2019 (4) TMI 1496 - HC - GST

Court orders refund of wrongly adjusted amount in Writ Petitions, stresses compliance with legal provisions.

The court allowed the Writ Petitions, directing the respondent to refund the amount wrongly adjusted within three weeks from the date of the order, ... Refund of unutilised input tax credit - provisional refund sanction - adjustment of refunds against outstanding demands - pre-deposit and stay of recovery under Section 107(7) of the CGST ActPre-deposit and stay of recovery under Section 107(7) of the CGST Act - adjustment of refunds against outstanding demands - refund of unutilised input tax credit - Whether the respondent could adjust/recover refunds granted while the petitioner had remitted 10% pre-deposit and had appeals pending, and the consequent remedy. - HELD THAT: - The Court observed that Section 107(7) of the CGST Act provides that where the appellant has paid the amount under the pre-deposit provision, recovery proceedings for the balance amount shall be deemed to be stayed. The petitioner deposited 10% of the disputed amounts on 09.08.2018 in relation to the orders dated 14.06.2018 reversing earlier refunds. In those circumstances recovery or adjustment of the balance of the demand by setting off against subsequently claimed provisional refunds was not permissible. The respondent did not defend the adjustment on merits and was afforded an opportunity to refund the sums wrongly adjusted within a limited time frame. [Paras 8, 9, 10]Adjustment/recovery of the disputed balance was improper in view of the deemed stay consequent to the 10% pre-deposit; respondent directed to refund the amounts wrongly adjusted within three weeks.Final Conclusion: Writ petitions allowed; the Court held that deposit of 10% as pre-deposit under Section 107(7) stayed recovery of the balance demand and directed the respondent to refund the amounts wrongly adjusted within three weeks; no costs. Issues:1. Claim for refund of drawback sanctioned under the Goods and Service Taxes Act, 2017.2. Rejection of refund claims by the Assistant Commissioner of GST & Central Excise.3. Filing of appeals challenging the rejection orders.4. Provisional refund orders issued without prior opportunity to the petitioner.5. Interpretation of Section 107(7) of the CGST Act, 2017 regarding stay of recovery proceedings.Issue 1: Claim for refund of drawback sanctioned under the Goods and Service Taxes Act, 2017The petitioner, an exporter of tea and an assessee under the Act, purchased sacks and tea remitting IGST, CGST, and SGST. Exports were done without payment of IGST under a Letter of Undertaking and for drawback. The petitioner sought a refund of the drawback sanctioned, which was paid over to them.Issue 2: Rejection of refund claims by the Assistant Commissioner of GST & Central ExciseAfter provisional sanction of refund amounts, a show cause notice was issued stating that the claims were erroneously sanctioned regarding IGST and CGST. The petitioner objected, stating that the drawback represented the Customs Duty component alone. However, the authority confirmed the proposal in the show cause notice, reversing the refunds sanctioned and ordering recovery.Issue 3: Filing of appeals challenging the rejection ordersThe petitioner filed appeals challenging the rejection orders before the Commissioner of GST & Central Excise, Coimbatore, along with a statutory pre-deposit of 10% of the disputed amount. The appeals are pending consideration.Issue 4: Provisional refund orders issued without prior opportunity to the petitionerWhile the appeals were pending, the petitioner filed refund claims for unutilized credit. The respondent passed provisional refund orders without prior opportunity to the petitioner, restricting the refunds and adjusting outstanding dues.Issue 5: Interpretation of Section 107(7) of the CGST Act, 2017 regarding stay of recovery proceedingsThe respondent erroneously claimed that there was no stay of the order of reversal of the refunds granted. However, as per Section 107(7) of the Act, where 10% of the disputed amount is pre-deposited, recovery proceedings for the balance amount shall be deemed to be stayed. The petitioner had made the pre-deposit, and thus, no recovery should be effected.In conclusion, the court allowed the Writ Petitions, directing the respondent to refund the amount wrongly adjusted within three weeks from the date of the order, highlighting the importance of complying with the legal provisions regarding stay of recovery proceedings.