GST refund rejection quashed for failing to follow Section 54 procedures and denying hearing opportunity

Bombay HC quashed GST refund rejection order for procedural violations. Petitioner sought ITC refund for export services under Letter of Undertaking without IGST payment. Tax authorities rejected refund without following statutory procedure under Section 54 IGST Act and CGST Rules. No deficiency memo (Form GST RFD-03) was issued, no opportunity for hearing provided, and defects were improperly communicated through attachment in rejection form. HC held rejection violated natural justice principles and mandatory procedural requirements. Refund application restored to file for fresh consideration following proper statutory procedure.

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Issues Involved:
1. Legality of the refund rejection procedure.
2. Adherence to statutory provisions and principles of natural justice.
3. Proper use of prescribed forms under CGST Rules, 2017.

Summary:

1. Legality of the refund rejection procedure:
The Petitioner challenged the refund rejection order dated 25 July 2022 issued by Respondent No. 3, the Assistant Commissioner of State Tax. The Petitioner, engaged in providing information technology-enabled services, had exported services under a Letter of Undertaking without payment of integrated tax, claiming a refund of accumulated Input Tax Credit (ITC) amounting to Rs. 9,63,033/- for the period from April 2020 to March 2021. The refund application was filed on 1 July 2022. Respondent No. 3 issued a show cause notice on 8 July 2022, proposing to reject the refund claim based on a defect sheet that was allegedly never received by the Petitioner. Consequently, the refund claim was rejected on 25 July 2022.

2. Adherence to statutory provisions and principles of natural justice:
The Petitioner contended that the rejection procedure was contrary to law and breached principles of natural justice. The statutory provisions governing refunds under Section 16 of the IGST Act, 2017, and Section 54 (1) of the CGST Act, 2017, were elucidated. Rule 89 of the CGST Rules, 2017, provides the procedure for refund applications, and Rule 90 outlines the process for acknowledging and scrutinizing applications. Rule 92 prescribes the procedure for issuing refund orders. The Petitioner received an acknowledgment under Form GST RFD-02 with no deficiencies noted. However, instead of issuing a deficiency memo in Form GST RFD-03 as required, Respondent No. 3 issued a show cause notice in Form GST RFD-08, attaching a file with deficiencies, which was not part of the reply affidavit.

3. Proper use of prescribed forms under CGST Rules, 2017:
The Court noted that the deficiencies should have been communicated through Form GST RFD-03, allowing the Petitioner to rectify them and resubmit the application. The use of Form GST RFD-08 for rejection without prior communication of deficiencies deprived the Petitioner of an opportunity to address the issues. The statutory forms under the CGST Rules, 2017, ensure uniformity, clarity, compliance, and efficiency. The improper use of forms led to needless litigation and violated the prescribed procedure.

Judgment:
The Court found that the methodology adopted by the Respondents was contrary to the CGST Rules, 2017. The Petitioner was not given an opportunity to rectify deficiencies or a hearing before the refund rejection, violating Rule 92 (3) of the CGST Rules, 2017. Consequently, the impugned order dated 25 July 2022 was quashed and set aside. The Petitioner's application under Form-GST RFD-01 was restored, and Respondent No. 3 was directed to process the application as per the correct procedure and inform the Petitioner of any deficiencies using Form-GST RFD-03. The entire process was to be completed within twelve weeks from the date of the order upload. The writ petition was allowed accordingly.

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