GST TRAN-1 & TRAN-2

Bombay HC Allows Corrections in GST TRAN-1 & TRAN-2

The Bombay High Court confirmed that a taxpayer cannot be denied GST transitional credit solely because a portal error prevented electronic filing of TRAN-1 or TRAN-2. The principle — that the substantive right to credit under Section 140 of the CGST Act, 2017 cannot be extinguished by a procedural lapse — was later affirmed by the Supreme Court in Union of India v. Filco Trade Centre Pvt. Ltd. (2022). In FY 2026-27, with all filing windows closed, this ruling remains live ammunition in appeals, audit disputes, and writ petitions involving contested transitional credit balances.

Background: What Were TRAN-1 and TRAN-2 — and Why Did They Matter?

When GST came into force on 1 July 2017, businesses were sitting on accumulated input tax credit under the old regime — CENVAT credit for manufacturers and service providers, and VAT input credit for traders. The transitional framework under Chapter XX of the CGST Act was Parliament's mechanism to ensure that this already-paid credit migrated into the new regime without being lost to double taxation.

TRAN-1 was the primary transitional return. Every registered taxpayer holding closing CENVAT or VAT credit was required to file it within 90 days of 1 July 2017 — an original deadline of 28 September 2017, extended progressively to 31 December 2017, then to 31 March 2018, and finally to 31 May 2018 for certain categories following court interventions. TRAN-1 covered:

• Carry-forward of CENVAT credit balance from the last Central Excise or Service Tax return before 1 July 2017 (Section 140(1))
• Credit on inputs, semi-finished goods, and finished goods held in stock by manufacturers and service providers (Section 140(4))
• VAT and entry tax credit carried in the closing state VAT return (Section 140(1) read with the relevant State Transition Rules)
• Unreleased CENVAT credit on capital goods (Section 140(2))
• Input Service Distributor credits in transit (Section 140(7) and Section 140(8))

TRAN-2 was a separate monthly statement for a narrower but commercially important category: traders who held stock of excisable goods on 1 July 2017 but were not registered under Central Excise and therefore had no CENVAT account. They had paid central taxes embedded in the purchase price but could never claim CENVAT. Section 140(3) read with Rule 117A of the CGST Rules, 2017 gave them a deemed (notional) credit on stock sold in each of the first six months of GST, at the following rates:

• 60% of the applicable CGST on goods attracting a CGST rate of 9% or above
• 40% of the applicable CGST on goods attracting a CGST rate below 9%

TRAN-2 could only be filed after TRAN-1 was successfully submitted — a sequencing dependency that meant any technical block on TRAN-1 automatically cascaded to TRAN-2.

The aggregate transitional credit flowing through these returns has been estimated at over Rs. 1.5 lakh crore nationally. That number explains both why litigation was intense and why the government was reluctant to keep rectification windows indefinitely open.

Section 140 of the CGST Act: The Statutory Right to Credit

Section 140 is not a concession. It is a vested right — Parliament's acknowledgment that credit already earned and paid under the old law belongs to the taxpayer, and that GST's arrival cannot confiscate it. Courts across India treated this distinction as decisive.

The key sub-provisions are:

• Section 140(1): Carry-forward of credit reflected in the closing CENVAT or VAT return — provided the credit was admissible under both the old law and the GST law.
• Section 140(3): Eligible duties in respect of inputs held in stock by a person not registered under Central Excise — the provision that powers TRAN-2 claims.
• Section 140(4): Credit on inputs and partly-processed goods in stock as on 1 July 2017, for manufacturers and service providers, where the goods were received within 12 months before that date.
• Section 140(5): Credit on goods in transit — received after 1 July 2017 but duty-paid before.

Multiple Supreme Court and High Court benches held that these provisions confer property rights. A vehicle malfunction — GSTN portal downtime — cannot destroy the underlying right.

The Portal Crisis of 2017: Why Taxpayers Could Not File

The GSTN portal in 2017 was unprepared for simultaneous filings by 70 lakh registrants. The failure modes were systematic:

• Timeout errors during upload of TRAN-1, particularly for manufacturers with hundreds of invoice line items
• Session expiry mid-filing, causing partial data to be lost with no resume functionality
• Server downtime on deadline dates when load spiked — a predictable consequence of short windows
• Unresponsive "Submit" buttons where the form appeared complete but was never committed to GSTN's database
• ARN (Acknowledgment Reference Number) non-generation — the taxpayer received no confirmation and had no proof of attempted filing
• TRAN-2 cascade failure — since TRAN-2 required a successfully-filed TRAN-1 as a pre-condition, any TRAN-1 block also blocked the deemed credit claim entirely

Taxpayers who encountered these errors raised tickets with the GSTN helpdesk, sent emails to jurisdictional Commissionerates, and took timestamped screenshots. This contemporaneous paper trail became the critical evidence that courts required to distinguish a taxpayer blocked by the portal from one who simply missed the deadline.

The Litigation Journey: High Courts to the Supreme Court

Bombay High Court's Position

The Bombay HC (alongside the Delhi HC, Gujarat HC, Madras HC, and others) took an early, firm stand: where a taxpayer demonstrates that the failure to file TRAN-1 or TRAN-2 was caused by a technical glitch in the GSTN portal — evidenced by helpdesk tickets, error screenshots, or contemporaneous emails — the Revenue cannot deny credit on the ground of the missed deadline alone. The HC directed the relevant GST officers to accept manual or revised filings and to reflect validated credit in the Electronic Credit Ledger (ECrL) on the GST portal.

For Maharashtra-based taxpayers — the state with one of the highest concentrations of manufacturing, services, and trading businesses — this was a critical intervention. The Bombay HC's ruling made it procedurally possible for a taxpayer to approach the proper officer with a written representation, supporting evidence, and a manually-prepared TRAN-1 or TRAN-2 and require that officer to process the claim.

The Supreme Court's Direction in Filco Trade Centre (2022)

The definitive ruling came from the Supreme Court in Union of India v. Filco Trade Centre Pvt. Ltd. (Civil Appeal Nos. 7425–7428 of 2022, decided 22 September 2022). The bench:

1. Confirmed that the substantive right to transitional credit under Section 140 cannot be defeated by procedural failure
2. Directed GSTN to open a one-time special window from 1 October 2022 to 30 November 2022 (extended to 31 January 2023 for certain aggrieved taxpayers)
3. Made the window available to all aggrieved taxpayers — not just those who had filed writ petitions
4. Permitted both first-time filing and revision of already-filed TRAN-1 and TRAN-2
5. Directed proper officers to verify claims and credit validated amounts to the ECrL within 90 days of filing

Critically, the SC did not grant automatic credit. Proper officers retained the right to scrutinise and reject credits that were inadmissible on substantive grounds — credit on capital goods where income tax depreciation had been claimed on the gross cost inclusive of excise, or credit on inputs used exclusively for exempt supply. What they could not do was reject on the sole procedural ground that the 2017–2018 windows had closed.

Worked Example: A Maharashtra Manufacturer's Rs. 28.90 Lakh Transitional Credit

Consider a mid-sized engineering components manufacturer (private limited, Maharashtra) with the following pre-GST credit position as on 30 June 2017:

The company attempted to upload TRAN-1 on 18 September 2017. The portal timed out repeatedly. A GSTN helpdesk ticket was raised and an email confirmation received. A second attempt on 25 September 2017 also failed. The company emailed the jurisdictional AC (Central Tax) with screenshots.

Consequence: TRAN-1 never reflected. The ECrL showed zero transitional credit. From July 2017 onwards, the company paid output tax entirely from cash and fresh ITC — Rs. 28.90 lakh that should have been available was effectively stuck. During an assessment in FY 2020-21, the proper officer additionally issued a demand note alleging excess ITC utilisation, since the ledger showed no transitional credit as justification for the lower cash outflows.

Post-Filco window: The company filed TRAN-1 via the special GSTN window in October 2022, supported by:

• ER-1 return for June 2017 (excise closing balance)
• ST-3 return for the half-year ending 30 June 2017 (service tax closing balance)
• MVAT return for Period IV 2016-17 (VAT closing balance)
• Internal CENVAT/ITC ledger as on 30 June 2017 (trial balance extract)
• GSTN helpdesk ticket number and email confirmation dated September 2017

The proper officer processed the claim within the 90-day window. Credit of Rs. 28,90,000 was credited to the ECrL. This immediately:

1. Allowed the company to offset the Rs. 28.90 lakh against future output tax liability
2. Provided a documented basis to contest the assessment demand — the CENVAT credit was now verifiably established in the ledger

TRAN-2 component (for comparison): Assume the same company's sister trading firm (not excise-registered) held stock of electrical goods valued at Rs. 15,00,000 on 1 July 2017, attracting 18% GST (9% CGST + 9% SGST). CGST on sale value = Rs. 1,35,000. Deemed credit at 60% = Rs. 81,000 — available on TRAN-2 as goods were sold from the opening stock in July and August 2017. A portal glitch blocking TRAN-1 would have locked out this Rs. 81,000 as well.

Current Status in FY 2026-27: Open Remedies and Closed Windows

As on May 2026, the position is as follows.

Definitively closed:

• Original TRAN-1 and TRAN-2 portal windows (closed by May 2018)
• Filco-directed special window (closed January 2023)
• No new general portal window has been opened by GSTN

Still available, but time-sensitive:

Appeal under Section 107 of the CGST Act

Where a proper officer has issued an order rejecting or reducing your transitional credit — whether during assessment, scrutiny, audit, or post-Filco processing — you can appeal to the Appellate Authority (Joint/Additional Commissioner, Appeals) within 3 months of the date of receipt of the order, with a further 1 month available on showing sufficient cause. If you received an order in February 2026, your appeal window is May 2026 (extendable to June 2026). This deadline is not elastic — missing it forecloses the statutory remedy entirely.

Rectification under Section 161 of the CGST Act

Where the order contains an error apparent on the face of record — a computational mistake, a clerical error in applying the credit rate — the proper officer can (or, on your representation, should) rectify within 6 months of the date of the order. This provision is not a back-door appeal; it is limited to manifest errors. Use it where the rejection order itself acknowledges entitlement but applies the wrong figure or rate.

Writ Petition under Article 226 of the Constitution

Where statutory remedies are exhausted or structurally unavailable, a taxpayer can approach the High Court. There is no fixed limitation period for a writ, but the doctrine of laches applies — courts are unsympathetic to petitioners who sat on their rights for years. If you have a live grievance and a closed statutory window, a writ to compel GSTN or the proper officer to act is a viable route, particularly in the Bombay HC which has already decided the principle in your favour.

Audit Representation

If a GST audit under Section 65 (departmental audit) or Section 66 (special audit) raises an objection on your transitional credit, the Filco Trade Centre ruling and the Bombay HC ruling are your primary shield. File a written objection to the Draft Audit Report (DAR) citing these precedents, and request the audit team to record that the claim was substantively admissible under Section 140. An unanswered DAR forms the basis of a formal demand — do not treat it as a formality.

Common Mistakes and Pitfalls to Avoid

1. Assuming the Filco window resolved everything The window allowed filing and revision — but proper officers still had to process and credit each claim. If you filed during October 2022–January 2023 but never confirmed that the credit appeared in your ECrL on the GST portal (Ledgers → Electronic Credit Ledger), check now. Unprocessed Filco claims are still actionable via appeal or writ.

2. Discarding the 2017 portal-error evidence GSTN helpdesk ticket emails and screenshots from 2017 are the cornerstone of any technical-glitch argument. If these have been deleted or archived beyond retrieval, your claim rests on testimony alone — which courts weigh less heavily. Preserve these permanently in a litigation evidence folder.

3. Claiming credit that was substantively ineligible under Section 140 CENVAT credit on capital goods where 100% income tax depreciation was claimed on the gross cost (inclusive of excise duty) is specifically excluded from carry-forward under Section 140(2). Credit on inputs used exclusively for exempt supply under the old law is similarly barred. Filing inflated TRAN-1 claims invites partial reversal, penalty under Section 122, and damages your credibility on the admissible portion.

4. Confusing TRAN-1 and TRAN-2 eligibility TRAN-2 was exclusively for traders not registered under Central Excise. A manufacturer who held a CENVAT registration used Table 7(a) of TRAN-1 — not TRAN-2 — for stock-based credit. Filing TRAN-2 for a category that should have been in TRAN-1 (or vice versa) creates reconciliation discrepancies that trigger audit objections years later.

5. Missing limitation periods on orders The single most preventable and most irreversible mistake. Section 107 gives 3+1 months. Section 112 gives 3 months from the Appellate Authority order to appeal before the Appellate Tribunal (when notified and operational). If you receive an adverse order, calendar the appeal deadline on the day you receive it. No amount of legal merit rescues a time-barred appeal.

6. Not reconciling the ECrL entry against the source documents Even where transitional credit was successfully entered in the ECrL, a subsequent order under Section 73 or 74 may have reversed it. Reconcile your ECrL balance against: (a) the filed TRAN-1/TRAN-2 as acknowledged, (b) any orders passed by the proper officer, and (c) the underlying pre-GST returns. Unexplained gaps are live audit targets.

Step-by-Step: Defending a Transitional Credit Claim in 2026

If you have a contested, reduced, or unprocessed transitional credit balance, work through this sequence methodically.

1. Download your filed returns. Log in to the GST portal → Services → Returns → Transition Forms → Download filed TRAN-1 and TRAN-2 (if filed). Note the ARN and the filing date.
2. Check the ECrL. GST portal → Ledgers → Electronic Credit Ledger → filter entries from July 2017 to March 2018. Identify the transitional credit entries and their amounts.
3. Pull the pre-GST returns. Obtain copies of the last Central Excise ER-1 or ER-6 return, Service Tax ST-3 return, and state VAT return for the period ending 30 June 2017. These are the source documents against which TRAN-1 is benchmarked.
4. Reconcile and identify the gap. Compare the closing credit balances in the pre-GST returns against the ECrL entries. Document the difference — this is your contested amount.
5. Compile the evidence file:
6. Pre-GST closing returns (ER-1, ST-3, MVAT or relevant state VAT return)
7. Trial balance as on 30 June 2017 showing CENVAT/VAT ledger closing balance
8. GSTN helpdesk ticket numbers and email confirmations from 2017 (if glitch-based)
9. Any orders, notices, or DAR received from the proper officer or audit team
10. TRAN-1/TRAN-2 ARNs and filed copies
11. Determine your current remedy. Map what procedural stage you are at: Has an order been passed? Is the appeal window open? Was there an audit DAR issued without a final order? Each situation calls for a different tool.
12. Draft your representation, appeal, or reply. Cite Union of India v. Filco Trade Centre Pvt. Ltd. (Civil Appeal Nos. 7425–7428 of 2022) and the Bombay HC ruling. Emphasise that the right under Section 140 is substantive, not procedural. Attach the evidence file as annexures.
13. Track your timeline. Note the date the order or DAR was received. Calendar the Section 107 deadline (3 months + possible 1 month extension). Do not wait for a reminder from the department.

Key Takeaways

• Transitional credit is a property right, not a concession. Section 140 of the CGST Act confers an entitlement to credit already earned under the old regime. Portal failure alone cannot extinguish it.
• *The Bombay HC and the Supreme Court in Filco Trade Centre (2022) established a binding principle:* where technical glitches blocked electronic filing, manual filing or revision must be permitted, provided the taxpayer can evidence the attempted filing.
• The Filco one-time window (October 2022 – January 2023) is permanently closed. No general portal window for fresh TRAN-1/TRAN-2 filing exists in FY 2026-27.
• Three live remedies remain: appeal under Section 107 (3+1 months from the order), rectification under Section 161 (6 months from the order for manifest errors), and writ petition under Article 226 of the Constitution where statutory remedies are exhausted. All are time-bound — act on receipt of an adverse order, not months later.
• TRAN-2 deemed credit percentages — 60% of CGST for goods with CGST rate ≥ 9%, and 40% for goods with CGST rate below 9% — were routinely under-claimed or incorrectly computed. Reconcile against purchase invoices dated within 12 months of 1 July 2017 before going into any audit.
• The GSTN helpdesk ticket from 2017 is your most important piece of evidence. Without it, distinguishing a portal-blocked taxpayer from a non-filer becomes difficult. Archive this permanently.
• An unanswered audit objection is as dangerous as an adverse order. If a GST audit under Section 65 or 66 flags your transitional credit, respond in writing citing Filco Trade Centre and the Bombay HC ruling — do not let the DAR crystallise into a formal demand by default.