Refund denial order overturned due to lack of SCN and hearing opportunity.

Background of the Case

The Petitioner in this case sought a refund for several periods, submitting applications to the Respondents. Partial refunds were granted, but others were rejected via impugned orders. The Petitioner, aggrieved by the denial of certain refunds, filed a petition challenging these rejections. The principal grievance revolved around non-compliance with Rule 92(3) of the CGST Rules, 2017, which mandates a specific procedural framework for rejecting refund claims.

Understanding Rule 92(3) of CGST Rules, 2017

Rule 92(3) outlines the steps a proper officer must follow when processing refund applications. These include:

1. Issuance of Notice: If the officer is not satisfied with the refund claim, a notice (in Form GST RFD-08) must be issued to the applicant, stating reasons for rejecting the claim.
2. Reply by the Applicant: The applicant must be given an opportunity to respond to the notice within 15 days, using Form GST RFD-09.
3. Final Order: After considering the applicant's reply, the officer must pass an order (in Form GST RFD-06) sanctioning or rejecting the refund, which is communicated electronically.

The proviso to this rule ensures that no refund application can be rejected without giving the applicant a reasonable opportunity to be heard.

Issue

The Petitioner argued that the impugned orders rejecting refunds did not comply with the procedural requirements of Rule 92(3). While the Respondents claimed a hearing had been provided, they could not substantiate this assertion with evidence. Moreover, the issuance of a show-cause notice, as mandated by Rule 92(3), was not demonstrated.

Court's Findings

1. Non-Compliance with Rule 92(3): The court observed that the Respondents had failed to follow the procedural safeguards outlined in Rule 92(3). This included the absence of a show-cause notice and documented reasons for rejecting the refund claims.

2. Undertakings and Controversies: The Respondents highlighted that the Petitioner had furnished undertakings limiting their refund claims to specific periods. The Petitioner contended that these undertakings were submitted under duress, with a choice of either filing undertakings or forgoing refunds. The court refrained from adjudicating on the voluntary nature of these undertakings.

3. Re-Crediting to Electronic Ledger: It was noted that the Respondents had re-credited certain amounts in the Petitioner’s electronic credit ledger based on the undertakings filed.

Order of the Court

The court set aside the impugned orders rejecting the refunds, directing the Respondents to reconsider the refund applications afresh while strictly adhering to Rule 92(3). It clarified:

• The refund applications must be processed after issuing a notice, considering the Petitioner’s reply, and providing an opportunity of being heard.
• The matter was remanded to the Respondents for disposal in accordance with law.
• The court explicitly kept all contentions of the parties regarding the undertakings open for future deliberation.
• The Rule was made absolute without any order for costs.

GST Case Law Haren Textiles Private Limited

Citation-2024 TAXONATION 2818 (BOMBAY)

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