2023 (4) TMI 752 - HC - GST

Refund of accumulated Input Tax Credit (ITC) on account of the export of services, rejected - export of 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 - rejection of refund claim for the reason alleged in the defect sheet - defect sheet was received by the Petitioner or not - 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. HELD THAT - The statutory procedure u/s 54 prescribed for dealing with the application of the refund arising under the provisions of the IGST Act of 2017 and CGST Act of 2017 in the context of the facts of this case. The gist of the procedure enumerated above is that once an application for a refund is made, it has to be processed. If there are lacunae, the Applicant is to be informed to remove the lacunae and to submit the claim after removing the said lacunae; the application is to be considered for either grant or rejection of the refund. Also, no application for a refund should be rejected without giving an opportunity to the applicant of being heard. The procedure is a selfcontained and provides for various stages which mandates steps to be taken by the applicant and the officer. The Petitioner had applied for a refund. The Petitioner received an acknowledgment under Form GST RFD-02 with a Nil remark, meaning, thereby, the application for refund was acknowledged. There were no lacunae pointed out under the said acknowledgment. No deficiency was pointed out; neither deficiency memo, as contemplated under Rule 90 (3) of the CGST Rules of 2017 in Form GST RFD-03, was issued to the Petitioner. The Petitioner directly received Form GST RFD-08 under Rule 92 (3) of the CGST Rules of 2017 for rejection of the application for refund. There were no reasons given in the said Form GST RFD-08, and it was stated that the Exports Defects Memo Knowledge Capital-pdf.pdf is a file that is attached - There was no opportunity given to the Petitioner to rectify lacunae, and the deficiencies which are to be informed through Form GST RFD-03 were sent in a file attached in Form GST RFD-08. This deprived the Petitioner of submitting a fresh refund application as contemplated under Rule 90 (3) of the CGST Rules of 2017. Since 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. The impugned order dated 25 July 2022, passed by Respondent No. 3- Assistant Commissioner of State Tax, is quashed and set aside - application of the Petitioner made under Form-GST RFD-01 is restored to file.

Summary

Issues Involved:
1. Legality of the refund rejection procedure.
2. Adherence to statutory provisions and principles of natural justice.
3. Proper use of prescribed forms under CGST Rules, 2017.

Summary:

1. Legality of the refund rejection procedure:
The Petitioner challenged the refund rejection order dated 25 July 2022 issued by Respondent No. 3, the Assistant Commissioner of State Tax. The Petitioner, engaged in providing information technology-enabled services, had exported services under a Letter of Undertaking without payment of integrated tax, claiming a refund of accumulated Input Tax Credit (ITC) amounting to Rs. 9,63,033/- for the period from April 2020 to March 2021. The refund application was filed on 1 July 2022. Respondent No. 3 issued a show cause notice on 8 July 2022, proposing to reject the refund claim based on a defect sheet that was allegedly never received by the Petitioner. Consequently, the refund claim was rejected on 25 July 2022.

2. Adherence to statutory provisions and principles of natural justice:
The Petitioner contended that the rejection procedure was contrary to law and breached principles of natural justice. The statutory provisions governing refunds under Section 16 of the IGST Act, 2017, and Section 54 (1) of the CGST Act, 2017, were elucidated. Rule 89 of the CGST Rules, 2017, provides the procedure for refund applications, and Rule 90 outlines the process for acknowledging and scrutinizing applications. Rule 92 prescribes the procedure for issuing refund orders. The Petitioner received an acknowledgment under Form GST RFD-02 with no deficiencies noted. However, instead of issuing a deficiency memo in Form GST RFD-03 as required, Respondent No. 3 issued a show cause notice in Form GST RFD-08, attaching a file with deficiencies, which was not part of the reply affidavit.

3. Proper use of prescribed forms under CGST Rules, 2017:
The Court noted that the deficiencies should have been communicated through Form GST RFD-03, allowing the Petitioner to rectify them and resubmit the application. The use of Form GST RFD-08 for rejection without prior communication of deficiencies deprived the Petitioner of an opportunity to address the issues. The statutory forms under the CGST Rules, 2017, ensure uniformity, clarity, compliance, and efficiency. The improper use of forms led to needless litigation and violated the prescribed procedure.

Judgment:
The Court found that the methodology adopted by the Respondents was contrary to the CGST Rules, 2017. The Petitioner was not given an opportunity to rectify deficiencies or a hearing before the refund rejection, violating Rule 92 (3) of the CGST Rules, 2017. Consequently, the impugned order dated 25 July 2022 was quashed and set aside. The Petitioner's application under Form-GST RFD-01 was restored, and Respondent No. 3 was directed to process the application as per the correct procedure and inform the Petitioner of any deficiencies using Form-GST RFD-03. The entire process was to be completed within twelve weeks from the date of the order upload. The writ petition was allowed accordingly.