ITC refund rejection upheld despite two-day delay as Section 54 time limit deemed directory not mandatory

Calcutta HC dismissed a writ petition challenging rejection of ITC refund claim. The refund application was rejected for failure to consider the claim within mandatory 60-day period under section 54(7), with authorities exceeding the deadline by two days. The court held that section 54's time limit is directory, not mandatory, as delay is remedied by section 56 providing interest on delayed refunds. The court applied statutory interpretation principles, considering legislative intent, consequences of rigid adherence, and that non-compliance doesn't defeat the provision's object. The impugned orders were found well-reasoned with no procedural infirmity or jurisdictional error warranting interference.

---

---

Issues Involved:
1. Legality of the rejection of the refund claim for unutilized Input Tax Credit (ITC).
2. Interpretation of the mandatory nature of the 60-day period under Section 54(7) of the CGST/WBGST Act, 2017.
3. Procedural adherence and the impact of the COVID-19 pandemic on statutory deadlines.
4. Justification for the rejection of the refund claim based on physical verification and discrepancies.

Detailed Analysis:

1. Legality of the rejection of the refund claim for unutilized Input Tax Credit (ITC):
The petitioner challenged the orders dated 24 February 2022 and 5 July 2023, which rejected their claim for a refund of unutilized ITC amounting to Rs. 78,45,666/-. The petitioner had applied for this refund under Section 54(3)(i) of the CGST/WBGST Act, 2017, read with Section 16(3) of the IGST Act, 2017, for exports made to Bhutan between February 2021 and August 2021. The application was acknowledged after a delay of two days from the statutory period of 15 days. The claim was found inadmissible, and a show cause notice was issued on 8 February 2022. The petitioner did not reply to the notice and requested an extension, which was denied, leading to the rejection order on 24 February 2022.

2. Interpretation of the mandatory nature of the 60-day period under Section 54(7) of the CGST/WBGST Act, 2017:
The petitioner argued that the respondents failed to consider the refund claim within the mandatory 60-day period stipulated under Section 54(7) of the Act, asserting that the term "shall" should be read as mandatory. Conversely, the respondents contended that the 60-day period is directory, not mandatory, as Section 54(7) is procedural. The court noted that the intention of the legislature must be considered, and the use of "shall" does not always imply a mandatory requirement. The court referenced multiple judgments, including C Bright vs District Collector and Ors., to support the interpretation that "shall" can be directory based on the context and legislative intent.

3. Procedural adherence and the impact of the COVID-19 pandemic on statutory deadlines:
The court acknowledged the impact of the COVID-19 pandemic, noting that the period from 1 March 2020 to 28 February 2022 was excluded from statutory deadlines by various notifications and orders, including a Supreme Court order. Consequently, the delay in acknowledging the refund application and passing the rejection order was excluded from the statutory period, validating the timing of the respondents' actions.

4. Justification for the rejection of the refund claim based on physical verification and discrepancies:
The Appellate Authority rejected the appeal on 5 July 2023, citing that the business premises were found unfit for conducting business and discrepancies in the goods transported. The petitioner failed to justify the objections raised in the show cause notice, and their request for an extension to reply was denied. The court emphasized that the petitioner was given ample opportunity to be heard but failed to comply within the mandatory period, leading to an ex-parte order rejecting the refund claim.

Conclusion:
The court found no procedural infirmity or contravention of law in the impugned orders. The decisions relied upon by the petitioner were deemed inapposite to the case facts. The court held that the provisions under Section 54(7) are directory, not mandatory, and the respondents acted within the legal framework, especially considering the pandemic-related extensions. Thus, the court dismissed WPA No. 1905 of 2023 without any order as to costs.

---