2022 (12) TMI 295 - HC - GST

Refund of Input Tax Credit accumulated due to inverted duty structure - main contention of the Petitioners is that the Petitioners were not given any opportunity as required under the Rules nor any notice was given to the Petitioners and therefore, the impugned order is bad in law - principles of natural justice - HELD THAT - The procedure for seeking refund is provided under chapter XI section 54 of the Central Goods and Services Tax Act, 2017 thereof. Section 54 (3) of the Act of 2017 provides for refund and states that a registered person may claim refund of any unutilised Input Tax Credit at the end of any tax period, except two categories stated therein no refund shall be allowed. According to the Petitioners, the Petitioners were in the category where credit is accumulated on the ground of rate of tax on inputs being higher than the rate of output supplies. The methodology in respect of dealing with the application for refund is provided under the Rules framed under the Act of 2017. In the present case, the Petitioners have not only asserted that notice was not received by the Petitioners nor it was available on GSTN portal in the petition, but before passing the impugned order, the Petitioners had communicated to the Respondents that notice was not received nor it was available on portal. These facts have gone uncontroverted. Proceeding on the basis that the notice was neither received by the Petitioners nor it was made available on GSTN portal, it will have to be held that the opportunity of hearing to the Petitioners as envisaged under Rule 92 of the Rules of 2017 was impaired. The impugned order will have to be quashed and set aside, and the application of the Petitioners needs to be restored directing the Respondents to follow methodology under Rule 92 of the Rules of 2017 - application disposed off.

Summary

Issues: Challenge to order rejecting refund claim due to inverted duty structure, failure to provide opportunity for hearing as per rules.

Analysis:
1. Refund Claim Rejection: The petitioners challenged the order rejecting their refund claim due to an inverted duty structure. The claim was for Rs. 14,90,629 for the period from April 2019 to March 2020. The petitioners contended that they were in a category where credit accumulated due to the rate of tax on inputs being higher than the rate of output supplies. The procedure for seeking a refund is outlined in Chapter XI Section 54 of the Central Goods and Services Tax Act, 2017. Section 54(3) allows for refund of unutilized Input Tax Credit at the end of any tax period, with exceptions. The Rules under the Act provide the methodology for dealing with refund applications.

2. Rule 92 of CGST Rules, 2017: Rule 92 of the Central Goods and Services Tax Rules, 2017 specifies the process for processing refund applications. Rule 92(3) states that if the proper officer is satisfied that the refund is not payable, a notice in the form of GST RFD-08 must be issued to the applicant, who must reply within 15 days. The rule contains a proviso that no application for refund shall be rejected without giving the applicant an opportunity to be heard. This opportunity is crucial for demonstrating the refund's eligibility.

3. Failure to Provide Opportunity for Hearing: The petitioners argued that they were not given any opportunity as required under the Rules, and no notice was issued to them. The petitioners maintained that the impugned order was invalid in law due to this lack of opportunity. It was highlighted that before the order was passed, the petitioners had informed the respondents that no notice was received, and it was not available on the GSTN portal. These facts were uncontested, leading to the conclusion that the petitioners' right to a hearing under Rule 92 of the Rules of 2017 was compromised.

4. Judgment and Relief: The High Court held that the impugned order rejecting the refund claim must be quashed and set aside. The petitioners' application was directed to be restored, with the respondents instructed to follow the methodology under Rule 92 of the Rules of 2017. The Court clarified that the order was set aside due to procedural irregularities and not on the merits of the claim. The authority was tasked with deciding the refund claim based on its own merits. A timeline of 8 weeks was set for the completion of further procedures by the respondents from the date of the order's upload.