2025 (7) TMI 783 - HC - GST

Petitioner allowed to appeal GST refund rejection after delayed notice, second refund application processing ordered under Section 107

M/s. Sisla Laboratories Versus The Deputy Commissioner of CGST.

Delhi HC disposed of petition where petitioner sought processing of two GST refund applications from 2019. For first application, department claimed SCN ... Seeking processing of two refund applications - refund claim filed in 2019 and a letter to grant the refund has also been written in 2023, the same has not been processed till date - HELD THAT:- Rule 90(3) of the Central Goods and Services Tax Rules, 2017 (hereinafter, ‘the Rules’) requires that upon the filing of any application, if any deficiency is noted, the same has to be communicated to the applicant in Form GST RFD-03 through the common portal. The period during which the deficiencies are communicated is excluded from the period of two years to be calculated under Section 54(1) of the Act. After the deficiencies are communicated and the same are removed, an acknowledgement vide Form GST RFD-02 is issued. Once the deficiencies are removed, the refund is either sanctioned or rejected Form GST RFD-06. In the present case, insofar as the first application is concerned, the Department’s stand is that the SCN was issued and no reply was received and the same was rejected. However, the Petitioner’s case is that neither the SCN nor rejection order was uploaded on the portal. The refund application, according to the Petitioner, has been decided without giving an opportunity of hearing to the Petitioner - in view of the fact that the final order of rejection has already been passed in this matter on 19th September, 2019 which has come to the knowledge of the Petitioner only on 11th, February, 2025 after filing of the additional affidavit on behalf of the Department, this Court is of the opinion that the Petitioner’s remedies cannot be shut out. Accordingly, the Petitioner is permitted to file an appeal challenging the said order before the Appellate Authority under Section 107 of the Act. The stand of the Department is that the Form GST RFD-03 i.e., the deficiency memo which is stated to have been issued could not be traced. Therefore, there can be no ground on which the refund can be held back to the Petitioner. Petition disposed off. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court are:Whether the refund applications filed under Section 54(3) of the Central Goods and Services Tax Act, 2017 (hereinafter 'the Act') in 2019 should be processed by the Department despite significant delay and procedural irregularities.Whether the Department's rejection of the first refund application without uploading the Show Cause Notice (SCN) and rejection order on the common portal, thereby depriving the petitioner of knowledge and opportunity of hearing, is valid.Whether the failure of the Department to trace the deficiency memo (Form GST RFD-03) in respect of the second refund application justifies withholding the refund claim.Whether the petitioner should be permitted to file an appeal against the rejection order dated 19th September 2019 despite the delay in knowledge of the order.What is the correct procedural and substantive framework under the GST Act and Rules governing refund applications, including timelines and requirements for deficiency communication and appeal.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of Department's rejection of the first refund application without proper communication and opportunity of hearingLegal framework and precedents: The refund applications are governed by Section 54 of the GST Act. Section 54(1) mandates that an application for refund must be made within two years from the relevant date. Section 54(4) requires the application to be supported by documentary evidence unless the refund amount is below Rs. 2 lakhs. Section 54(7) requires the Department to pass an order within 60 days of receipt of a complete application. Rule 90(3) of the Central Goods and Services Tax Rules, 2017 requires the Department to communicate any deficiency in the application by issuing Form GST RFD-03 through the common portal, and the period during which deficiencies are communicated is excluded from the two-year limitation period. The petitioner must be given an opportunity of hearing before rejection.Court's interpretation and reasoning: The Department contended that the SCN dated 5th July 2019 and the consequential rejection order dated 19th September 2019 were uploaded on the portal and that three dates for personal hearing were fixed. The petitioner, however, denied knowledge of these documents, asserting that they were never uploaded, and thus, the rejection order was passed without giving an opportunity of hearing.The Court observed that the petitioner only became aware of the rejection order after the Department filed an additional affidavit in February 2025, nearly six years after the order was passed. This delay in communication deprived the petitioner of the opportunity to respond or appeal within the prescribed time.Key evidence and findings: The Department's own admission that the petitioner was not aware of the SCN or rejection order until 2025, and the petitioner's assertion that these documents were not uploaded on the portal, are critical. The Department's failure to upload the SCN and rejection order on the portal constitutes a procedural lapse.Application of law to facts: Since the petitioner was not given proper notice or opportunity to respond, the rejection order is effectively without jurisdiction. The Court emphasized that procedural fairness and adherence to statutory timelines are mandatory under the GST Act.Treatment of competing arguments: The Department's argument that the petitioner delayed submission of supporting documents until 2023 was rejected as the petitioner's lack of knowledge of the rejection order was a consequence of the Department's failure to upload the documents. The petitioner's right to be heard was paramount.Conclusion: The Court held that the petitioner's remedies cannot be shut out and permitted the petitioner to file an appeal against the rejection order before the Appellate Authority under Section 107 of the Act. The appeal was to be filed within one month and was to be adjudicated on merits without being dismissed on limitation grounds.Issue 2: Whether the Department's inability to trace the deficiency memo (Form GST RFD-03) in respect of the second refund application justifies withholding the refundLegal framework and precedents: Rule 90(3) mandates that any deficiency in the refund application must be communicated to the applicant via Form GST RFD-03. The deficiency communication period is excluded from the limitation period under Section 54(1). The refund application must be accompanied by requisite documents, and the Department cannot withhold refund without valid grounds.Court's interpretation and reasoning: The Department admitted that despite best efforts, the deficiency memo issued to the petitioner could not be traced. The Department also acknowledged that the petitioner submitted the requisite documents later, on 17th October 2023, but by then the matter was already before the Court.Key evidence and findings: The Department's affidavit explicitly stated the inability to trace the deficiency memo and that the petitioner had submitted the required documents physically only much later. There was no denial of submission of documents, only a procedural lapse in record-keeping by the Department.Application of law to facts: Since the deficiency memo was not traceable and the petitioner eventually submitted the documents, the Department had no valid ground to withhold the refund. The statutory framework requires the Department to process the refund if no valid deficiency exists.Treatment of competing arguments: The Department's argument that physical copies were not submitted at the time of filing was noted but did not justify withholding the refund since the deficiency communication was not properly recorded or communicated.Conclusion: The Court directed the Department to process the second refund application dated 12th June 2019 and refund the amount along with statutory interest within two months.Issue 3: Procedural timelines and remedies available to the petitionerLegal framework and precedents: Section 54(7) requires the Department to decide refund applications within 60 days of receipt of complete applications. Section 107 provides the right to appeal against orders passed under the Act. Rule 90(3) governs deficiency communications and their impact on limitation periods.Court's interpretation and reasoning: The Court emphasized strict compliance with timelines and procedural safeguards. It recognized the petitioner's right to appeal against the rejection order despite the delay in knowledge due to Departmental lapses.Key evidence and findings: The delay in processing and communication was attributable to the Department's failure to upload documents and maintain proper records.Application of law to facts: The Court applied the principles of natural justice and statutory provisions to ensure the petitioner's rights were protected and procedural lapses by the Department did not prejudice the petitioner.Treatment of competing arguments: The Court rejected the Department's reliance on procedural failings by the petitioner as a justification for withholding refunds or denying appeal rights.Conclusion: The petitioner was allowed to file an appeal within one month, which would be heard on merits without limitation objections. The second refund application was ordered to be processed expeditiously.3. SIGNIFICANT HOLDINGS'In view of the fact that the final order of rejection has already been passed in this matter on 19th September, 2019 which has come to the knowledge of the Petitioner only on 11th, February, 2025 after filing of the additional affidavit on behalf of the Department, this Court is of the opinion that the Petitioner's remedies cannot be shut out. Accordingly, the Petitioner is permitted to file an appeal challenging the said order before the Appellate Authority under Section 107 of the Act.''The stand of the Department in its affidavit is not that the documents were not submitted, rather that the deficiency memo is not traceable. In such circumstances, there is no valid ground to hold back the refund. The refund application dated 12th June, 2019 is, accordingly, directed to be processed and the amount to be refunded along with the statutory interest from the date of the second application i.e., 12th June, 2019 within a period of two months.'Core principles established include:Strict adherence to procedural requirements under the GST Act and Rules is mandatory, especially regarding communication of deficiencies and issuance of SCNs.Failure of the Department to upload or communicate critical documents on the common portal deprives the taxpayer of the opportunity of hearing and vitiates orders passed in such circumstances.The limitation period for filing appeals can be relaxed where delay is caused by Departmental lapses.Refund applications must be processed expeditiously and cannot be withheld on procedural grounds if the Department fails to maintain or communicate records properly.Taxpayers have a right to appeal and seek adjudication on merits notwithstanding procedural delays caused by the Department.Final determinations:The petitioner is permitted to file an appeal against the rejection order dated 19th September 2019 within one month, which shall be heard on merits without limitation objections.The second refund application dated 12th June 2019 is to be processed by the Department within two months, and the refund amount along with statutory interest is to be paid to the petitioner.The petition is disposed of accordingly, ensuring the petitioner's statutory rights under the GST Act are protected.