2023 (4) TMI 751 - HC - GST

Refund claim valid if e-BRCs relate to export unit; reconsideration ordered within four weeks under relevant rules

The HC set aside the order rejecting the refund claim based solely on the issuance of a show cause notice for earlier periods. It held that the petitioner ... Rejection of refund claim - refund claim on the basis of e- BRCs/FIRCs furnished by the claimant, addressed to their corporate office in Kolkata, whereas exports done from Bangalore unit - HELD THAT:- This Court must observe that the order rejecting refund [Annexure-G] cannot be sustained as it is premised only on the ground that show cause notice is issued for the earlier two periods, and the petitioner cannot be relegated to avail statutory remedy when it is undisputed that on examination of the critical issue viz., whether the e- BRCs relied upon by the petitioner relates to the Bengaluru unit, the petitioner is permitted refund. The impugned order dated 15.11.2022 rejecting refund must yield, and the proceedings restored to the second respondent to consider the same subject to the outcome of the proceedings that are commenced with issuance of the impugned Show Cause Notice dated 14.09.2022. The second respondent, in the peculiarities of this case, and the grounds urged, must be called upon to decide on the continuation of the proceedings in the light of the petitioner’s specific defense that the assumption that these e-BRCs could be used for refund 'across the other ports' in the country would be incongruous as the petitioner exports software and e-BRCs are issued under the aforesaid regulations specific to invoices based on declaration and with necessary uploading with the Joint Director of Foreign Trade. The second respondent must not only be directed to consider continuation of the proceedings in the light of these submissions but also to decide within a certain time frame lest the petitioner is forced into a loop of litigation. The third respondent’s Order [Refusal order] is quashed restoring the same for reconsideration subject to the outcome of the proceedings commenced with the Show Cause Notice dated 14.09.2022, but within four weeks therefrom - petition is allowed in part. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether issuance of a show cause notice under Section 74 of the CGST Act, 2017 premised on a review query about e-BRCs/FIRCs being possibly usable 'across other ports' affects jurisdiction to initiate proceedings against an exporter of software services. 2. Whether rejection of a refund claim for a subsequent period solely because a show cause notice was issued in relation to earlier refund periods is sustainable where earlier refunds were granted after examination of the same e-BRCs. 3. Whether the principles of finality/res judicata bar re-examination of substantially similar issues already considered when there is a fresh administrative review raising additional suspicion about the validity/application of documentary evidence (e-BRCs/FIRCs). 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legality and scope of issuance of Show Cause Notice under Section 74 CGST Act based on review observations about e-BRCs/FIRCs Legal framework: Section 74 (and related Section 73) of the CGST Act provide for adjudication and recovery in cases of tax evasion; administrative review may lead to issuance of show cause notices requiring adjudication. Precedent Treatment: No judicial precedents were cited or relied upon by the Court in the impugned order; the Court proceeded on statutory text and administrative/material facts. Interpretation and reasoning: The Court recognized that e-BRCs/FIRCs are issued under Foreign Exchange Management (Export of Goods and Services) Regulations, 2015 for specific invoices upon statutory declarations and involve defined procedures (declarations, uploading with authorities). The Tribunal observed that a generalized suspicion that such e-BRCs 'could possibly be used to claim refund across other ports' is incongruous in the context of software exports (which do not occur via physical ports) and given the transaction-specific nature of e-BRCs. The Court therefore required the adjudicating authority (second respondent) to examine the petitioner's specific defense and the documentary regime before deciding whether to continue proceedings. Ratio vs. Obiter: Ratio - administrative authorities must assess the nexus between e-BRCs and the unit/export transactions they purport to support; a review-based show cause must be grounded in facts that reasonably suggest misuse rather than speculative possibilities. Obiter - observations on the technical process for e-BRC issuance and software exports' non-port nature, while influential, serve primarily to frame the factual examination. Conclusion: Issuance of a show cause notice under Section 74 is not per se without jurisdiction, but where the issuing authority's concern is premised on speculative misuse inconsistent with the documentary regime and the nature of the export activity, the adjudicating authority must re-examine continuation of proceedings in the light of the taxpayer's specific rebuttal and documentary proof within a stipulated timeframe. Issue 2 - Validity of refusing a refund for a subsequent period solely because a show cause notice was issued earlier Legal framework: Administrative rejection of refund claims must be based on lawful grounds and proper adjudication; statutory remedies are available against refusals. Precedent Treatment: No precedent was directly applied; the Court adjudicated on the facts and procedural fairness. Interpretation and reasoning: The Court found it untenable that the refusal order for the later period rested only on the existence of a show cause notice relating to earlier periods, particularly where the critical issue (whether the e-BRCs related to the relevant unit) had been examined and earlier refunds granted. The Court emphasized that the existence of prior show cause proceedings does not automatically negate entitlement to refund for a later period when the same documentary evidence was previously accepted after scrutiny. Therefore the refusal order could not be sustained and was quashed and remitted for fresh consideration. Ratio vs. Obiter: Ratio - administrative refusal of refund cannot be sustained if it merely relies on the pendency or issuance of a separate show cause notice without fresh material or proper adjudication of the disputed claim. Obiter - procedural guidance on timelines and liberty to file documents. Conclusion: The refusal of the refund for the subsequent period was unlawful insofar as it was predicated solely on the show cause notice relating to earlier periods; the refusal order was quashed and the matter remitted for reconsideration subject to the outcome of the show cause proceedings. Issue 3 - Application of finality/res judicata principles where earlier similar refund claims were allowed Legal framework: Principles of finality and res judicata prevent re-litigation of issues finally adjudicated between the same parties; administrative decisions, once lawfully rendered after examination, inform subsequent adjudications. Precedent Treatment: The Court did not cite case law but applied res judicata principles factually. Interpretation and reasoning: The Court observed that two earlier refund applications involving the same e-BRCs were examined and allowed after consideration that the e-BRCs related to the Bengaluru unit (despite being addressed to the registered office in Kolkata). Given that the critical issue had been examined and refunds allowed, the administrative authority could not summarily reject a later refund application solely because a show cause notice was issued in relation to earlier periods. However, the Court also left open the authority's power to continue proceedings if fresh, cogent material justified re-examination-thus balancing finality with legitimate administrative review. Ratio vs. Obiter: Ratio - where an authority has previously examined and allowed refunds on the same foundational documents, subsequent adverse action must be supported by fresh/material reasons; mere issuance of a show cause notice on earlier periods does not automatically override prior findings. Obiter - the Court's direction permitting detailed responses and timelines. Conclusion: Prior administrative acceptance of the same e-BRCs imposes a burden on authorities to justify re-openers with specific fresh material; without such material, principles of finality constrain summary rejection of subsequent refunds. Remedial and procedural directions (operative conclusions) The Court quashed the refund refusal for the later period and remitted the matter to the appropriate authority for reconsideration within prescribed timeframes. The taxpayer was granted liberty to file a detailed response with additional documents within two weeks; the adjudicating authority was directed to decide on continuation of the show cause proceedings within four weeks from receipt of that response, and to reconsider the refund claim within four weeks of the order's quashing, subject to the outcome of the show cause proceedings.