GST Refund Timelines Are Mandatory – Rejection for “Small Office Size” Unlawful

Case Summary

The Court held that the statutory 60-day timeline under Section 54(7) of the CGST Act for passing refund orders is mandatory. Non-compliance with this timeframe, along with delays in issuing acknowledgements and show-cause notices beyond the prescribed periods under the relevant Rules, renders refund rejection orders invalid.

It was further held that the authorities’ reliance on extraneous grounds and documents beyond the scope of statutory provisions is unlawful. Specifically, in rejecting the refund, the respondent observed that the business premises of the petitioner were small and allegedly inadequate to conduct business, and that e-way bills for inward supplies had not been generated. The Court held that such observations were based on mere assumptions, beyond the scope of the show-cause notice, and without legal foundation.

Consequently, the impugned orders denying the refund were set aside. The respondents were directed to refund the claimed amount with applicable interest within 30 days. The judgment emphasized the importance of strict adherence to statutory timelines in tax matters and upheld the principles of procedural fairness.

Key Takeaways from the Judgment

Statutory Timeline is Mandatory, Not Directory

Section 54(7) of the CGST/WBGST Act clearly mandates refund orders within 60 days.

Delays in issuing acknowledgements (Rule 90(2)) and show-cause notices (Rule 92(3)) invalidate refund rejection orders.

Extraneous Grounds Not Permissible

Refunds cannot be denied on irrelevant grounds such as:

• “The taxpayer’s office is too small”
• Non-generation of e-way bills where exemption applies (e.g., Rule 138(14)(b) – non-motorised transport).

Once registration is granted, business premises size cannot be questioned for refund.

Strict Interpretation of Taxing Statutes

Use of the word “shall” indicates a compulsory requirement in tax law.

Courts consistently interpret GST provisions strictly in favour of taxpayers when officers fail to comply with timelines.

Court’s Directions

Impugned orders rejecting refund were set aside.

The department was directed to refund the claimed amount with interest within 30 days.

Officers reminded that procedural fairness and strict adherence to law are non-negotiable.

Errors in Department’s Approach

• The refund was rejected on grounds extraneous to the law—such as the size of the petitioner’s business premises and the absence of e-way bills for inward supplies. The Court held that such findings were based on mere assumptions, outside the scope of scrutiny, and beyond the show-cause notice issued.
• The petitioner had been lawfully conducting business and exporting goods from the same premises after obtaining valid GST registration. Hence, the size of the premises could not be a ground to deny refund.
• Regarding e-way bills, the appellant pointed out that under Rule 138(14)(b), when goods are transported by a non-motorised conveyance, e-way bills are not required. Thus, the alleged absence of e-way bills was irrelevant and contrary to law.

Respondent’s Arguments

• The tax authorities argued that the statutory timelines under Section 54(7) of the CGST Act were directory and not mandatory, since the Act provided for interest payments in case of delays.
• They also contended that the appellant contributed to delays by seeking extensions.

Court’s Findings

Mandatory Nature of Timelines

The Court held that the 60-day limit under Section 54(7) is mandatory, not directory. The use of the word shall confirms that the authorities must comply strictly with this deadline.

The delays in issuing acknowledgment and fixing the reply date violated the statutory mandate, vitiating the entire refund process.

Invalidity of Rejection Orders

The grounds taken by the authorities—such as premises size and e-way bills—were beyond the scope of GST provisions.

Such extraneous reasons, not mentioned in the show-cause notice, made the rejection orders unlawful.

Scope of Appeal

The High Court reversed the Single Judge’s order, noting that it failed to recognize the mandatory nature of timelines and wrongly upheld the refund rejection.

Conclusion and Directions

• The Court set aside the refund rejection orders of both the Assistant Commissioner and the Appellate Authority.
• Directed the tax authorities to refund the full claimed amount with applicable interest (as per Section 56 of the Act) within 30 days.
• Reaffirmed that strict compliance with statutory timelines is essential in tax matters. Any deviation vitiates the legality of orders.

Guidance for Taxpayers

Maintain Complete Documentation

Refund applications must include all shipping bills, invoices, Export General Manifest (EGM) details, and customs clearance documents.

Once acknowledged by the GST portal/authority, the application is deemed complete.

Track Refund Timeline

Note the date of filing refund application (FORM GST RFD-01).

Ensure acknowledgement (FORM GST RFD-02) is issued within 15 days.

Refund order must be passed within 60 days of application date.

Challenge Unlawful Grounds

If refund is denied based on irrelevant factors (office size, suspicion, vague cross-verification, etc.), challenge such orders in appeal or writ.

Rely on judicial precedents that officers cannot travel beyond statutory provisions.

Interest on Delayed Refunds

If refund is delayed beyond 60 days, taxpayers are entitled to interest under Section 56 of the CGST/WBGST Act.

Guidance for Tax Consultants & Practitioners

Advise Clients on Timeline Compliance

Educate taxpayers that statutory timelines protect their rights.

Keep track of every stage – filing, acknowledgement, SCN, hearing, and order.

File Representations Promptly

If acknowledgements or SCNs are delayed, file written objections highlighting violation of Rule 90/92.

Cite Judicial Precedents

Important cases to rely on:

1. • • Smartadmedia v. Commissioner of DGST (Delhi HC)
     • M.D. Securities Pvt. Ltd. v. STO Avato (Delhi HC)
     • Jian International v. Commissioner of DGST (Delhi HC)
     • Vidarbha Industries Power Ltd. v. Axis Bank (SC)

Courts consistently hold that refund timelines are mandatory.

Escalate Unlawful Actions

If refunds are denied on grounds like “office is small” or “e-way bill missing” despite exemption – escalate through appeals or writ petitions.

This judgment reinforces that GST officers cannot go beyond the law or rely on assumptions such as business size or irrelevant e-way bill concerns. For taxpayers and consultants, it highlights the importance of challenging refund rejections based on extraneous grounds and insisting on timely disposal of refund claims under Section 54(7).

Beyond Refund Cases: Officers Acting Beyond Scope

This judgment is a warning against arbitrary departmental practices across GST law. Similar issues arise in:

• Registration Cases:

Officers questioning office space, number of employees, or business volume.

Suggestion: Once statutory documents are furnished, registration cannot be denied on subjective grounds.

• Cancellation of Registration:

Often done on vague allegations of “non-existent business.”

Suggestion: Taxpayers should maintain utility bills, rent agreements, trade licenses, and activity proofs to defend against arbitrary cancellations.

• Input Tax Credit (ITC) Scrutiny:

Denials based on mismatch or suspicion without SCN or opportunity of hearing.

Suggestion: Always insist on due process under Section 73/74 with SCN and personal hearing.

Practical Suggestions

• For Taxpayers: Keep all filings, documents, and timelines documented. Escalate immediately when officers exceed timelines.
• For Consultants: Prepare clients for litigation if officers act beyond scope; rely on High Court precedents.
• For Authorities: Ensure training of officers – arbitrary reasons like “office too small” undermine credibility of GST law.
• For Industry Bodies: Represent before CBIC and GST Council for stricter monitoring of officer accountability.

Conclusion

The Calcutta High Court has strongly reaffirmed that GST refund timelines are mandatory and rejection on irrelevant grounds is unlawful. Taxpayers and practitioners must actively defend their rights by relying on statutory timelines and judicial precedents. Arbitrary departmental practices not only delay taxpayer entitlements but also erode trust in tax administration.

This judgment sends a clear message: strict adherence to law, fairness, and timelines is the foundation of GST.