2021 (3) TMI 339 - HC - GST

Input tax credit refund rejection overturned due to denial of proper hearing under Section 54(7) CGST Act

The Bombay HC allowed a petition challenging rejection of input tax credit refund claim for export services. The court held that the proper officer ... Opportunity of being heard - audi alteram partem - refund of unutilized input tax credit - export of services - intermediary services - Rule 92(3) of the CGST Rules - section 54 of the CGST Act - judicial review under Article 226 - remand for fresh decisionRule 92(3) of the CGST Rules - opportunity of being heard - refund of unutilized input tax credit - Whether the impugned orders rejecting the petitioner's refund claims were passed in violation of the proviso to sub rule (3) of Rule 92 by not giving the petitioner an opportunity of being heard. - HELD THAT: - Rule 92(3) requires that where the proper officer is satisfied that refund is not admissible, a notice in FORM GST RFD 08 must be issued and, after considering the applicant's reply, an order allowing or rejecting the refund made; the proviso expressly prohibits rejection without giving the applicant an opportunity of being heard. The court examined the chronology: show cause notices were issued, some documents were submitted in person on 16.03.2020 and further documents were requested, large number of e mails were exchanged, and respondent relied on a Trade Circular of 17.03.2020 to treat e mail submissions as hearing. The Trade Circular however related to time barred VAT assessments and could not be validly applied to dispense with personal hearing for refund rejection. Telephonic calls and brief e mails, for which no record of their content was maintained and which were primarily for document collection, could not be equated with an opportunity of being heard within the meaning of the proviso. The court confined its review to the decision making process and concluded that no effective hearing on merits was afforded before rejection; hence the impugned orders violated Rule 92(3) and the audi alteram partem principle. [Paras 34, 35, 36, 37]Impugned orders rejected the refund claims in breach of the proviso to Rule 92(3) and the principles of natural justice; the procedure adopted by respondent No.4 was invalid.Audi alteram partem - judicial review under Article 226 - Whether availability of an alternative statutory remedy of appeal precludes exercise of writ jurisdiction where the impugned order is vitiated by breach of natural justice. - HELD THAT: - The court recalled established authorities that an order in violation of natural justice is non est and need not be relegated to an appellate remedy; relying on precedent it emphasized that where the first stage decision is tainted by denial of a fair hearing, the remedy of appeal is not an adequate substitute. Having found breach of audi alteram partem in the adjudicatory process, the High Court held that the existence of an appellate remedy under the MGST Act did not bar exercise of extraordinary writ jurisdiction under Article 226 in the present case. [Paras 19, 20, 38, 39]Availability of a statutory appeal did not preclude judicial review under Article 226 because the impugned orders were vitiated by violation of natural justice.Remand for fresh decision - refund of unutilized input tax credit - What relief is appropriate where the impugned refund rejection orders are set aside for procedural infirmity? - HELD THAT: - Given that respondent No.4 had already expressed an adverse view on the merits, the court directed that the matter be remitted for de novo consideration to ensure fairness. It ordered that another competent officer be assigned by respondent No.3 to decide the petitioner's refund applications afresh in accordance with law after giving an opportunity of being heard. A timeframe of three months from receipt of this order by respondent No.3 was prescribed for disposal, and all contentions were kept open for fresh adjudication on merits. [Paras 40, 41]Impugned orders set aside; refund applications remitted for fresh hearing and decision by a different proper officer within three months.Final Conclusion: The High Court set aside the five orders dated 26.06.2020 rejecting the petitioner's refund claims for breach of the proviso to Rule 92(3) and the audi alteram partem principle; the matters are remitted to a newly assigned proper officer to be decided de novo after giving the petitioner an opportunity of being heard within three months, with all contentions kept open. Issues Involved:1. Legality and correctness of the orders rejecting refund claims.2. Whether the petitioner was provided an opportunity of being heard.3. Applicability of the Trade Circular dated 17.03.2020.4. Maintainability of the writ petition in the presence of an alternative remedy.Detailed Analysis:1. Legality and Correctness of the Orders Rejecting Refund Claims:The petitioner, a company engaged in providing IT and IT-enabled services to customers outside India, challenged five identical orders dated 26.06.2020 rejecting its refund claims for unutilized input tax credit for the period from April 2018 to June 2019. The petitioner argued that the services provided qualify as 'export of service' and 'zero-rated supply' under sections 2(6) and 16 of the Integrated Goods and Services Tax Act, 2017 (IGST Act). The respondent, however, classified the petitioner as an intermediary under section 2(13) of the IGST Act, contending that the place of supply is India, thus disqualifying the services from being treated as export and making the petitioner ineligible for the refund.2. Whether the Petitioner was Provided an Opportunity of Being Heard:The petitioner claimed that it was not given a personal hearing before the rejection of the refund claims, which is a violation of Rule 92(3) of the Central Goods and Services Tax Rules, 2017 (CGST Rules). The respondents argued that the petitioner was given ample opportunity through emails and telephonic conversations, which should be considered as a hearing. The court found that telephonic conversations and email exchanges could not substitute a formal hearing, especially when the law mandates an opportunity of being heard before rejecting a refund application.3. Applicability of the Trade Circular Dated 17.03.2020:The respondents relied on the Trade Circular dated 17.03.2020, which allowed for the submission of documents via email due to the pandemic, claiming it provided an opportunity of hearing. The court noted that this circular pertained to time-barring assessments under the Maharashtra Value Added Tax Act, 2002, and was not applicable to refund claims under the GST regime. Therefore, the reliance on this circular to dispense with a personal hearing was misplaced.4. Maintainability of the Writ Petition in the Presence of an Alternative Remedy:The respondents contended that the writ petition should be dismissed as the petitioner had an alternative remedy of appeal under section 107 of the Maharashtra Goods and Services Tax Act, 2017 (MGST Act). The petitioner argued that the orders were in violation of the principles of natural justice, making the writ petition maintainable. The court held that when an order is passed in violation of natural justice, the availability of an alternative remedy does not bar the invocation of writ jurisdiction. The court cited previous judgments to support this view, emphasizing that a fair trial at the first stage is crucial, and a right to appeal cannot rectify an initial unjust trial.Conclusion:The court concluded that the rejection of the refund claims without a proper hearing violated the principles of natural justice and the proviso to Rule 92(3) of the CGST Rules. The impugned orders dated 26.06.2020 were set aside, and the matter was remanded to a new competent officer for fresh consideration within three months, ensuring an opportunity of being heard to the petitioner. All contentions were kept open, and the writ petition was allowed without any order as to cost.