Facts of the Case

Jekson Vision Private Limited, engaged in the manufacture of pharmaceutical packaging machinery, was registered under the Central Excise Act and the Finance Act for service tax before the introduction of GST. Upon implementation of GST from 1 July 2017, the company became eligible to carry forward its accumulated CENVAT credit as transitional credit.

The petitioner initially filed its ER-1 Excise Return for June 2017 electronically. However, due to technical issues on the ACES portal, the return was rejected and had to be re-uploaded. Subsequently, after receiving delayed Bills of Entry and transporter invoices relating to June 2017, the petitioner realized that eligible CENVAT credit amounting to ₹16,43,117 had not been reflected in the original return.

The petitioner attempted to revise the ER-1 Return electronically within the prescribed period, but the ACES portal did not permit revision because of technical glitches. Consequently, the petitioner manually submitted the revised Excise Return along with a detailed representation to the department and repeatedly requested acceptance of the revised return. Despite these requests, the department neither accepted nor decided upon the manually filed revised return.

Meanwhile, the petitioner claimed the eligible transitional credit in Form GST TRAN-1. During GST audit, the department observed that the original ER-1 Return reflected nil closing balance and, therefore, alleged that the transitional credit had been wrongly claimed. A show cause notice was consequently issued proposing recovery of the transitional credit along with interest and penalty. Aggrieved by the departmental inaction, the petitioner approached the Gujarat High Court.

Issues Involved

  • Whether a manually filed revised Excise Return submitted because of technical glitches on the ACES portal should be accepted by the department.
  • Whether eligible transitional CENVAT credit can be denied merely because the revised return could not be filed electronically.
  • Whether procedural technical failures can defeat a taxpayer's substantive statutory right to transitional credit.
  • Whether recovery of transitional credit along with interest and penalty was legally sustainable under the circumstances.

Petitioner’s Arguments

The petitioner contended that the inability to file the revised ER-1 Return electronically was solely due to technical failures of the ACES portal and not because of any fault on its part.

It was argued that the revised return was manually submitted within the prescribed statutory period along with all supporting documents, and the department was repeatedly informed through letters and emails. Therefore, the authorities were duty-bound to consider the revised return.

The petitioner submitted that transitional credit under GST represents a vested statutory right, and such right cannot be denied merely because of procedural difficulties arising from technical glitches.

Reliance was placed upon several judicial precedents wherein various High Courts had recognized that manual filing of returns or alternative compliance should be accepted when electronic filing becomes impossible due to system failures.

It was further argued that substantive tax benefits cannot be denied on account of procedural lapses, especially where the taxpayer had fulfilled all essential statutory conditions for carrying forward CENVAT credit.

The petitioner also submitted that denial of transitional credit violated constitutional protections relating to equality, the right to carry on business, and protection of property.

Respondent’s Arguments

The Revenue contended that under the GST transitional provisions, only the CENVAT credit reflected in the last valid return filed under the existing law could be carried forward.

According to the department, the petitioner's original ER-1 Return showed nil closing balance as on 30 June 2017. Therefore, the petitioner was not entitled to claim transitional credit of ₹16,43,117 through TRAN-1.

The department further argued that the petitioner had wrongly availed and utilized the credit, making it liable for recovery along with applicable interest and penalty.

It was submitted that the manually filed revised Excise Return had no legal validity and could not substitute the electronically filed return prescribed under the statutory framework.

Court Order / Findings

The Gujarat High Court allowed the petition and held that the petitioner had fulfilled all substantive requirements for claiming transitional credit.

The Court observed that the inability to file the revised ER-1 Return electronically resulted entirely from technical issues in the ACES portal and that the petitioner had promptly submitted the revised return manually along with necessary representations.

The Court emphasized that computerization is only a procedural mechanism for processing returns and cannot override substantive statutory rights. Where electronic systems fail, the authorities are obligated to adopt alternative methods to protect taxpayers' vested rights.

The Court held that procedural deficiencies arising from portal failures cannot deprive an assessee of legitimate transitional credit. It further observed that the petitioner was not responsible for the technical malfunction and had acted diligently by manually submitting the revised return within time.

Accordingly, the High Court directed the department:

  • To accept the manually filed revised Excise Return.
  • To permit the petitioner to revise Form GST TRAN-1.
  • To allow the eligible transitional credit after acceptance of the revised return.
  • To complete the entire exercise within 12 weeks from receipt of the Court's order.

The Court consequently held that the proposed denial of transitional credit, recovery proceedings, interest, and penalty were unsustainable in the facts of the case.

Important Clarification

  • Technical glitches on the ACES portal cannot defeat a taxpayer's vested right to transitional CENVAT credit.
  • Manual filing of a revised Excise Return is a valid alternative where electronic filing becomes impossible due to portal failure.
  • Procedural lapses caused by government systems cannot override substantive statutory rights.
  • Transitional credit cannot be denied solely because the revised return was filed manually instead of electronically.
  • Tax authorities are expected to provide alternative mechanisms whenever online systems fail.
  • Courts continue to protect genuine transitional credit claims where taxpayers have acted diligently and fulfilled statutory conditions.

Sections Involved

  • Section 140 of the Central Goods and Services Tax Act, 2017
  • Section 50 of the Central Goods and Services Tax Act, 2017
  • Section 73 of the Central Goods and Services Tax Act, 2017
  • Section 174 of the Central Goods and Services Tax Act, 2017
  • Rule 117 of the Central Goods and Services Tax Rules, 2017
  • Rule 121 of the Central Goods and Services Tax Rules, 2017
  • Rule 12(8) of the Central Excise Rules, 2002

Link to Download the Order  https://www.mytaxexpert.co.in/uploads/1784885137_1959compressed.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools