd.

2. The court agreed that denying unutilized credit to dealers who cannot furnish evidence of attempting to upload TRAN-1 would amount to a violation of Article 14 (equality) and Article 300A (property rights) of the Constitution.

3. While the petitioner had challenged the constitutional validity of Rule 117(1A), the court chose not to formally declare it invalid — instead, it simply held that the petitioner was entitled to carry forward the CENVAT credit accrued under the Central Excise Act, 1944.

4. The court noted that the government’s own repeated extensions of the TRAN-1 deadline (for cases it recognized as “technical glitches”) actually vindicated the petitioner’s claim — because it showed that denying credit to others in similar situations was discriminatory.

Orders Made:

• Respondents are directed to permit the Petitioner to upload TRAN-1 on or before 30.06.2020
• If the Respondents fail to open the portal, the Petitioner is at liberty to avail the ITC in GSTR-3B of July 2020
• Respondents retain the right to verify the genuineness of the claims made by the Petitioner

FAQs

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

Form TRAN-1 was a transition form that businesses had to file when GST was introduced in July 2017. It allowed them to carry forward tax credits (like VAT or CENVAT credit) 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 glitches on the GST portal that prevented them from uploading the form by the deadline of 31.12.2017. The GST portal was notoriously problematic during its early days, and many taxpayers across India faced similar issues.

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

Sub-Rule (1A) of Rule 117 of the Haryana GST Rules, 2017 allowed 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 it was too narrow — it excluded taxpayers who faced other types of difficulties (like lack of internet, low bandwidth, etc.) and was therefore arbitrary and discriminatory.

Q4: Did the court strike down Rule 117(1A)?

No. The court chose not to formally declare Rule 117(1A) invalid or unconstitutional. Instead, it simply granted relief to the petitioner by directing the government to allow the TRAN-1 upload, relying on established precedents.

Q5: What happens if the government doesn’t open the portal by 30.06.2020?

The court provided a backup remedy — the petitioner can directly claim the ITC in their GSTR-3B return for July 2020. This ensures the taxpayer doesn’t lose their credit regardless of the government’s action.

Q6: Can the government verify the petitioner’s claims?

Yes! The court specifically noted that the respondents are at liberty to verify the genuineness of the claims made by the petitioner. So while the taxpayer gets relief, the government can still check if the credit claimed is legitimate.

Q7: What is the broader significance of this case?

This case is part of a nationwide wave of similar judgments where courts across India protected taxpayers’ rights to carry forward pre-GST credits. It reinforces the principle that ITC/CENVAT credit is a vested property right that cannot be taken away by arbitrary rules or deadlines, especially when the government’s own portal was responsible for the difficulties.

Q8: What does “Article 300A” mean in simple terms?

Article 300A of the Constitution of India says that no person shall be deprived of their property except by authority of law. The courts held that accumulated tax credits are “property” of the taxpayer, and the government cannot take them away simply by imposing a deadline through a subordinate rule (like Rule 117).

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 processing of cotton seed by undertaking process of delinting whereby

fuzz is removed from seed coat in cotton and thereafter sells the cotton and

cotton seed in the market, 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 Punjab VAT Act,2005. The Petitioner was entitled to claim

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-13) 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 5; while Mr.Pankaj Gupta, Addl.AG Punjab

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.