Refund claim for unutilized ITC in zero-rated supplies must be considered despite technical filing errors under Clause 7(c)

The HC held that the petitioner's refund claim for unutilized ITC used in zero-rated supplies, initially filed under Clause 7(c), could not be rejected due to a technical error in categorizing a supplementary refund application. Since the petitioner had no option but to file the supplementary claim under a different category due to portal restrictions, the claim for the differential refund amount arising from an arithmetical error must be examined on merits. The court ruled that denial of a refund on mere technical grounds is impermissible when substantive conditions are met. The respondents were directed to accept manual submission of the refund application for the outstanding amount of Rs. 10,20,28,733/-. The petition was allowed.

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Issues Involved:

1. Entitlement to Refund of Unutilized ITC.
2. Technical Error in Refund Claims Submission.
3. Legal Provisions Governing Refunds.
4. Judicial Precedents and Their Applicability.

Summary:

1. Entitlement to Refund of Unutilized ITC:
The petitioner, engaged in the sugar industry, sought a refund of unutilized Input Tax Credit (ITC) for zero-rated supplies as per Section 16 of the IGST Act and Section 54(3) of the CGST Act. The petitioner claimed an aggregate refund of Rs. 1,10,67,67,172/- for 11 months during FY 2020-2021 and 2021-2022 but due to an arithmetical error, only Rs. 1,00,47,38,439/- was claimed and sanctioned. The petitioner later filed supplementary claims for the remaining Rs. 10,20,28,733/-, which were rejected by the respondents on the basis that the category under which the supplementary claims were lodged was not applicable.

2. Technical Error in Refund Claims Submission:
The petitioner claimed that the error was due to an inadvertent arithmetical mistake by an employee. Upon realizing the error, supplementary refund claims were filed under the "any other" category since the portal did not allow multiple claims under the same category for the same period. The respondents rejected these supplementary claims without giving an opportunity for a hearing, citing procedural grounds.

3. Legal Provisions Governing Refunds:
The court referred to Sections 54(3) and 16 of the CGST and IGST Acts respectively, and Rule 89(4) of the CGST Rules, which provide the formula for calculating the refund of unutilized ITC. The court noted that the substantive conditions for the refund were met and that the technical error in the category of the refund claim should not lead to outright rejection.

4. Judicial Precedents and Their Applicability:
The court cited several precedents, including the Supreme Court's decision in VKC Footsteps India Private Ltd., which emphasized that refund is a statutory prescription and the legislature can define the circumstances under which it is granted. The court also referred to decisions in Bombardier Transportation India Pvt. Ltd., Bodal Chemicals Ltd., and Stitchwell Garments, which held that technical glitches should not deny substantive rights.

Conclusion:
The court allowed the petition, quashed the impugned orders, and directed the respondents to allow the petitioner to furnish the refund applications manually. The respondents were instructed to scrutinize the claims on their merits and make a decision within six weeks. The court emphasized that benefits should not be denied due to technical errors when substantive conditions are satisfied.

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