In a recent ruling of Haren Textiles Private Limited, Mumbai v/s Deputy Commissioner of State Tax, Mumbai, a petition challenging the denial of Goods and Services Tax (GST) refunds was considered by the court. The petitioner had sought a refund from the respondents for certain periods, but some portions of the refund claims were rejected. The petition primarily raised concerns over the non-compliance with the procedural requirements laid down in Rule 92(3) of the Central Goods and Services Tax (CGST) Rules, 2017.
The Issue at Hand:
The petitioner had filed for a refund based on the GST paid on exports and inverted duty structure for various periods, including July 2022, August 2022, and September 2022. While refunds were granted for some periods, others were denied. The primary grievance was the failure of the authorities to follow Rule 92(3), which outlines the process for sanctioning or rejecting a refund claim.
Under Rule 92(3) of the CGST Rules, when a proper officer is satisfied that a portion of the refund claim is either not admissible or not payable, they must issue a notice to the applicant in the prescribed form (GST RFD-08). The notice requires the applicant to provide a response (GST RFD-09) within 15 days. After considering the reply, the officer is expected to make a formal order, either approving or rejecting the refund claim. The proviso to the rule further stipulates that no refund application should be rejected without providing the applicant a reasonable opportunity of being heard.
The petitioner contended that the provisions of Rule 92(3) were not adhered to in their case, especially the requirement of giving a show-cause notice and an opportunity to respond before a rejection could be made.
The Court’s Ruling:
The court, after considering the arguments and reviewing the process followed by the respondents, found that the necessary procedural safeguards under Rule 92(3) had not been followed. The court observed that the respondents had failed to issue a show-cause notice as required by the rule, denying the petitioner an opportunity to present their case before the refund claim was rejected.
As a result, the court set aside the impugned orders that denied the refund, directing the respondents to reconsider the matter in compliance with the requirements of Rule 92(3). The court emphasized that the respondents must issue a proper notice to the petitioner, consider their response, and then make a reasoned decision regarding the refund.
The Undertakings Provided by the Petitioner:
The respondents, through an affidavit, stated that the petitioner’s representative had been given an opportunity to submit undertakings, agreeing not to pursue refunds for certain export periods, except for the disputed periods of July, August, and September 2022, and the inverted duty structure claim. The petitioner did not dispute the submission of these undertakings but raised concerns about the implications of these undertakings on the refund process.
The petitioner argued that they were given a choice to either submit the undertakings or forgo refunds for periods that were not in dispute. However, the court refrained from adjudicating on the validity or the impact of these undertakings at this stage. Instead, it focused on the procedural irregularity of the refund rejection process and set aside the impugned orders, restoring the matter to the concerned authorities for fresh consideration in accordance with the law.
Legal Implications and Conclusion:
The court's decision underscores the importance of adhering to procedural safeguards in tax matters, particularly when it comes to refund claims. Rule 92(3) is clear in its requirement that before a refund claim can be rejected, the applicant must be given an opportunity to be heard, supported by a show-cause notice and an explanation process.
By setting aside the rejection orders, the court has reinforced the principle that taxpayers must be given a fair opportunity to present their case before any denial of refunds. This decision not only serves as a reminder of the procedural requirements under the CGST Rules but also emphasizes that administrative authorities must ensure due process is followed in all such matters.
The case remains significant for businesses and tax professionals, as it highlights the critical role of compliance with statutory procedures in ensuring fairness and transparency in the refund process under GST law. The matter has now been restored to the concerned authority for fresh disposal, with all the parties’ contentions, including those related to the undertakings, left open for resolution.
This ruling is a valuable reference point for understanding the application of Rule 92(3) and the broader principles of natural justice in the realm of tax administration.
CENTRAL GOODS AND SERVICES TAX ACT, 2017
