GST Portal Glitch? Court Says Taxpayer Can’t Lose Hard-Earned Tax Credits

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Case Name

M/s Haryana Petro Oils vs. Union of India and Others

Court Name: High Court of Punjab & Haryana at Chandigarh

Case No.: CWP No. 8361 of 2020 (O&M)

Date of Decision: 19th June 2020

Key Takeaways

1. Technical glitches are not just the government’s problem — The court agreed that “technical difficulty” is a broad term and includes difficulties faced by taxpayers too, not just glitches on the government’s GST portal.

2. ITC is a vested property right — The court affirmed that CENVAT/ITC credit already accrued 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).

3. Rule 117(1A) is arbitrary — 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, is arbitrary, discriminatory, and violates Article 14 of the Constitution.

4. Government can’t have double standards — The government cannot apply strict standards to taxpayers while being lenient about its own failures in setting up the GST system.

5. Repeated extensions vindicate taxpayers — The fact that the government itself repeatedly extended the TRAN-1 filing deadline proves that denying credit to those who couldn’t upload due to technical issues is unfair.

Issue

The central legal question was:

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

And a related question:

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

Facts

• Who is the petitioner? M/s Haryana Petro Oils is a partnership firm engaged in the business of refining of black oil. They were registered under the Haryana VAT Act, 2003 before GST came into effect.

• What happened before GST? Before 1st July 2017 (when GST was introduced), the firm had accumulated Input Tax Credit (ITC) — essentially tax credits on inputs and excess VAT reflected in their returns.

• What was required? To carry forward these credits into the GST regime, the firm was required to file Form GST TRAN-1 by the deadline of 31st December 2017.

• What went wrong? The petitioner could not upload TRAN-1 by the deadline due to technical glitches on the GST portal.

• What did the government do? The government, using powers under sub-Rule (1A) of Rule 117, extended the TRAN-1 filing deadline to 31st March 2020 vide an order dated 1st January 2020 (Annexure P-13) — but only for those whose cases were covered by “technical difficulties on the common portal” as per the GST Council’s recommendation.

• Why did the petitioner go to court? The petitioner felt this was still not enough and challenged the vires (constitutional validity) of Rule 117(1A), arguing it was too restrictive and denied them their rightful credit.

Arguments

Petitioner’s Arguments (M/s Haryana Petro Oils):

1. The issue is squarely covered by the Punjab & Haryana High Court’s earlier judgment in Adfert Technologies Pvt. Ltd. vs. Union of India (2019-TIOL-2519-HC-P&H-GST), where the court had already ruled in favour of taxpayers in similar situations.

2. The Delhi High Court in Brand Equity Treaties Ltd. and others vs. Union of India (2020-TIOL-900-HC-Del-GST) had also permitted taxpayers to file TRAN-1 on or before 30th June 2020.

3. The Delhi High Court in SKH Sheet Metals Components vs. Union of India (WP© 13151 of 2019), vide order dated 16th June 2020, had also permitted revision of TRAN-1 till 30th June 2020.

4. Rule 117(1A) is arbitrary, vague, and unreasonable because it restricts the benefit only to taxpayers facing “technical difficulties on the common portal,” which is an artificially narrow interpretation.

5. The CENVAT credit already accrued is a vested property right under Article 300A of the Constitution and cannot be taken away by delegated legislation.

6. Denying credit to taxpayers who couldn’t upload TRAN-1 violates Article 14 (right to equality) of the Constitution.

Respondents’ Arguments (Union of India and Others):

• The respondents’ counsel accepted notice but were unable to controvert (i.e., could not effectively argue against) the fact that the issue was squarely covered by the Adfert Technologies and Brand Equity judgments.

• The government’s position was that “technical difficulty” should be restricted only to technical glitches on the common portal as logged in the GST system.

Key Legal Precedents

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

• This was a landmark judgment by a Division Bench of the Punjab & Haryana High Court (which included Justice Jaswant Singh, one of the judges in the present case).
• It was decided on 4th November 2019 and covered a bunch of petitions including CWP No. 30949 of 2018.
• The court had allowed taxpayers to upload TRAN-1 and directed the portal to be opened.
• The SLP (Special Leave Petition) filed by the Revenue against this decision was dismissed by the Supreme Court on 28th February 2020.
• This case became the foundation for all subsequent similar rulings.

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

• A Division Bench of the Delhi High Court followed the Punjab & Haryana High Court’s decision and permitted taxpayers to file TRAN-1 on or before 30th June 2020.
• The Delhi HC held that the government cannot adopt different yardsticks — one for itself and another for taxpayers.
• It found Sub-Rule (1A) of Rule 117 to be arbitrary, vague, and unreasonable, and violative of 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 (WP© 13151 of 2019)

• Delhi High Court order dated 16th June 2020 (just 3 days before the present judgment!).
• The court permitted the petitioner to revise TRAN-1 on or before 30th June 2020, relying on the Brand Equity decision.

4. A.B. Pal Electricals (referenced within Brand Equity judgment)

• Referenced by the Delhi High Court in Brand Equity 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 — found to be arbitrarily applied

Article 14 of the Constitution of India

Right to equality — violated by arbitrary denial of ITC

Article 300A of the Constitution of India

Right to property — ITC is a vested property right

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

Governing legislation for GST

Central Excise Act, 1944

Under which CENVAT credit had accrued

Haryana VAT Act, 2003

Under which petitioner was registered pre-GST

Limitation Act, 1963

Referenced to show civil rights can be enforced within 3 years

Judgment

The Petitioner — M/s Haryana Petro Oils — WON

What did the Court decide?

The court allowed the petition and gave the following directions:

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

Why did the Court rule this way?

• The issue was already settled by the earlier Adfert Technologies judgment (Punjab & Haryana HC) and the Brand Equity Treaties judgment (Delhi HC).

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

• The government’s own repeated extensions of the TRAN-1 deadline vindicated the taxpayers’ position — if extensions were justified for some, denying them to others in similar situations would violate Article 14 (equality) and Article 300A (property rights) of the Constitution.

FAQs

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

Form TRAN-1 (GST Transition Form 1) was a critical form that businesses had to file when GST was introduced on 1st July 2017. It allowed them to carry forward their existing tax credits (like CENVAT credit and VAT credit) from the old tax regime into the new GST system. Missing this form meant losing potentially significant tax credits.

Q2: What is Rule 117(1A) of the Haryana GST Rules, 2017?

This rule allows the Commissioner, on the recommendation of the GST Council, to extend the deadline for filing TRAN-1 for taxpayers who couldn’t file it due to “technical difficulties on the common portal.” The problem was that the government interpreted “technical difficulties” very narrowly — only as glitches logged on the GST portal — leaving out many genuine cases.

Q3: Why didn’t the court strike down Rule 117(1A)?

The court felt it wasn’t necessary to formally declare the rule invalid. Instead, it took a practical approach — it simply directed the government to allow the petitioner to file TRAN-1, thereby protecting the petitioner’s rights without needing to invalidate the rule.

Q4: 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 court held that ITC/CENVAT credit is a form of property, and the government cannot take it away simply by imposing a time limit through delegated legislation (rules), without a proper legal basis.

Q5: What happens if the GST portal wasn’t opened for the petitioner by 30th June 2020?

The court gave a practical alternative — if the portal wasn’t opened, the petitioner could simply claim the ITC in their GSTR-3B return for July 2020. This ensured the petitioner wouldn’t lose their credit regardless.

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

Yes! The court specifically noted that the respondents retain the right to verify the genuineness of the claims made by the petitioner. So while the petitioner wins the right to file, the government can still check if the claims are legitimate.

Q7: Does this judgment apply to other taxpayers in similar situations?

Yes, this judgment follows a line of cases (Adfert Technologies, Brand Equity Treaties, SKH Sheet Metals) that have consistently held in favour of taxpayers who couldn’t file TRAN-1 due to technical difficulties. The Delhi High Court in Brand Equity had even directed the government to permit all similarly situated taxpayers to file TRAN-1.

Q8: What is the significance of the Supreme Court dismissing the SLP in Adfert Technologies?

When the Supreme Court dismissed the government’s Special Leave Petition against the Adfert Technologies judgment, it effectively upheld the Punjab & Haryana High Court’s ruling. This made the precedent even stronger and harder for the government to challenge in subsequent cases.

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

refining of black oil, 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 credit of the Value Added Tax

in respect of inputs held in stock and excess ITC, if any 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-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.Anshuman Ghopra, Sr.Standing Counsel accepts notice on

behalf of respondents 1 to 3 and 5 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.