ONCE APPLICATION FOR REFUND IS MADE IT HAS TO BE PROCESSED BY THE PROPER OFFICER

[Mr. M. GOVINDARAJAN]

Section 16 of the Integrated Goods and Services Tax Act, 2017 (‘Act’ for short) defines the expression ‘zero rated supply’ as the export of goods or services or both or supply of goods or services or both for authorized operations to a Special Economic Zone developer or a Special Economic Zone Unit.  Section 16(3) of the Act provides that a registered person regarding to zero rated supply may claim a refund of the unutilized input tax credit on the supply of goods or services or both without payment of integrated tax under Letter of Undertaking.  For refund of unutilized input tax credit the registered person is to make an application under Section 54(1) of the Central Goods and Services Tax Act, 2017 (‘CGST Act’ for short) within the limitation specified and in Form GST RFD - 01 through the common portal .  The application has to be accompanied with required documents.

Rule 90 of the Central Goods and Services Tax Rules, 2017 provide that where the application relates to a refund from the electronic cash ledger an acknowledgment in Form GST RFD - 02 by the Department in the common portal.  The acknowledgment shall clearly indicate the date of filing of the claim for refund.  Where there is any deficiency the proper officer shall communicate the deficiencies to the applicant in Form GST RFD - 3 through the common portal electronically requiring the registered person to file a fresh refund application after rectification of such deficiencies.

Rule 92 prescribes the procedure for issuing an order of sanctioning the refund.  If the proper officer, on examination of the refund application, is satisfied that a refund under Section 54 of the CGST Act he shall make an order in Form GST RFD - 06.  If the refund is adjusted against any outstanding amount under the Act or under any existing law an order giving details of the adjustment is to be issued in Form GST RFD - 07.  If the proper officer is of the opinion that the amount of refund is liable to be withheld he shall pass an order in Part A of Form GST RFD - 07 informing the registered person  the reasons for the withholding of such refund. 

If the proper officer is satisfied for the 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 with directions to furnish a reply in Form GST RFD - 09 within 15 days of the receipt of the notice.  If any reply is filed by the applicant the proper officer shall consider the reply and make an appropriate order in Form GST RFD - 08.  

The above is the procedure contained the provisions of the Act and the rules made there under.  Once the application for refund is filed the same should be processed by the Proper Officer.  The proper officer shall order for refund if the application is correct in all aspects and if there is no defects in the application.  If there is any defect the Proper Officer shall communicate the same to the applicant for rectification of defect and to file fresh claim refund.

In M/S. KNOWLEDGE CAPITAL SERVICES PRIVATE LIMITED, VERSUS UNION OF INDIA, STATE OF MAHARASHTRA THROUGH ITS ADDITIONAL CHIEF SECRETARY (FINANCE) ASSISTANT COMMISSIONER OF STATE TAX, MUMBAI - 2023 (4) TMI 752 - BOMBAY HIGH COURT the petitioner is engaged in the business of providing information technology enabled services.    The petitioner had exported its services under a Letter of Undertaking without payment of integrated tax and the petitioner is also eligible to claim the refund of the unutilized input tax credit on supply of goods or services or both without payment of duty.  Therefore the petitioner claimed a refund of accumulated input tax credit on account of export services to the tune of Rs.9,63,033/-  from April 2020  to March 2021.  The petitioner filed the said refund claim on 01.07.2022.  The Department also acknowledged the receipt of refund claim of the petitioner.

The Department issued a show cause notice to the petitioner indicating its proposal to reject the refund claim.   The petitioner claimed that the defect sheet was never received by it.  The Department issued the order rejecting the refund claim on 25.07.2022.  Since the petitioner was aggrieved by the order of the Department the petitioner filed the present writ petition before the High Court.   

The petitioner contended that the procedure adopted by the Department is contrary to law and also in violation of the principles of Natural Justice.  The High Court considered the submissions of the petitioner and also analyzed the procedures involved in making refund to the registered person.         

The High Court observed that once an application for a refund is made it has to be necessarily processed.  If there is any defect in the refund application the applicant shall be informed of the defects to remove the defects.  After removal of the defect the applicant is to file the fresh refund with the department. The application shall be considered by the Proper Officer for either grant of refund or rejection of refund.  No application for refund shall be rejected by the Proper Officer without giving reasonable opportunity to the applicant. 

The High Court further observed that in the present case the petitioner applied for a refund which was duly acknowledged by the Proper Officer in Form GST RFD - 02.  No defect has been point out by the Proper Officer.  The petitioner directly received the order of rejection of the refund claim.  No reason was given in the order as to the rejection of the refund claim.  The Revenue contended that the ‘Exports Defects Memo Knowledge Capital.pdf’ file was attached to the reply affidavit but actually it was not attached.  This procedure adopted by the Proper Officer deprived the petitioner of submitting a fresh refund application. 

There is nonadherence with the procedure envisaged under the Rules to use correct forms prescribed.    In this case Form GST RFD - 3 was not issued but a file was attached to Form GST RFD - 08 which has a different form.  The Department has not given any satisfactory explanation for this but contended that the Form does not have enough space.  The forms prescribed under the Rules governing refunds are for promoting uniformity, clarity, compliances and efficiency.  The statutory forms prescribed forms play a critical role in the GST system as they ensure smooth functioning and promote transparency and compliance.    The standardize forms bring uniformity and make collating and analyzing data easier.  They provide clarify which reduces the likelihood of errors and confusion.  These forms also ensure compliance by providing structured and standardized methods.

Further the High Court analyzed the impugned order which has been passed nothing that the petitioner has not filed any reply and no hearing was given to the petitioner.  The High Court held that since no hearing was given to the petitioner before the rejection of the refund application which is contrary to the proviso to Rule 92(3).  Therefore the High Court set aside the impugned order. 

The High Court further directed that the application of the petitioner made under

Form GST RFD - 01 is restored to file.  The Department will process the application as per the procedure contained in the provisions of the Act and the Rules made there under from the stage of filing application and decide whether the petitioner is entitled to a refund on its own merits.  If there is any deficiency the same may be informed to the petitioner and if there is no deficient the refund application is to be processed as per law.