GST Transitional Credit Claim Sent Back to Department After Accountant’s Filing Error

Get the full picture - access the original judgement of the court order here

Case Name

M/S SK Green Home Appliances Pvt. Ltd. vs Union of India

Court Name: High Court of Gujarat at Ahmedabad

Case No.: R/Special Civil Application No. 7383 of 2020

Date: 11th June 2020

Coram: Hon’ble Ms. Justice Sonia Gokani and Hon’ble Mr. Justice N.V. Anjaria

Key Takeaways

1. Procedural mistakes don’t automatically kill your rights — The petitioner argued (relying on precedent) that a procedural error in filing GST TRAN-01 cannot defeat a substantive right to claim ITC under Section 140 of the CGST Act, 2017.

2. Exhaust departmental remedies first — The court made it clear that before rushing to the High Court, a taxpayer must first allow the tax department to respond to their representations. The writ petition was premature since the department hadn’t yet replied.

3. The department has a duty to respond — The court firmly stated it is the department’s “bounden duty” to either accept or deny the petitioner’s request. Silence is not acceptable.

4. The door remains open — The court explicitly preserved the petitioner’s right to come back to the High Court after the department makes its decision, if the petitioner is aggrieved.

5. No merits decided — The court carefully avoided ruling on whether the petitioner was actually entitled to the credit, leaving that question open for the future.

Issue

The central legal question here is:

Can a taxpayer be allowed to revise or re-file GST TRAN-01 (or switch from TRAN-02 to TRAN-01) to claim full Input Tax Credit under Section 140(3) of the CGST Act, 2017, when the original filing error was caused by a bona fide mistake of the taxpayer’s accountant?

And more immediately — should the High Court step in directly, or should the tax department first be given a chance to decide?

Facts

• The Company’s Situation: M/S SK Green Home Appliances Pvt. Ltd. had goods in stock when GST was introduced. Under Section 140(3) of the CGST Act, 2017, they were entitled to claim transitional Input Tax Credit (ITC) on those goods.

• The Mistake: The company’s accountant, under a bona fide misunderstanding, believed the company was only entitled to 60% of the credit. Based on this wrong understanding, the accountant filed GST TRAN-02 (which is used for claiming a percentage of credit) instead of GST TRAN-01 (which allows claiming the full credit).

• The Numbers:
• Credit claimed via TRAN-02: Rs.11,29,000/-
• Full credit actually entitled: Rs.16,07,556/-
• Differential (shortfall): Rs.4,78,556/-
• The Company’s Attempts to Fix It: The company sent communications to the tax authorities:
• First communication to the Deputy State Tax Commissioner on 5th August 2019
• Second communication to the State Tax Commissioner on 20th November 2019
• Neither communication received any reply

• Coming to Court: After getting no response from the department for months, the company filed this writ petition in the Gujarat High Court in 2020, asking the court to direct the authorities to allow them to revise the TRAN-1 filing.

Arguments

Petitioner’s Arguments (M/S SK Green Home Appliances Pvt. Ltd.)

1. Substantive right cannot be defeated by procedure: The petitioner argued that the specific right granted under Section 140 of the CGST Act, 2017 is a substantive legal right, and it cannot be taken away just because of a procedural mistake in filling a form.

2. Bona fide mistake: The error was not intentional — it was an honest mistake by the accountant who misunderstood the applicable credit percentage.

3. Precedent supports them: The petitioner relied on the Gujarat High Court’s own earlier decision in M/s. Siddharth Enterprises through Partner Mahesh Liladhar Tibdewal vs. the Nodal Officer in Special Civil Application No. 5758 of 2018 and allied matters, which held that a procedural mistake in filing GST TRAN-01 cannot be a ground to deny the taxpayer’s right to claim credit.

4. Department bound by precedent: The petitioner argued that since the Gujarat High Court had already decided this issue in September 2019, the authorities were bound by that decision and should have responded to the November 2019 communication accordingly.

5. No response from department: Despite two written communications, the department had not replied at all, which is why the company had to approach the court.

Respondent’s Arguments (Union of India / State Authorities)

1. Don’t issue notice yet: The learned AGP (Assistant Government Pleader) Mr. Utkarsh Sharma requested that the court not issue notice and instead give him a short time to get information from the authorities.

2. Approach the department first: The respondent argued that the petitioner should have approached the concerned department more persistently before filing a writ petition directly in the High Court. Direct approach to the High Court by way of writ petition is “not desirable.”

3. Will take instructions: The AGP offered to take further instructions from the department and explain to the court why there had been no response to the petitioner’s communications.

Key Legal Precedents

1. M/s. Siddharth Enterprises through Partner Mahesh Liladhar Tibdewal vs. the Nodal Officer — Special Civil Application No. 5758 of 2018 and allied matters (Gujarat High Court, September 2019)

This is the key precedent cited in the case. The Gujarat High Court had already ruled in this earlier case that a mere procedural mistake in filing GST TRAN-01 cannot be held as a ground for denying a taxpayer’s right to claim transitional ITC. The petitioner argued that this binding decision should have guided the department to respond favorably to their communications. The court in the present case acknowledged this precedent but chose not to apply it directly, instead directing the department to first respond to the petitioner’s representations.

2. Section 140(3) of the Central Goods and Services Tax Act, 2017

This is the statutory provision (not a case law, but a key legal provision) that gives taxpayers the right to claim transitional ITC on goods held in stock on the date GST was introduced. The petitioner’s entire claim rests on this provision. The court noted that this is a specific right that cannot be curtailed by procedural lapses.

3. Article 226 of the Constitution of India

This is the constitutional provision under which the petition was filed. It gives High Courts the power to issue writs (like directions to government authorities). The court exercised this power but in a limited way — directing the department to respond rather than deciding the merits.

Judgment

Technically, neither side fully won or lost at this stage. The court disposed of the petition without deciding the merits.

What Did the Court Decide?

The court took a pragmatic, procedural approach:

1. Petition not entertained on merits: The court felt it was not appropriate to decide the substantive question (whether the revision of TRAN-01 is permissible) at this stage, since the department hadn’t even responded to the petitioner’s communications yet.

2. Department directed to respond: The court ordered Respondent Nos. 6 to 8 to respond to the petitioner’s communication within four weeks from the date of receipt of the order. The court called it the department’s “bounden duty” to either accept or deny the request.

3. Petition disposed of: The petition was formally disposed of (closed for now).

4. Rights preserved: The court explicitly stated that this disposal shall not come in the way of the petitioner approaching any authority — including the High Court again — after the department makes its decision, if the petitioner is aggrieved. The court clarified it had not entered into the merits of the case.

5. Copies to be supplied: The petitioner’s advocate was directed to supply copies of the petition to the ASG and AGP so they could communicate the order to the respective respondents.

The Court’s Reasoning

• The petitioner had already sent two communications to the department (in August and November 2019) but got no reply.
• Before the High Court steps in, the department must be given a chance to decide.
• The question of whether the procedural lapse is excusable and whether TRAN-01 filing is permissible are matters for the competent authority to first decide.
• Only after the authority decides, and if the petitioner is unhappy with that decision, should the High Court intervene.

FAQs

Q1: Did the company win the right to claim the full ITC of Rs.16,07,556/-?Not yet. The court didn’t decide on the merits. It only directed the department to respond to the company’s pending communications within four weeks. The actual question of whether the company can revise its TRAN filing is still to be decided by the tax authorities.

Q2: Why didn’t the court just decide the case in the company’s favor, especially since there was already a precedent (Siddharth Enterprises case)?The court felt it was premature to step in because the department hadn’t even responded to the company’s communications yet. The proper process is: department decides first → if the company is unhappy → then come to court. The court wanted to respect this process.

Q3: What happens if the department still doesn’t respond within four weeks?The court’s order gives the company a strong basis to come back to the High Court. The court has already said the company’s rights are preserved and it can approach the court again after the department’s decision (or lack thereof).

Q4: What is the difference between GST TRAN-01 and GST TRAN-02?

GST TRAN-01 is filed by taxpayers who have invoices for their pre-GST stock and can claim the full credit. GST TRAN-02 is for taxpayers who don’t have invoices and can only claim a percentage (like 60%) of the credit. The company’s accountant mistakenly filed TRAN-02 thinking only 60% was claimable, when in fact the company was entitled to the full credit via TRAN-01.

Q5: Is the company’s right to claim ITC permanently lost because of the accountant’s mistake?

Not necessarily. The court acknowledged the precedent from the Siddharth Enterprises case which says procedural mistakes in filing TRAN-01 cannot defeat the substantive right under Section 140 of the CGST Act, 2017. The company still has a fighting chance once the department responds.

Q6: What is the significance of Section 140(3) of the CGST Act, 2017 here?Section 140(3) is the provision that allows businesses to carry forward their pre-GST tax credits (like VAT/excise credits on stock) into the GST regime. It’s a transitional provision designed to ensure businesses don’t lose credits they had accumulated before GST was introduced. The company’s entire claim is based on this right.

Q7: Can the company approach the High Court again in the future?

Absolutely yes! The court explicitly stated that the disposal of this petition “shall not come in the way of the petitioner to approach any authority including approaching this court” after the department’s decision is rendered and if the petitioner is aggrieved by it.

Notice returnable forthwith.

2. Learned Assistant Solicitor General of India Mr. Devang Vyas waives service of Notice on behalf of Union of India and learned AGP Mr. Utkarsh Sharma waives service of Notice on behalf of respondent State and its authorities.

3. This is a petition preferred under Article 226 of the Constitution seeking directions to the respondents to permit the petitioner to file revision of GST TRAN-1 electronically or manually and allow the credit of the Input Tax Credit (ITC) of Rs.16,07,556/- for the goods held in stock as claimed in accordance with section 140(3) of the Central Goods and Services Tax Act, 2017 in its online electronic credit ledger for payment of its output tax liability.

4. It is demonstrated from the petition that the petitioner already had filed GST TRAN 02 and it claimed Rs. 11, 29,000/- as a credit.

Copy of the GST TRAN 02 filed, is forming part of the record of the

petition. It is averred that by a bona fide misunderstanding of the

Accountant of the petitioner who was under the impression that the

petitioner was only entitled to 60% of the credit, GST TRAN 02

came to be fled. It is averred in the petition that in fact the

petitioner would be entitled to the entire amount of credit by filling

GST TRAN 01. Therefore, there remains differential amount of

credit of Rs. 4,78,556/-.

5. It is pointed out by the petitioner that specific right given

under section 140 of the CGST Act, 2017, could not be curtailed or

defeated on account of procedural lapse. Relying on the decision

of this court rendered in case of M/s. Siddharth Enterprises

through Partner Mahesh Liladhar Tibdewal vs. the Nodal

Officer in Special Civil Application No. 5758 of 2018 and allied

matters, it is urged that mere procedural mistake in filling of form

GST TRAN 01 could not be held as a ground for precluding the

petitioner to claim the right even under the existing provisions.

6. We have heard learned advocate Mr. Avinash Poddar for the

petitioner. On the lines of the petition, he made detailed

submissions. He drew our attention to the fact that two

communications have already been sent to Deputy State Tax

Commissioner as well as State Tax Commissioner respectively on

5.8.2019 and 20.11.2019. He urged that both these

communications have not been replied to though much of time is

elapsed. He also agrees that according to him the decision of this

court of September, 2019 would bind the authorities which ought to

have responded to the last communication of November, 2020 in

wake of the binding decision.

7. Learned AGP Mr. Utkarsh Sharma requested that notice may

not be issued and short time be accorded to him to obtain required

information from the authorities. Mr. Sharma has urged that the

petitioner ought to have approached the concerned department

even if there has been no response as direct approach in this court

by way of writ petition is not desirable. He further submitted that if

opportunity is given to him, he would take further instructions from

the department and let the court know of the reasons of non-

response from the authorities till date.

8. Having heard the learned advocates for the respective

parties and having noticed that the petitioner had already filled-in

the form GST TRAN 02 and has taken credit worth of

Rs. 11, 29,000/- which is now sought to be changed to TRAN 01

giving reason of procedural mistake committed by an accountant

of the petitioner, it would be apt for this court not to entertain this

petition at this stage. Whether there is a procedural lapse and

whether such filling of GST TRAN 01 is permissible, are the

aspects to be gone into and decided by the competent authority, to

which the petitioner has already addressed communication way

back in August and September, 2019. Let the department respond

to the same as it is its bounden duty to either except to the request

or to deny. It is only after the decision is rendered by the

authorities, it will be open for the petitioner to take a further legal

recourse in accordance with law.

9. While not entertaining this petition and not touching the merit

part of the case of the petitioner, the respondent Nos. 6 to 8 are

directed to respond to the communication of the petitioner within

four weeks from the date of receipt of this order.

10. With the above, the petition is disposed of.

11. Disposal of this petition shall not come in the way of the

petitioner to approach any authority including approaching this

court, as this court has not entered into the merits of the case of

the petitioner, after the decision of the authority comes and he is

aggrieved by that.

12. Learned advocate for the petitioner shall supply copies of the

petition to learned ASG and AGP, who both shall communicate the

respective respondents for whom they appear about passing of the

present order.

(SONIA GOKANI, J)

(N.V.ANJARIA, J)