2023 (3) TMI 529 - HC - GST

Refund of Unutilized ITC Allowed Despite Supplier's Alleged Fake Invoices Under Section 9(2)(g) DVAT Act

The HC allowed the petition for refund of unutilized ITC on export of goods, rejecting the revenue's claim that the refund should be denied due to alleged ... Refund of unutilized Input Tax Credit - requirement under Section 16(2) of the Central Goods & Services Tax, 2017 - receipt of goods - good-faith purchasing dealer / bona fide purchaser - suspicion insufficient for denial of refund - processing of refund applications without arbitrary denial - no obligation on purchaser to investigate supplier's affairs Refund of unutilized Input Tax Credit - requirement under Section 16(2) of the Central Goods & Services Tax, 2017 - receipt of goods - suspicion insufficient for denial of refund - good-faith purchasing dealer / bona fide purchaser - processing of refund applications without arbitrary denial - Whether the petitioner's refund applications for unutilized ITC (including Cess) could be rejected on the basis of apprehension that its supplier had issued fake invoices, notwithstanding that the petitioner had invoices, had exported the goods and had paid the taxes. - HELD THAT: - The Appellate Authority had rejected the refund on the ground that possession of tax invoices did not establish receipt of goods, and on the premise that the supplier was part of a chain involving fake ITC (paragraph 16). The High Court examined the material and found no conclusive or cogent evidence that the invoices issued to the petitioner were fake; the invoices were reflected in the AIO System, the supplier was a registered dealer, the goods had been exported and there was no allegation that the petitioner had not paid the invoices including IGST and Cess (paragraphs 17-18, 22). The Court observed that the rejection was founded on suspicion and that a bona fide purchasing dealer cannot be penalised merely because the supplier is alleged to have engaged in malpractice; a purchaser is not required to investigate the affairs of its supplier or to anticipate that the supplier may fail to deposit tax (paragraphs 22-24). The Court applied the principle that denial of ITC or refund must be supported by cogent material and should not rest on mere apprehension, relying on the reasoning in On Quest Merchandising India Pvt. Ltd. to protect bona fide purchasing dealers from disproportionate consequences (paragraph 24). Consequently, the petitioner was entitled to the refund and the respondents were directed to process the refund applications forthwith. The Court clarified that if respondents later find material establishing non-supply by the supplier to the petitioner, appropriate action may be initiated in accordance with law (paragraphs 25-26). [Paras 22, 23, 24, 25, 26] Petitioner entitled to refund of the unutilised ITC (including Cess); respondents directed to forthwith process the petitioner's refund applications, subject to later initiation of lawful action if cogent material establishing non-supply is found. Final Conclusion: Writ petitions allowed; impugned appellate dismissal set aside to the extent that respondents are directed to process the petitioner's refund applications for unutilised ITC (including Cess) forthwith; respondents remain free to take subsequent action if they later discover cogent material proving non-supply by the supplier. Issues involved:The petitioner impugned a common Order-In-Appeal dismissing separate appeals against Order-In-Original, seeking refund of unutilized Input Tax Credit (ITC) amounting to Rs. 72,03,961/-, based on allegations of fake invoices issued by the supplier, M/s Shruti Exports.Summary:Issue 1: Tribunal not constituted for petitioner's appealThe petitioner filed refund applications for ITC, but the Tribunal was not constituted, hindering the petitioner's statutory right to appeal the impugned order.Issue 2: Rejection of refund applicationsThe petitioner's refund applications were rejected on suspicion that the supplier issued fake invoices, without conclusive evidence. The Appellate Authority held the case as one of 'goodless supply on the strength of fake invoices.'Issue 3: Allegations against supplier and petitioner's defenseAllegations were made against the supplier, M/s Shruti Exports, for issuing fake invoices. The petitioner contended that its purchases were genuine and against legitimate invoices, with the Calcutta High Court directing unblocking of the petitioner's ITC. Respondent no.2 rejected the refund applications based on investigations against the supplier.Issue 4: Lack of cogent material for rejectionThe rejection of refund applications was based on suspicion without concrete evidence. The petitioner had exported goods, paid invoices from a registered dealer, and there were no allegations of non-payment or non-export.Issue 5: Legal precedent and entitlement to refundCiting legal precedent, the Court held that the petitioner should be entitled to the refund of ITC on exported goods. The Court directed the respondents to process the petitioner's refund applications promptly, allowing for further action if material is found to support allegations against the supplier.In conclusion, the Court allowed the petitions, emphasizing the petitioner's entitlement to the refund of ITC on exported goods, highlighting the lack of substantial evidence to reject the applications solely based on suspicions regarding the supplier's actions.