Taxpayers Win Challenge Against Refund Claim Rejection Due to Procedural Violations Under Rule 92 of CGST Rules

Taxpayers challenged a refund claim rejection due to procedural irregularities. HC found that authorities failed to provide opportunity for hearing as mandated under Rule 92 of CGST Rules, 2017. The court quashed the order, directing authorities to follow proper procedure and reconsider the refund claim within 8 weeks, emphasizing procedural fairness in tax dispute resolution.

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Issues: Challenge to order rejecting refund claim due to inverted duty structure, failure to provide opportunity for hearing as per rules.

Analysis:
1. Refund Claim Rejection: The petitioners challenged the order rejecting their refund claim due to an inverted duty structure. The claim was for Rs. 14,90,629 for the period from April 2019 to March 2020. The petitioners contended that they were in a category where credit accumulated due to the rate of tax on inputs being higher than the rate of output supplies. The procedure for seeking a refund is outlined in Chapter XI Section 54 of the Central Goods and Services Tax Act, 2017. Section 54(3) allows for refund of unutilized Input Tax Credit at the end of any tax period, with exceptions. The Rules under the Act provide the methodology for dealing with refund applications.

2. Rule 92 of CGST Rules, 2017: Rule 92 of the Central Goods and Services Tax Rules, 2017 specifies the process for processing refund applications. Rule 92(3) states that if the proper officer is satisfied that the refund is not payable, a notice in the form of GST RFD-08 must be issued to the applicant, who must reply within 15 days. The rule contains a proviso that no application for refund shall be rejected without giving the applicant an opportunity to be heard. This opportunity is crucial for demonstrating the refund's eligibility.

3. Failure to Provide Opportunity for Hearing: The petitioners argued that they were not given any opportunity as required under the Rules, and no notice was issued to them. The petitioners maintained that the impugned order was invalid in law due to this lack of opportunity. It was highlighted that before the order was passed, the petitioners had informed the respondents that no notice was received, and it was not available on the GSTN portal. These facts were uncontested, leading to the conclusion that the petitioners' right to a hearing under Rule 92 of the Rules of 2017 was compromised.

4. Judgment and Relief: The High Court held that the impugned order rejecting the refund claim must be quashed and set aside. The petitioners' application was directed to be restored, with the respondents instructed to follow the methodology under Rule 92 of the Rules of 2017. The Court clarified that the order was set aside due to procedural irregularities and not on the merits of the claim. The authority was tasked with deciding the refund claim based on its own merits. A timeline of 8 weeks was set for the completion of further procedures by the respondents from the date of the order's upload.

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