2024 (8) TMI 456 - HC - GST

Rejection of refund of unutilized Input Tax Credit (ITC) - failure to consider the claim for refund within the stipulated mandatory time limit of 60 days under section 54 (7) of the Act - delay of two days from the expiry of the statutory period of 15 days - HELD THAT - It is always a question of interpretation whether a provision in a statute is mandatory or directory. This depends upon the intent of the legislature. The intention of legislature is to be ascertained not only by the phraseology of the relevant provision, but also by the context, the subject matter and object of the relevant provision. In ascertaining the real intention of the Legislature, the Court considers inter alia, the nature and the design of the statute and the consequences which follow from construing it the one way or the other, the impact of other provisions whereby the necessity of complying with the provisions in question is avoided, the circumstances, namely, that the statute provides for a contingency of non-compliance with the provisions, the fact that non-compliance with the provisions is or is not visited by some penalty, the serious or the trivial consequences, that flow therefrom, and, above all, whether the object of the legislation would be defeated or furthered . Ordinarily, the use of the term shall is intended to be mandatory but phraseology per se is not the sole determining factor. There are numerous cases where the word shall has been construed as merely directory. Of course, the term raises a presumption that a particular provision is imperative, but such prima facie inference is rebuttable by other considerations such as the object, scope and consequences of such enactment - It also requires to be examined, that where a statute imposes a public duty and lays down the manner in which and the time within which a duty shall be performed, injustice or inconvenience resulting from such rigid adherence to such interpretation must be considered to hold such provisions directory. Thus, on a reading of section 54 of the Act, it appears that the term shall used in the section is directory in nature since any delay beyond the prescribed period of time in cases where a refund has been ordered is remedied by section 56 of the Act which provides for interest on delayed refunds. On the other hand, failure to pass any order within the specific period of time does not defeat, nullify nor prejudice the purpose or object behind enactment of the section. The injustice and inconvenience resulting from such rigid adherence to the statutory prescription is also a relevant factor in holding that the above provision is merely directory. Any other construction would defeat the object of the section. The impugned orders are well reasoned and have been passed after taking into account all the relevant considerations. There is no procedural infirmity nor contravention of any law nor erroneous exercise of jurisdiction in passing either of the impugned orders. There is also nothing on merit which the petitioner has been able to demonstrate warranting any interference with the impugned orders. There are no grounds warranting any interference with either of the impugned orders - Application dismissed.

Summary

Issues Involved:
1. Legality of the rejection of the refund claim for unutilized Input Tax Credit (ITC).
2. Interpretation of the mandatory nature of the 60-day period under Section 54(7) of the CGST/WBGST Act, 2017.
3. Procedural adherence and the impact of the COVID-19 pandemic on statutory deadlines.
4. Justification for the rejection of the refund claim based on physical verification and discrepancies.

Detailed Analysis:

1. Legality of the rejection of the refund claim for unutilized Input Tax Credit (ITC):
The petitioner challenged the orders dated 24 February 2022 and 5 July 2023, which rejected their claim for a refund of unutilized ITC amounting to Rs. 78,45,666/-. The petitioner had applied for this refund under Section 54(3)(i) of the CGST/WBGST Act, 2017, read with Section 16(3) of the IGST Act, 2017, for exports made to Bhutan between February 2021 and August 2021. The application was acknowledged after a delay of two days from the statutory period of 15 days. The claim was found inadmissible, and a show cause notice was issued on 8 February 2022. The petitioner did not reply to the notice and requested an extension, which was denied, leading to the rejection order on 24 February 2022.

2. Interpretation of the mandatory nature of the 60-day period under Section 54(7) of the CGST/WBGST Act, 2017:
The petitioner argued that the respondents failed to consider the refund claim within the mandatory 60-day period stipulated under Section 54(7) of the Act, asserting that the term "shall" should be read as mandatory. Conversely, the respondents contended that the 60-day period is directory, not mandatory, as Section 54(7) is procedural. The court noted that the intention of the legislature must be considered, and the use of "shall" does not always imply a mandatory requirement. The court referenced multiple judgments, including C Bright vs District Collector and Ors., to support the interpretation that "shall" can be directory based on the context and legislative intent.

3. Procedural adherence and the impact of the COVID-19 pandemic on statutory deadlines:
The court acknowledged the impact of the COVID-19 pandemic, noting that the period from 1 March 2020 to 28 February 2022 was excluded from statutory deadlines by various notifications and orders, including a Supreme Court order. Consequently, the delay in acknowledging the refund application and passing the rejection order was excluded from the statutory period, validating the timing of the respondents' actions.

4. Justification for the rejection of the refund claim based on physical verification and discrepancies:
The Appellate Authority rejected the appeal on 5 July 2023, citing that the business premises were found unfit for conducting business and discrepancies in the goods transported. The petitioner failed to justify the objections raised in the show cause notice, and their request for an extension to reply was denied. The court emphasized that the petitioner was given ample opportunity to be heard but failed to comply within the mandatory period, leading to an ex-parte order rejecting the refund claim.

Conclusion:
The court found no procedural infirmity or contravention of law in the impugned orders. The decisions relied upon by the petitioner were deemed inapposite to the case facts. The court held that the provisions under Section 54(7) are directory, not mandatory, and the respondents acted within the legal framework, especially considering the pandemic-related extensions. Thus, the court dismissed WPA No. 1905 of 2023 without any order as to costs.