inverted duty refund rejected as itc claimed cancelled dealers in past period

[satbir singhwahi]

Sir Inverted duty refund rejected on two grounds

1. Claimant availed ITC from the cancelled/suspended suppliers but no bill in current period of refund filed.

2. Person violates the provision of Rule 86B, no violation as paying Income tax 9 to 10 lacs each year. Kindly guide to file appeal with case laws 

[Sadanand Bulbule]

1. Refund under Section 54(3) read with Rule 89(5) is based on closing balance of ITC ledger relatable to inputs used for outward supplies during the refund period. The refund claim period is distinct from the time of ITC availment.

2. If no invoices of cancelled suppliers are included in the refund period, and those invoices were already availed in earlier valid periods (and not disputed under Section 73/74), refund cannot be denied merely because supplier’s registration was later cancelled.

3.Section 16(2)(a) requires supplier to be registered at the time of supply, not to remain registered forever. Subsequent cancellation does not invalidate past supplies.

4. No refund adjudication can travel beyond eligibility of ITC unless the ITC itself has been disputed and reversed through a separate proceeding (Rule 92(3)).

 Judicial Precedents

Om Textile vs. Union of India (2023-VIL-403-GUJ): Refund cannot be denied merely on suspicion of supplier irregularity unless the ITC is first held ineligible by a proper proceeding under Section 73/74.

VKC Footsteps India Pvt. Ltd. vs. UOI 2021 (9) TMI 626 - Supreme Court – though on formula issue, reaffirmed that refund determination must follow Section 54(3) scope; department cannot enlarge conditions not in the law.

R.S. Enterprise vs. Asst. Commr. of State Tax (Calcutta High Court, 2023) – held that refund rejection on supplier’s later cancellation is unsustainable when ITC was taken during supplier’s valid registration period.

Bhagwati Components Manufacturing Co. vs. UOI (2024-VIL-61-Raj) – ITC cannot be denied unless proceedings are initiated against the buyer; refund rejection without such adjudication violates natural justice

[satbir singhwahi]

Thanks Sir 

[satbir singhwahi]

Sir Pls guide how to get TMI citations of above cases

[satbir singhwahi]

  - Arise India Ltd. v. Commissioner of Trade & Taxes [2017 (10) TMI 1020 - DELHI HIGH COURT] – denial of ITC for supplier’s default violates Article 14. 

  - Quest Merchandising India Pvt. Ltd. v. Govt. of NCT of Delhi [2017 (10) TMI 1020 - DELHI HIGH COURT] – ITC denial without showing collusion of buyer unsustainable. 

  - On Quest Merchandising affirmed by Supreme Court in SLP dismissal [2018 (1) TMI 555 - SC Order]. 

  - Surat Mercantile Co-op Bank Ltd. v. Union of India [2021 (1) TMI 1096 - GUJARAT HIGH COURT] – bona fide recipient eligible for ITC if conditions of Section 16 are satisfied. 

Sir how to get TMI citations of above cases

[Sadanand Bulbule]

Plz open "Case Laws" head and search for the desired case laws. Its very simple.

For example:

2018 (1) TMI 555 - SC Order Commissioner of Trade And Taxes Delhi Versus Arise India Limited

 

[KASTURI SETHI]

I fully endorse the views of Sh. Sadanand Bulbule, Sir.

[satbir singhwahi]

Thanks Sir

[Shilpi Jain]

Also have a look at this decision regarding Rule 86B - AM Enterprises - 2024 (9) TMI 1485 - HIMACHAL PRADESH HIGH COURT

What do you mean by "no bill in the current period of return filed"?

 

[satbir singhwahi]

Thanks ji 

AI Summary

Inverted duty refund entitlement cannot be denied merely due to supplier cancellation; ITC must be adjudicated before denial. Rejection of an inverted duty refund because ITC was earlier availed from suppliers later cancelled is unsustainable where the ITC was validly taken and not reversed by separate adjudication. Refund entitlement is determined by the ITC ledger for the refund period, distinct from time of availment; subsequent supplier cancellation does not invalidate past supplies absent proceedings reversing the ITC. Rule 86B compliance must be assessed on statutory criteria and cannot substitute for adjudication on ITC eligibility.