Refund of Unutilized Input Tax Credit Granted After Court Finds Clerical Error in Zero-Rated Supply Returns

A Hong Kong-based company registered in India sought refund of unutilized input tax credit for April 2018-March 2019 (excluding May 2018). Eleven identical appeals were rejected because zero-rated turnover wasn't reflected in returns. The petitioner claimed this was a clerical error and had filed annual returns showing the zero-rated supplies. The HC quashed all 11 orders and remanded the matter for fresh consideration, directing the tax authority to decide within four weeks after receiving copies of the annual returns. The Court mandated a personal hearing with seven days' notice if an adverse order was contemplated.

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Issues:
Impugning of 11 identical orders rejecting appeals for refund of unutilized input tax credit under IGST Act, CGST Act, and MGST Act due to non-reflection of zero rated turnover in returns.

Analysis:
The petitioner, a company incorporated in Hong Kong and registered in India, filed claims for refund of unutilized input tax credit for the period April 2018 to March 2019, excluding May 2018, under relevant tax laws. The appeals for these refunds were rejected on the grounds of non-reflection of zero rated turnover in the returns. The petitioner argued that it was a clerical error and not a suppression of sales turnover. It was highlighted that the zero rated supplies were reported in the annual returns filed on 24th March 2021, after the appeal was filed on 14th March 2021. During a personal hearing, copies of the annual returns were tendered, but were not reflected in the impugned orders.

The respondent contended that there was no evidence in the petition to indicate the submission of annual returns. The petitioner's counsel mentioned a similar situation for the subsequent period, where the concerned authority allowed the subsequent returns to be accepted and suitable orders were passed. The High Court noted that since the annual returns had been filed, and it was unclear if respondent No.4 had the opportunity to consider them, the matter needed to be remanded for de novo consideration. The Court accepted the petitioner's commitment to provide a copy of the annual returns to respondent No.4 within two weeks.

Consequently, the High Court quashed and set aside the 11 impugned orders dated 25th August 2021, remanding the matter for fresh consideration. Respondent No.4 was directed to dispose of the appeal within four weeks of receiving the annual returns. In case of an adverse order, a personal hearing was mandated, with a notice communicated at least seven working days in advance. The Court clarified that no observations were made on the merits of the case, and the petition was disposed of without any order as to costs.

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