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 violated principles of natural justice by rejecting the refund application without granting a hearing to the petitioner. Section 54(7) of CGST Act and Rule 92(3) of CGST Rules mandate that refund applications cannot be rejected without providing opportunity of being heard. The court emphasized that telephonic conversations and email exchanges cannot substitute formal hearing requirements. The matter was remanded to original authority for fresh decision after providing proper hearing to the petitioner.

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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.

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