Refund of accumulated ITC for zero-rated supply remanded under Section 107 CGST Act for fresh decision

Delhi HC disposed of petitioner's appeal under Section 107 CGST Act regarding refund of accumulated ITC for zero-rated supply. Court held that proper officer's demand for BRCs, bank statements and supplier ledger accounts was not in conformity with Rule 92(3) CGST Rules as no deficiency memo was issued. Petitioner had furnished BRCs evidencing realization of export sale proceeds, making them eligible for refund under Section 16(3) IGST Act. However, regarding verification of payments to suppliers, court found adjudicating authority's satisfaction incomplete despite petitioner providing bank statements and supplier details. Matter remanded to adjudicating authority for fresh decision on limited question of whether petitioner made payments to suppliers for inward supplies.

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Issues Involved:

1. Discrepancy in invoices not reflected in GSTR-2A.
2. Requirement to provide E-Way bills of inward and outward supplies.
3. Requirement to provide Bank Realization Certificates (BRCs).
4. Requirement to provide bank statements and ledger accounts of suppliers.

Detailed Analysis:

Issue 1: Discrepancy in Invoices Not Reflected in GSTR-2A

The petitioner's application for refund was initially proposed to be rejected due to certain invoices not being reflected in the return (GSTR-2A) for November 2021. The petitioner responded to the Show Cause Notice (SCN) and the adjudicating authority accepted the explanation regarding these invoices. Therefore, this issue was resolved in favor of the petitioner and did not contribute to the final rejection of the refund application.

Issue 2: Requirement to Provide E-Way Bills of Inward and Outward Supplies

The petitioner was also required to provide E-Way bills for inward and outward supplies. The petitioner complied with this requirement, and the adjudicating authority was satisfied with the explanation provided. Consequently, this issue was also resolved and did not affect the final decision.

Issue 3: Requirement to Provide Bank Realization Certificates (BRCs)

The adjudicating authority rejected the petitioner's application for refund on the ground that the petitioner failed to provide BRCs. The appellate authority upheld this decision, reasoning that granting the refund would be an empty formality since the petitioner would have to re-deposit the amount due to non-receipt of sale proceeds within nine months.

However, the court noted that Section 16 of the IGST Act entitles the petitioner to a refund of unutilized ITC on export of goods. The definition of "export of goods" under Section 2(5) of the IGST Act does not include the condition of receiving payment in convertible foreign exchange, unlike "export of services" under Section 2(6).

Further, Circular No. 125/44/2019-GST clarified that realization of consideration is not a pre-condition for the export of goods. Therefore, the petitioner's claim for refund could not be rejected on the ground of non-furnishing of BRCs. Additionally, the petitioner did furnish BRCs during the appellate proceedings, which was ignored by the appellate authority. The court found that the reasoning of the appellate authority was flawed and that the petitioner's application for refund could not be rejected on this ground.

Issue 4: Requirement to Provide Bank Statements and Ledger Accounts of Suppliers

The petitioner was required to provide bank statements and ledger accounts of suppliers for further verification. Although the petitioner provided these documents, the adjudicating authority found them to be incomplete and rejected the refund application on this basis. The appellate authority upheld this decision but also referred to Section 16(2)(c) of the CGST Act, which requires that the tax charged on supply must be paid to the government.

The court noted that the SCN did not allege that the tax had not been deposited by the suppliers, making the reference to Section 16(2)(c) irrelevant. The adjudicating authority's apprehension was whether the petitioner had made payment for the inward supplies. The petitioner claimed to have provided the necessary details, and the court found it appropriate to remand the matter to the adjudicating authority for re-examination of whether the petitioner had made payments for the inward supplies.

Conclusion:

The court set aside the impugned order and the refund rejection order, remanding the matter to the adjudicating authority to re-examine whether the petitioner had made payments for the inward supplies. The petitioner was allowed to file necessary documents, and the adjudicating authority was directed to pass a reasoned order after providing an opportunity for a hearing. The petition was disposed of accordingly.

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