Refund rejection order quashed as adjudicating officer exceeded scope of original show cause notice

The HC allowed the petitioner's application and quashed the GST refund rejection order. The court found that the adjudicating officer exceeded the scope of the original show cause notice by rejecting the refund on grounds not mentioned in the SCN. While the SCN alleged mismatch in GSTR-3B and GSTR-1 returns, the rejection order was based on maintaining two GST numbers under different mechanisms. The court held it's a settled principle that authorities cannot create new grounds beyond the SCN's scope during adjudication without providing proper opportunity to respond.

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Issues Involved:
1. Violation of principles of natural justice.
2. Legality of maintaining two GSTIN registrations.
3. Grounds for rejection of refund application.
4. Adjudication beyond the scope of show cause notice.

Detailed Analysis:

1. Violation of Principles of Natural Justice:
The petitioner argued that the impugned proceedings were vitiated due to the violation of principles of natural justice as no proper show cause notice was issued. The court found that the show cause notice dated 17th May 2021, did not contain any allegations related to maintaining two GSTIN numbers. The adjudicating officer decided the refund application on grounds that were not part of the original show cause notice. The court emphasized that it is a settled principle of law that an authority cannot go beyond the scope of the show cause notice to create new grounds at a later stage of adjudication. Consequently, the impugned proceedings were held to be vitiated for violation of principles of natural justice.

2. Legality of Maintaining Two GSTIN Registrations:
The petitioner maintained two GSTIN registrations: one under the reverse charge mechanism (RCM) and another under the forward charge mechanism (FCM). The adjudicating officer found this to be in violation of Section 25(2) of the CGST Act, 2017, which allows a person to have a single registration in a State or Union territory. The court noted that the adjudicating officer's findings on this issue were not part of the original show cause notice, making the order beyond the scope of the notice and thus invalid.

3. Grounds for Rejection of Refund Application:
The petitioner applied for a refund of Rs.1,70,12,325/- due to an inadvertent double payment of GST. The refund application was rejected on grounds that were not part of the original show cause notice. The adjudicating officer found that the petitioner had taken excess ITC of Rs.4,57,27,369/- by maintaining two GSTIN registrations, which was considered a suppression of facts resulting in a heavy loss to the government revenue. The court found that these grounds were not communicated to the petitioner in the show cause notice, thus violating the principles of natural justice.

4. Adjudication Beyond the Scope of Show Cause Notice:
The court found that the adjudicating officer passed the order rejecting the refund application on grounds that were never part of the original show cause notice. The show cause notice was vague and cryptic, and the adjudicating officer's findings were beyond the scope of the notice. The court held that the impugned order of adjudication was bad in law for being passed beyond the scope of the show cause notice.

Conclusion:
The court quashed and set aside the impugned show cause notice dated 17th May 2021, the consequent order in original dated 14th June 2021, and the order in appeal dated 8th December 2021. The revenue was given the liberty to issue a fresh show cause notice and proceed in accordance with the law. The entire exercise was to be completed within four months from the date of receipt/production of the copy of the order, failing which the petitioner would be entitled to claim a refund in accordance with the law. The instant application was allowed.

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