Where No Tax Evasion Is Alleged, Liberal Approach Warranted in Transitional ITC Case: Kerala High Court

The Kerala High Court has recently observed that a bona fide mistake committed by a taxpayer while filing revised TRAN-1 and TRAN-2 forms cannot justify denial of transitional Input Tax Credit, especially in the absence of any allegation of tax evasion.

TRAN-1 and TRAN-2 are statutory forms under Section 140 of the CGST Act through which taxpayers carried forward eligible input tax credit from the pre-GST regime into GST.

"However, I am of the view that, when it comes to a case where no evasion of tax is alleged, a liberal approach has to be taken by this Court, as far as the question of invocation of jurisdiction under Article 226 of Constitution of India, is concerned", single bench of Justice Ziyad Rahman A.A. observed, while examining whether a bona fide error in revised TRAN filings could justify the denial of transitional Input Tax Credit in the absence of any allegation of tax evasion.

The petitioner, Pinnacle Motor Works Private Limited,a private limited company and a registered GST taxpayer based in Thrissur., had originally filed TRAN-1 in December 2017 and TRAN-2 in June 2018, claiming transitional credit carried forward from the pre-GST regime.

Pursuant to the directions issued by the Supreme Court of India permitting revision of TRAN forms, the petitioner filed revised TRAN-1 and TRAN-2 in October 2022.

However, under a bona fide misconception that revised forms were required only for additional claims, the petitioner mentioned only the incremental credit and omitted the figures already disclosed in the original filings.

Treating the revised TRAN filings as superseding the earlier ones, the tax authorities denied the transitional credit claimed in 2017 and passed an assessment order raising demand.

The petitioner challenged the assessment before the High Court, contending that the omission was unintentional and that denial of rectification would result in double taxation.

The bench rejected the objection on maintainability and held that the writ petition was maintainable since statutory authorities do not have the power to permit correction of TRAN forms.

The Court noted that the Central Tax Authority had already verified the original TRAN-1 claim and found the petitioner eligible for transitional credit to a substantial extent.

It was observed that it was highly improbable for an assessee to intentionally reduce its own credit claim, which clearly indicated a bona fide mistake.

The bench observed that "in the TRAN-1 application, instead of showing the earlier figure of Rs.88,04,680/- they had shown the figure of Rs 6,84,886/-, which is the additional claim of the petitioner. At the same time, in TRAN-2 application the credit claimed was nil, whereas, the credit availed by the petitioner in the TRAN-2 application earlier submitted was Rs.2,01,681/-. This would indicate that there occurred a bonafide mistake, while submitting the revised TRAN-1 and TRAN-2 applications."

Holding that a liberal approach must be adopted where no tax evasion is alleged, the Court quashed the assessment order and the consequential recovery notice.

For Petitioner: Advocates, Ammu Charles and K. Srikumar

For Respondent: Advocates, Preetha S. Nair and V. Girishkumar