In a recent ruling, the Bombay High Court has quashed refund rejection orders issued by the tax authorities on 25 April 2024, citing a violation of the procedural requirements under Rule 92(3) of the Central Goods and Services Tax (CGST) Rules, 2017. The case serves as an important reminder of the importance of providing a reasonable opportunity to be heard before rejecting refund applications and underscores the significance of adhering to the principles of natural justice and fair play in administrative proceedings.

The petitioner, seeking a refund under the Goods and Services Tax (GST) regime, applied for the refund in February 2024. Subsequently, the Respondents issued a show-cause notice to the petitioner on 3 April 2024, questioning why the refund application should not be rejected. The show-cause notice provided the petitioner with 15 days to respond, in accordance with the provisions of Rule 92(3) of the CGST Rules. The petitioner filed a response by 16 April 2024, which was uploaded to the department's website on 17 April 2024.

However, the refund rejection orders were issued on 25 April 2024, just eight days after the petitioner's reply. Interestingly, the rejection orders did not mention any personal hearing, despite Rule 92(3) mandating a reasonable opportunity to be heard before any rejection of a refund claim.

The respondent, in its defense, claimed that the petitioner had been given a personal hearing on 8 April 2024, as per the details shown in FORM GST-RFD-01, which the respondent submitted as evidence. This screenshot indicated a personal hearing, but the petitioner denied ever having been informed about such a hearing. The petitioner also noted that the show-cause notice had stated that the date and time of the hearing would be intimated to the petitioner, but there was no concrete proof of this intimation.

According to the petitioner, the statutory framework under Rule 92(3) requires a hearing to be provided after the petitioner has submitted their response within the prescribed 15-day window. Since the petitioner had submitted their response by 16 April, any hearing scheduled before that date was not in compliance with the procedural fairness envisaged by the rules.

Rule 92(3) of the CGST Rules, 2017 provides the following procedural steps for the rejection or sanctioning of refund claims:

If the proper officer determines that any part of the refund claim is not admissible, they must issue a notice (GST RFD-08) asking the applicant to respond within 15 days.

After considering the applicant's reply, the officer must make an order (GST RFD-06) either sanctioning or rejecting the refund claim, and the order must be made available to the applicant electronically.

Importantly, the proviso to Rule 92(3) requires that no refund claim shall be rejected without giving the applicant a reasonable opportunity to be heard.

This ensures that the refund process is not just a formal procedure but one that provides taxpayers with the fair opportunity to contest the rejection of their claim before an order is passed.

The Bombay High Court examined the facts of the case and noted the following key points:

Violation of Rule 92(3): The Court found that the rejection orders issued on 25 April 2024 did not adhere to the requirements of Rule 92(3), specifically the requirement for a reasonable opportunity to be heard before rejecting the refund claim. The Court emphasized that the hearing, if any, should have been scheduled after the petitioner had filed their reply in accordance with the prescribed timeline.

Failure to Intimate the Hearing: Despite the respondent’s claim of a hearing on 8 April 2024, the Court found no convincing evidence that the petitioner had been intimated about the hearing in a clear and transparent manner. The failure to properly inform the petitioner about the hearing time violated the principles of natural justice.

Natural Justice and Fair Play: The Court reaffirmed that administrative decisions must follow the principles of natural justice, which include giving parties a fair opportunity to present their case. In this case, the failure to give the petitioner a proper hearing was a clear breach of these principles.

Remand for Fresh Consideration: Given the procedural violations, the Court quashed the refund rejection orders and remanded the matter back to the authorities for fresh consideration. The Court directed the respondent to reconsider the petitioner’s refund application, ensuring that the petitioner is provided a proper opportunity to be heard before any decision is made. The Court also set a timeline of four weeks for this process to be completed.

This ruling highlights the importance of compliance with procedural fairness in administrative matters, particularly in the context of GST refund applications. It serves as a reminder that tax authorities must respect the due process of law and ensure that taxpayers are provided with a clear and reasonable opportunity to be heard before decisions are made. It also underscores the necessity for proper communication between the authorities and taxpayers, particularly in relation to hearings and other key procedural steps.

For businesses and taxpayers, this judgment emphasizes the need to be vigilant about their rights under the GST framework, especially when dealing with complex refund applications. The decision provides a much-needed safeguard against arbitrary decisions that could potentially harm businesses by denying them rightful refunds without proper consideration.

The Bombay High Court’s decision to quash the refund rejection orders in this case reinforces the importance of adherence to the procedural safeguards laid down in the CGST Rules. By emphasizing the requirement for a reasonable opportunity to be heard, the Court has ensured that taxpayers are not subjected to arbitrary decisions, maintaining the integrity of the tax administration process. The ruling will likely have broader implications for the handling of refund claims under the GST regime, encouraging more transparent and fair practices in the future.