This article is limited to Writ Petition as a remedy in cases where the application for refund of ITC is denied by the appellate authority under the GST Act, 2017.
Claiming a refund of tax is the statutory right under CGST Act, 2017, in furtherance of the same section 54 in CGST Act, 2017 allows the registered person to avail the benefit of a refund in cases where–
- There is any balance amount in the electronic cash ledger
- There is any unutilized input tax credit in respect of zero-rated supplies
- Where the credit has accumulated on account of the rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies)[1]
It must be noted that any person claiming a refund of any tax or interest shall make an application before the expiry of two years from the relevant date in such format as prescribed. According to section 54(3) any registered person can also claim a refund of unutilized ITC at the end of any tax period only in cases where zero-rated supplies are made without payment of tax or when the credit has accumulated on account of the rate of tax on the input is higher than the rate of tax on output supplies. It is imperative to mention here that according to the Supreme Court in Union of India v. VKC Footsteps India Pvt. Ltd[2] refund can be sought only for input goods and not on input services.
Procedure to claim the refund.
To claim a refund of tax or interest, the registered person must apply electronically in FORM GST RFD-01 in accordance with section 54 of CGST Act r/w Rule 89 of The CGST Rules 2017 along with the relevant documents as prescribed in rule 89(2) of CGST Rules 2017. An application for a refund shall be made within 2 years from the relevant date as defined in section 54(14) of the CGST Act, 2017. On receipt of the application, if the Assistant Commissioner is satisfied that the amount as claimed is refundable, he shall make an order of refund accordingly. It must be noted that according to section 54(7) of CGST Act 2017, such applications must be dealt with/disposed of within 60 days from the date of receipt.
Rejection or Denial of refund application
The Assistant Commissioner has the power to withhold or reject the refund application in accordance with section 54(3) of CGST Act, 2017 when-
- The registered person has failed to furnish any return till he furnishes the return.
- If a registered taxable person is required to pay any tax /interest/penalty which has not been stayed by any court/tribunal etc.
Additionally, as per section 54(11) of CGST Act, 2017 if the Commissioner is of the opinion that the grant of refund as per the order of the Assistant Commissioner will likely or adversely affect the revenue on account of any malfeasance or fraud committed, then it can withhold refund and file appeal before the Joint Commissioner whereafter the Joint Commissioner only after providing the opportunity of being heard to the registered person can pass an order of accepting or rejecting the application of refund. In case the application is still rejected, the registered person can file an appeal.
Appeal Structure in Case of Denial of Refund Application
If your application for a refund is denied by the Assistant Commissioner (adjudicating authority) an appeal can be made to the Joint Commissioner (appellate authority). Further, if any person is aggrieved by the order of the Joint Commissioner, they can prefer an appeal before the Appellate Tribunal. However, due to the non-constitution of the GST Appellate Tribunal, a registered person is eligible to approach the Hon’ble High Court for relief.
Writ Petition for Seeking Tax Refund u/s 54 of CGST Act
For the last few months, it has become a repetitive practice of the GST Department to deny the refund application of registered persons on vague and baseless grounds because of which they have to file appeals with the Joint Commissioner who again without application of mind, in a mechanical manner and without considering the reply of registered person deny the refund application thereby leaving the registered person to remedy less as such because orders of Joint Commissioner can only be challenged before the GST Appellate Tribunal and those tribunals are still non-existent.
Hence, the same registered person can seek a Writ Petition before the Hon’ble High Court for getting his refund application processed or executed. There are multiple instances where the registered persons have successfully got their refund processed/executed by the Hon’ble High Court few of them are mentioned below-
When refusal is made on erroneous finding based on “assumption” in the absence of tangible reason
When it was found that the appeal of the revenue was flawed and the appellate authority did not have any tangible reason for the particulars submitted by Petitioner, the Hon’ble Delhi High Court, quashed the order of the Joint Commissioner refusing the refund application and directed the Commissioner of CGST to disburse the amount of refund as sanctioned by Assistant Commissioner[3]
When a timely refund is not made due to non-filing of an appeal by Revenue before the Appellate Tribunal
When the petitioner’s application for refund was accepted by the Joint Commissioner at the appellate level but the same was examined by the Commissioner u/s 112(3) of CGST Act, 2017 wherein it was directed to file an appeal in Appellate Tribunal but due to non-constitution of the appellate tribunal the said appeal was never filed. It was observed by Hon’ble Delhi HC that the order of the Joint Commissioner cannot be ignored simply because Commissioner proposes to file an appeal, therefore, the Delhi HC directed the respondent to process for refund[4] Similarly in the case of GS Industries v. Commissioner Central Goods and Services Tax Delhi,[5] wherein the Delhi HC specifically held that refund amount cannot be withheld solely on the ground that Commissioner has decided to file an appeal against the order approving refund application.
When the authority failed to consider the reply of the registered person and proceeded mechanically on an erroneous assumption.
When the authority failed to consider the reply of the Petitioner specifically stating that “Rule 89(4) applies only in cases of zero-rated supply of goods or services, without payment of tax under bond or letter of undertaking”. The Hon’ble High Court found merit in the petitioner’s contention that Rule 89(4) of the Rules is inapplicable to cases of refund of integrated tax paid on zero-rated supply and the Appellate Authority had proceeded mechanically in rejecting Petitioner’s appeal erroneously assuming that it is seeking a refund on accumulated ITC. Hence, the Hon’ble Delhi HC quashed the order of the respondent and remanded the matter back to Appellate Authority for a fresh adjudication[6].
Similarly, in M/s Shri Shyam Footwear v. The Commissioner of Central Goods and Service Tax[7] when the annexure as submitted by the Petitioner along with its reply was not considered by respondents the Hon’ble Delhi HC quashed the order of the respondent refusing refund and admitted the matter back to Adjudicating Authority for fresh consideration
When refund applications are rejected merely because of suspicion without any cogent material.
It was the case of the Petitioner that their application for a refund from ITC was rejected merely because of suspicion and without any cogent material only because one of its suppliers was accused of issuing fake invoices. The Hon’ble Delhi HC noted that no allegation was raised against the Petitioner, the Petitioner has exported the goods, the ITC was raised by a registered dealer and there was no allegation that the Petitioner has not paid the invoices hence, it was held that refund cannot be denied in such case.[8].
When there is a violation of the principle of natural justice.
When the application for refund was rejected by the Respondents due to the reason that Petitioner is an “Intermediary” and the same ground was neither taken by the respondents in any show-cause notice nor it was the subject matter before appellate authority at any stage. The Hon’ble Delhi HC held that as the Petitioner was not given an opportunity to meet its case against the contention “of being an intermediary” and this order was passed in violation of the principle of natural justice hence, they quashed the order of refusal and remitted the matter for fresh consideration.
Similarly, the Rajasthan High Court in M/s Chandani Crafts v. Union of India and Anr[9]also quashed the rejecting the refund of Petitioner on the ground that the Petitioner was not provided the opportunity of being heard thereby violating the principle of natural justice.
When the Registered Entity was found to be “Non-Existent”
The Hon’ble Delhi High Court held that Petitioner cannot be denied the refund of accumulated ITC solely on the ground that it has not filed the necessary information regarding the transfer of business and other returns to establish the transfer of stocks and capital goods or more so when the petitioners claim for inverted tax structure and accumulation of ITC has been verified[10].
CONCLUSION
The GST Act, 2017 has provided for a good appellate structure but has miserably failed in its execution. The rejection of bona fide refund application and non-presence of GST Appellate Tribunal has left the registered entities to approach the Hon’ble High Courts seeking relief against the illegal, arbitrary, and mechanical orders of adjudicating and appellate authority which are passed in violation of principle of natural justice.
[1] Kindly refer to the judgment of Union of India v. VKC Footsteps India Pvt. Ltd. Civil Appeal No. 4810 of 2021 allowing refund only on input goods in the inverted duty structure and not on input services. Available at: 24110_2020_33_1502_29954_Judgement_13-Sep-2021.pdf (sci.gov.in).
[2] Id.
[3] M/s Mahajan Fabrics Pvt. Ltd. v. Commissioner CGST and Ors. W.P (C ) 6727 OF 2022
[4] Saurabh Singal v. Central Goods and Services Tax Delhi W.P(C) 5462 OF 2022.
[5] W.P (C) 14719 of 2022
[6] OHMI Industries Asia Pvt. Ltd. v. Assistant Commissioner CGST W.P (C) 6856 OF 2022.
[7] W.P (C) 5845 of 2022
[8] M/s Balaji Exim v. Commissioner CGST and Ors. W.P (C) 10407 of 2022
[9] Civil Writ Petition No. 5460 of 2020
[10] Ajay Kumar Jindal v. Superintendent Ward 71, Central Goods and Service Tax W.P (C ) 258 of 2023