NON-REFUND OF GST BY THE DEPARTMENT DESPITE THE ORDER OF APPELLATE AUTHORITY DIRECTING TO REFUND THE AMOUNT

[DR.MARIAPPAN GOVINDARAJAN]

GST Refund

Section 54 of the Central Goods and Services Tax Act, 2017 (‘Act’ for short) provides the procedure for getting refund from the Department by a registered person in case of excess payment of tax or any other amount paid by him.  If the refund is got delayed interest is also to be paid by the Department to the applicant.  The refund is to be applied within 2 years from the relevant date. 

Explanation 2 to this section defines the expression ‘relevant date’ in the case of goods exported out of India where a refund of tax paid is available in respect of goods themselves or, as the case may be, the inputs or input services used in such goods, –

• if the goods are exported by sea or air, the date on which the ship or the aircraft in which such goods are loaded, leaves India; or
•  if the goods are exported by land, the date on which such goods pass the frontier; or
• if the goods are exported by post, the date of despatch of goods by the Post Office concerned to a place outside India.

In the case of services exported out of India where a refund of tax paid is available in respect of services themselves or, as the case may be, the inputs or input services used in such services, the date of–

• receipt of payment in convertible foreign exchange or in Indian rupees wherever permitted by the Reserve Bank of India, where the supply of services had been completed prior to the receipt of such payment; or
• issue of invoice, where payment for the services had been received in advance prior to the date of issue of the invoice.

Withholding of refund

Section 54 (11) of the Act provides for withholding of refund due to a registered person by the Department.  The said section provides that where an order giving rise to a refund is the subject matter of an appeal or further proceedings or where any other proceedings under this Act is pending and the Commissioner is of the opinion that grant of such refund is likely to adversely affect the revenue in the said appeal or other proceedings on account of malfeasance or fraud committed, he may, after giving the taxable person an opportunity of being heard, withhold the refund till such time as he may determine.

Where a refund is withheld under sub-section (11), the taxable person shall, notwithstanding anything contained in section 56, be entitled to interest at such rate not exceeding 6% as may be notified on the recommendations of the Council, if as a result of the appeal or further proceedings he becomes entitled to refund.

In SHALENDER KUMAR VERSUS COMMISSIONER DELHI WEST CGST COMMISSIONERATE & ORS. - 2025 (4) TMI 555 - DELHI HIGH COURT, the petitioner is engaged in wholesale trade and export of FMCGs.  The petitioner is a registered person under GST laws.  The petitioner filed refund claim for Rs. 15.15 lakhs- IGST - with the Department.  The Department issued a show cause notice on 23.06.2023 as to why the refund claim filed by the petitioner may not be rejected on the ground that the registration of the suppliers of the petitioner was cancelled by the Department. The petitioner gave a reply.  On considering the reply submitted by the petitioner the Authority passed an order on 26.09.2023.  The Adjudicating Authority rejected the refund claim under Rule 92(1), 92(3) and 92(4) of CGST Rules. 

The petitioner filed an appeal before the First Appellate Authority challenging the order of Adjudicating Authority.  The Appellate Authority allowed the appeal filed by the petitioner.  The Appellate Authority held that the Adjudicating Authority has erred in rejecting the refund application of the petitioner.  The order passed by the Adjudicating Authority is neither legal nor maintainable in law.  Therefore, the Appellate Authority set aside the impugned order of the Adjudicating Authority.  The Appellate Authority further held that the claim of the Petitioner was genuine and legitimate and the Petitioner was eligible for refund as the same satisfied the mandatory conditions prescribed under Section 16(2) of the CGST Act, 2017.

The Department did not process the refund application as per the directions of Appellate Authority.  Instead, the Department decided to file an appeal against the order.  The Department was of the opinion that processing the refund application of the petitioner, as per the directions of the Appellate Authority, would be against to the interests of the Department.  Therefore, the Assistant Commissioner was directed to file before the GST Appellate Tribunal, which has not been constituted.  It was further directed that the refund process should be withheld till the order passed by the GST Appellate Tribunal or High Court or Supreme Court. 

The petitioner filed a writ petition against the order passed by the Appellate Authority and the review order of the Commissioner in not allowing to cause refund to the petitioner.  The petitioner submitted the following before the High Court-

• The order of the Appellate Authority has not been challenged by the Department and therefore it has attained finality.
• No order has been passed in the Review.
• The refund ought to be granted as per the order of the Appellate Authority.
• The refund cannot be withheld according to the decision of Delhi High Court in G.S. INDUSTRIES VERSUS COMMISSIONER CENTRAL GOODS AND SERVICES TAX DELHI WEST & ANR. & ORS. - 2023 (4) TMI 404 - DELHI HIGH COURT

The Department contended that the Department intended to file an appeal before the GST Appellate Tribunal against the order of Appellate Authority.  The same could not be filed since GST Tribunal has not yet been constituted. 

The High Court considered the submissions of both the parties. The High Court analysed the provisions of Section 54 meant for refund of GST.  The High Court observed that Section 54(11) of the Act would show that the refund can be held back on the satisfaction of the following two conditions-

• when an order directing a refund is subject matter of a proceeding which is pending either in appeal or any other proceeding under the Act; and
• thereafter the Commissioner gives an opinion that the grant of refund is likely to adversely affect the revenue.

In the opinion of the High Court the Department’s opinion under Section 54(11) cannot be relied upon on a standalone basis. In the absence of an appeal or any other proceeding pending, challenging the order of the Appellate Authority, the opinion under Section 54(11) cannot result in holding back the refund.  The refund having been permitted by the Appellate Authority and no order in review having been passed, the Department cannot hold back the refund.  The High Court held that the refund in favour of the Petitioner would be liable to be allowed in terms of the order passed by the Appellate Authority.

The High Court, however, made it clear that the Department can still challenge the said Appellate Authority’s order.  The High Court further directed the Department to process the refund with interest in terms of Section 56 of the Act within period of 2 months.  The High Court allowed the petition.