Bombay High Court-GST: Refund rejection order set aside where deficiencies found through SCN instead of Deficiency Memo and opportunity of being heard also not given:
Recently, in case of Knowledge Capital Services Private Limited Vs Union of Inda & Others [WRIT PETITION NO. 61 OF 2023] the Honorable Bombay High Court overturned the refund rejection order issued by the Goods and Services Tax (GST) authorities and reinstated the Form GST RFD-01. Notably, the department originally found no issues with the refund request and did not issue any deficiency memo, but later issued a show cause notice that identified several deficiencies. Regrettably, the affected party was also not given an opportunity to present their case.
In the instant case, the Petitioner had applied for a refund. The Petitioner received an acknowledgment under Form GST RFD-02 with a Nil remark, meaning, thereby, the application for refund was acknowledged. There were no lacunae pointed out under the said acknowledgment. No deficiency was pointed out; neither deficiency memo, as contemplated under Rule 90 (3) of the CGST Rules of 2017 in Form GST RFD-03, was issued to the Petitioner.
Later on, GST department found some deficiencies and on the basis of such deficiencies department issued a show cause notice to the Petitioner on 8 July 2022, proposing to reject the refund claim for the reason alleged in the defect sheet. According to the Petitioner, the defect sheet was never received by the Petitioner. Thereafter, the department passed an order on 25 July 2022, rejecting the refund claim without giving opportunity of being heard to the Petitioner.
Being aggrieved by the action taken by GST department, the Petitioner has filed petition before the Bombay High Court on the ground that no opportunity given to the Petitioner to rectify lacunae, and the deficiencies which are to be informed through Form GST RFD-03 were sent in a file attached in Form GST RFD-08. This deprived the Petitioner of submitting a fresh refund application as contemplated under Rule 90 (3) of the CGST Rules of 2017.
In the present case, Justice Abhay Ahuja and Justice Nitin Jamdar found that the methodology adopted by the Respondents in rejecting the application of the Petitioner for a refund is completely contrary to the scheme of the CGST Rules of 2017. The Petitioner was not given an opportunity to clear deficiencies, and the Petitioner was not given an opportunity of hearing before rejecting the refund application; the impugned order, therefore, cannot be sustained.
Accordingly, the impugned order dated 25 July 2022, passed by Respondent No.3- Assistant Commissioner of State Tax, was quashed and set aside.
It was held in the present case that the application of the Petitioner made under Form-GST-RFD-01 is restored to file. Thereafter, GST department will process the application as per the prescribed procedure from the stage of filing an application and decide whether the Petitioner is entitled to a refund on its own merits. If there are deficiencies in the Petitioner’s application, the same may be informed to the Petitioner as per Form-GST-RFD-03, and if not, the application be processed as per law. This exercise be carried out by Respondent No.3 within a period of twelve weeks from the date order is uploaded.