REFUND FOR INPUT TAX CREDIT CANNOT BE DENIED ON MERE SUSPICION

[Mr. M. GOVINDARAJAN]

In M/S. BALAJI EXIM VERSUS COMMISSIONER, CGST AND ORS. - 2023 (3) TMI 529 - DELHI HIGH COURT  the petitioner has filed application for refund seeking refund of unutilized input tax credit of IGST to the tune of Rs.19.53 lakhs and Cess to the tune of Rs.52.51 lakhs.  The petitioner filed another application for refund of unutilized input tax credit to the tune of Rs.12.40 lakhs which includes Rs.3.37 lakhs IGST and Rs.9.03 lakhs Cess.  The refund sought was in respect of goods exported by the petitioner.

The Authorities acknowledge the receipt of second refund application.  In respect of first refund application the Authority issued deficiency memo stating that the supporting documents were not uploaded on the GST portal.  Therefore the petitioner filed another application along with all documents in support of its refund application.  The same was acknowledged by the Authorities.

The said refund applications were not processed by the Authorities on the contention that the supplier from whom the petitioner had purchased the goods had allegedly received fake invoices from its suppliers.  A search was conducted by the Authorities in the premises of the petitioner.  Thereafter the petitioner was summoned to produce certain documents before the Authorities.  The petitioner submitted the documents as required by the Authorities.  Despite this the Authorities again issued a notice to the petitioner directing to produce the documents that have already been submitted by the petitioner.

Thereafter the petitioner represented many a time before the Authorities in writing to process his refund applications at the earliest possible.  But the requests of the petitioner have not been taken into account by the Authorities.

The petitioner came to know that its supplier was alleged to issue fake invoices and its input tax credit was blocked.  The said application filed a writ petition before the High Court to unblock its Electronic Credit Ledger.

The Authority issued a show cause notice to the petitioner proposing to reject the refund applications of the petitioner.  In the said show cause notice the Authority sought a report regarding legitimacy and genuineness of the export of goods from the Customs Station, Kolkata, which were purchased by the petitioner from Shruti Exports (supplier of the petitioner).  The show cause notice also indicated that the supplier of the petitioner had issued fake invoices and he availed input tax credit of CGST/SGST and Cess to the tune of Rs.1.56 crores. 

The petitioner gave reply to the show cause notice issued to him.  Personal hearing was offered to the petitioner.  In the hearing the petitioner submitted additional documents in order to prove his refund claim.  The petitioner submitted that he was not concerned with any allegation against its supplier Shruti Exports as the purchases made by it were genuine and against genuine invoices.  The petitioner also pointed out that the High Court directed unblocking of the input tax credit of the supplier of the petitioner.   

Finally the Authority rejected the refund applications of the petitioner.  The Authority in that order indicated that   an investigation had been initiated against the supplier by the Authority.  It was alleged that the supplier had issue two invoices to the petitioner during August 2020.  Although it was confirmed that the said invoices were reflected on the ‘AIO’ System, the refund applications were rejected for the reason that “it appeared that they are to be part of a supply chain involving fake Input Tax Credit.

The petitioner filed an appeal before the Appellate Authority challenging the refusal of refund to the petitioner.  The Appellate Authority dismissed the appeal filed by the petitioner.  The Appellate Authority held that although the petitioner was in possession of the tax invoices, it could not be said that the petitioner had received the goods. Therefore, one of the conditions as stipulated in Section 16(2) of the Central Goods and Services Tax, 2017 – the taxpayer has received the goods or services or both – was not satisfied. The Appellate Authority concluded that the present case was one of ‘goodless supply on the strength of fake invoices’.

The High Court observed that the invoices issued by Shruti Exports are reflected in the AIO System and there is no dispute that Shruti Exports had issued the said invoices. Shruti Exports is a dealer registered with the Goods & Services Tax Department.   There is no allegation that the invoices (which include IGST as well as Cess) were not paid by the petitioner.  There is no allegation that the goods in question were not exported overseas.  By this the petitioner has established not only the fact that the goods have been exported but that it had paid for the same including the IGST and Cess.

The High Court also considered the counter filed by the Department in the present writ petition.  It was alleged that Shruti Exports had availed of CGST and SGST totaling Rs.1,35,21,489/- and Cess amounting to Rs.21,76,132/- from the taxpayers against whom cases were booked for issuing fake invoices.  It was also alleged the six dealers issued fake invoices to the said Shruti Exports.  The High Court also observed that the alleged invoices are issued before August 2020.  The petitioner also produced a copy of the show cause-cum-demand notice dated 30.11.2022 issued to Shruti Exports and one, Sanjay Kumar Bhuwalka. However, the said show cause notice indicates that it relates to the period from July, 2017 to Financial Year 2019-20.  The High Court observed that it could not possibly cover the supplies made to the petitioner.

The High Court held that the petitioner’s refund applications have been rejected merely because of suspicion without any cogent material. There is no dispute that goods have been exported; the invoices in respect of which the petitioner claims the input tax credit were raised by a registered dealer; and, there is no allegation that the petitioner has not paid the invoices, which include taxes. Thus, the applications for refund cannot be denied.  The High Court also accepted the contention of the petitioner that it is not required to examine the affairs of its supplying dealers. 

The High Court further held that the allegations of any fake credit availed by Shruti Exports cannot be a ground for rejecting the petitioner’s refund applications unless it is established that the petitioner has not received the goods or paid for them. In the present case, there is little material to support any such allegations.

The High Court held that the petitioner would be entitled to the refund of the input tax credit on goods that have been exported by it. The present petitions are, accordingly, allowed and the Authorities are directed to process the petitioner’s applications for refund of the input tax credit including Cess.

The High Court further clarified that  in the event the respondents are able to find material to establish the allegations regarding non-supply of any goods by Shruti Exports to the petitioner, it would be open for the respondents to initiate such action as may be warranted in accordance with law.