Knowledge Capital Services Private Limited Vs Union of India (Bombay High Court)
Bombay High Court held that rejection of refund application without granting an opportunity of hearing is contrary to the proviso to Rule 92(3) of the CGST Act and hence rejection order is liable to be set aside.
Facts- The Petitioner is engaged in the business of providing information technology-enabled services and is granted a valid registration certificate. The Petitioner had exported its services under a Letter of Undertaking without payment of integrated tax in terms of section 16(3) of IGST Act which also permits to claim of refund of the unutilised input tax credit on supply of goods or services or both without payment of integrated tax. Accordingly, the Petitioner claimed a refund of accumulated ITC on account of the export of services amounting to Rs.9,63,033/- from April 2020 to March 2021 in terms of section 16 of IGST Act read with section 54(3) of the CGST Act. The refund application for this period was filed on 1 July 2022, and a receipt of which was acknowledged.
Thereafter, Respondent No.3 issued a show cause notice to the Petitioner on 8 July 2022, proposing to reject the refund claim for the reason alleged in the defect sheet. According to the Petitioner, the defect sheet was never received by the Petitioner. Thereafter, Respondent No.3 passed an impugned order on 25 July 2022, rejecting the refund claim. Being aggrieved by the action taken by Respondent No.3, the Petitioner has filed this petition.
Conclusion- It is an admitted position that no hearing was given to the Petitioner before the rejection of the refund application contrary to the proviso to Rule 92(3) of the Rules, the impugned order needs to be set aside on this ground as well.
Therefore, the methodology adopted by the Respondents in rejecting the application of the Petitioner for a refund is completely contrary to the scheme of the CGST Rules of 2017. The Petitioner was not given an opportunity to clear deficiencies, and the Petitioner was not given an opportunity of hearing before rejecting the refund application; the impugned order, therefore, cannot be sustained.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
By this petition, the Petitioner has challenged the refund rejection order dated 25 July 2022 issued by Respondent No.3-Assistant Commissioner of State Tax.
2. The Petitioner is engaged in the business of providing information technology-enabled services and is granted a valid registration certificate. The Petitioner had exported its services under a Letter of Undertaking without payment of integrated tax in terms of section 16 (3) of the Integrated Goods and Services Tax (IGST) Act, 2017, which also permits to claim of refund of the unutilised input tax credit on supply of goods or services or both without payment of integrated tax. Accordingly, the Petitioner claimed a refund of accumulated Input Tax Credit (ITC) on account of the export of services amounting to Rs.9,63,033/- from April 2020 to March 2021 in terms of section 16 of the IGST Act of 2017 read with section 54 (3) of the Central Goods and Services Tax (CGST) Act, 2017. The refund application for this period was filed on 1 July 2022, and a receipt of which was acknowledged.
3. Thereafter, Respondent No.3 issued a show cause notice to the Petitioner on 8 July 2022, proposing to reject the refund claim for the reason alleged in the defect sheet. According to the Petitioner, the defect sheet was never received by the Petitioner. Thereafter, Respondent No.3 passed an impugned order on 25 July 2022, rejecting the refund claim. Being aggrieved by the action taken by Respondent No.3, the Petitioner has filed this petition.
4. We have heard Mr. Bharat Raichandani, the learned Advocate for the Petitioner and Mr. Himanshu Takke, the learned AGP for Respondent – State.
5. The main contention of the Petitioner is that the procedure adopted by the Respondents to reject the refund claim is contrary to law and in breach of principles of natural justice, which are embodied in these statutory provisions. It is necessary to briefly elucidate the statutory provisions governing the refund.
6. Section 16 of the IGST Act of 2017 refers to zero-rated supply, defined as the export of goods or services or both or supply of goods or services or both for authorised operations to a Special Economic Zone developer or a Special Economic Zone unit. Section 16 (3) of the IGST Act of 2017 permits a registered person regarding zero-rated supply to claim a refund of the unutilised input tax credit on the supply of goods or services or both without payment of integrated tax under the Letter of Undertaking. Section 54 (1) of the CGST Act of 2017 provides that any person claiming a refund of any tax or interest to make an application within the limitation specified therein in such form and manner as may be prescribed.
7. Chapter X of the Central Goods and Services Tax (CGST) Rules, 2017 lays down the procedure for refund. Rule 89 of the CGST Rules of 2017 provides that any person claiming a refund may apply electronically in Form GST RFD-01 through the common portal either directly or through a facilitation centre notified by the Commissioner. Under Rule 89 (1) of the CGST Rules of 2017, the application has to be accompanied with documentary evidence as specified in Annexure 1 to Form GST RFD- 01. Form GST RFD-01, prescribed under Rule 89 (1), provides various statements, declarations and undertakings.
8. Rule 90 of the CGST Rules of 2017 outlines the process for acknowledging an application. Rule 90 (1) states that where the application relates to a claim for a refund from the electronic cash ledger, an acknowledgment in Form GST RFD-02 shall be made available to the applicant through the common portal electronically, clearly indicating the date of filing of the claim for refund and the time period specified in sub-section 54 (7) shall be counted from such date of filing. As per Rule 90 (2), the application for a refund, other than the claim for a refund from the electronic cash ledger, shall be forwarded to the proper officer who shall, within a period of fifteen days of the filing of the said application, scrutinise the application for its completeness and where the application is found to be complete in terms of Sub-Rules (2), (3) and (4) of Rule 89, an acknowledgment in Form GST RFD-02 is to be made available to the applicant through the common portal electronically. Rule 90 (3) specifies that where any deficiencies are noticed, the proper officer shall communicate the deficiencies to the applicant in Form GST RFD-03 through the common portal electronically, requiring him to file a fresh refund application after rectification of such deficiencies. Form GST RFD-03, which contains the deficiency memo, is as follows :
“FORM-GST-RFD-03
[See Rule 90 (3)]
Deficiency Memo
Reference No. :
Date:
<DD/MM/YYYY>
To
…………………………….. (GSTIN/UIN/Temporary ID)
……………………………… (Name)
……………………………… (Address)
Subject: Refund Application Reference No. (ARN)……………… .Dated … <DD/MM/YYYY> – Reg.
Sir/ Madam,
This has reference to your above mentioned application filed under Section 54 of the Act. Upon scrutiny of your application, certain deficiencies have been noticed below :
Sr. No. Description (select the reason from the drop down of the Refund application)
1. <MULTI SELECT OPTION>
2.
Other <TEXT BOX> (any other reason other than the reason select from the ‘reason master’)
You are advised to file a fresh refund application after rectification of above deficiencies.
Date:
Place :
Signature (DSC):……………………………
Name of Proper Officer:………………….
Designation:………………………………
Office Address :…………………………”
***
9. Rule 92 of the CGST Rules of 2017 prescribes the procedure for issuing an order sanctioning a refund. Under Rule 92, if upon examination of the application, the proper officer is satisfied that a refund under sub-section (5) of section 54 is due and payable to the applicant, he shall make an order in Form GST RFD-06. In cases where the amount of refund is completely adjusted against any outstanding demand under the Act or under any existing law, an order giving details of the adjustment is issued in Part A of Form GST RFD-07. Where the proper officer or the Commissioner is of the opinion that the amount of refund is liable to be withheld under the provisions, he shall pass an order in Part A of Form GST RFD-07 informing him of the reasons for the withholding of such refund. Where the proper officer is satisfied, for reasons to be recorded in writing, that the whole or any part of the amount claimed as refund is not admissible or is not payable to the applicant, he shall issue a notice in Form GST RFD-08 to the applicant, requiring him to furnish a reply in Form GST RFD-09 within fifteen days of the receipt of such notice and after considering the reply, make an appropriate order. Form GST RFD-08 is as follows :
“FORM-GST-RFD-08
[See rule 92 (3)
Notice for rejection of application for refund
