2021 (2) TMI 924 - HC - GST

Withholding of Provisional/ Final refund on the ground that investigation is pending - Seeking disbursal of provisional refund - section 54(11) of the Central Goods and Services Tax Act, 2017 - Rule 90(2) of CGST Rules, 2017 - non completion of the proceedings to disburse the full refund - HELD THAT - A perusal of the provision of sub section 11 of section 54 of CGST Act clearly reveals that the appropriate authority of the department is vested with the power to withhold the refund, however, the refund can be withheld by the authority only once he is of the opinion that grant of such refund is likely to adversely affect the revenue in some appeal or any other proceedings because of malfeasance or fraud committed by the applicant. Thus, what we find is that for exercising the authority vested by sub section 11 of section 54 of the Act for withholding the refund, the officer concerned has to form an opinion regarding refund having the tendency of adversely affecting the revenue in some proceedings - It is also relevant to notice that such opinion is to be formed only if the authority opines that refund will adversely affect the revenue on account of some malfeasance or fraud committed. In this view, it is not only that the opinion of the officer concerned needs to be recorded but that opinion regarding refund adversely affecting the revenue has to be based on some malfeasance or fraud. From a perusal of Part B of FORM GST RFD-07 it is clear that the proper officer or Commissioner has to assign the reasons for withholding the refund. Passing of an order in Part B of FORM GST RFD-07 is a statutory mandate which is binding on the department for the reason that different forms appended with the Rules, 2017 are part of the Rules which are statutory in nature having been framed under section 164 of the Act, 2017 - recording of reasons while passing of the order for withholding the refund is not only statutorily requirement as per the provisions contained in Rule 92(2) of the Rules read with Part B of Form GST RFD-07 and section 54(11) of the Act but it is also required so as to make the person, aggrieved by such an order, realize his right of appeal as available under section 107 of the Act. We are unable to agree with the said offer given by Shri Nag for the reason that Part B of Form GST RFD07 is not a form for the purposes of communicating the decision; rather it is a form in which an order has to be passed keeping in view the requirement of section 54(11) of the Act read with Rule 92(2) of the Rules. The said form contains a separate specific column where requirement is to record reasons for withholding the refund and those reasons are to be in conformity with the requirement of section 54(11) of the Act and Rules 92(2) of the Rules. The order withholding the refund can be passed only if the prerequisites of recording of the opinion in terms of the aforesaid provision is found present in a particular case. The decision by the Principal Commissioner, dated 13.10.2020 as is available in the record produced by the learned counsel representing the respondents is hereby quashed. The Principal Commissioner or any other competent authority will take a decision in respect of withholding of the refund amount afresh within 15 days from the date a certified copy of this order is produced before him - Petition disposed off.

Issues Involved:
1. Nondisbursement of provisional refund.
2. Non-completion of proceedings for full refund.
3. Blocking of the Electronic Credit Ledger.
4. Compliance with Section 54(11) of the CGST Act, 2017.
5. Procedural requirements under Rule 92 of the CGST Rules, 2017.

Detailed Analysis:

1. Nondisbursement of Provisional Refund:
The petitioner, a proprietorship firm engaged in the export of apparels, filed an application for a refund on 26.05.2020, which was acknowledged by the respondent department as per Rule 90 of the CGST Rules, 2017. Rule 91 mandates that the proper officer should pass an order for provisional refund within seven days of acknowledgment. Despite the statutory requirement, no order for provisional refund was passed. The respondents justified the delay by citing a decision dated 13.10.2020 by the Principal Commissioner to withhold the refund due to an ongoing investigation.

2. Non-completion of Proceedings for Full Refund:
The petitioner also sought a full refund under Rule 92(1) of the CGST Rules, 2017, which was not processed. The respondents stated that the final refund was withheld based on the Principal Commissioner's decision due to pending investigations. However, the court found that the decision lacked specific reasons and was not communicated to the petitioner, which is a procedural lapse.

3. Blocking of the Electronic Credit Ledger:
The petitioner's Electronic Credit Ledger was blocked on 03.12.2020, preventing the petitioner from addressing deficiencies noted in three other refund applications. The court directed the petitioner to apply for unblocking the ledger within 10 days and instructed the Principal Commissioner to decide on the application promptly.

4. Compliance with Section 54(11) of the CGST Act, 2017:
Section 54(11) allows withholding refunds if it adversely affects revenue due to malfeasance or fraud. The court noted that the Principal Commissioner's decision did not provide specific reasons or evidence of malfeasance or fraud, which is a statutory requirement. The court emphasized the need for a reasoned order to enable the petitioner to exercise the right to appeal.

5. Procedural Requirements under Rule 92 of the CGST Rules, 2017:
Rule 92(2) requires the proper officer to pass an order in Part B of Form GST RFD-07, detailing reasons for withholding the refund. The court found that this procedural step was not followed, and the reasons for withholding were not recorded in the prescribed form. The court highlighted that recording reasons is mandatory for transparency and to facilitate the appellate process.

Conclusion:
The court quashed the Principal Commissioner's decision dated 13.10.2020 and directed the competent authority to re-evaluate the withholding of the refund within 15 days, based on the existing record and after providing a reasoned order. The decision must be communicated to the petitioner immediately. The court also directed the completion of the pending investigation within four months and ordered the competent authority to decide on the provisional refund and the unblocking of the Electronic Credit Ledger based on the petitioner's application.

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