Rejection of refund application without granting opportunity of hearing is violative of principle of natural justice

Last updated: 11 August 2023

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Quick Summary

The Delhi High Court has ruled that rejecting refund applications without giving the applicant a chance to be heard is unlawful. In the case of M/s Shivbhola Filaments Private Limited, the court found that the refund applications were rejected solely based on discrepancies between GSTR-3B and GSTR-2A, without allowing the company to reconcile these differences. The court has restored the refund applications and ordered the authorities to reconsider them, ensuring the company is given a full opportunity to present its case.

Court :
Delhi High Court

Brief :
The Hon'ble Delhi High Court in M/s Shivbhola Filaments Private Limited. v. Assistant Commissioner of CGST [W.P.(C) 9742/2023 dated July 25, 2023] restored the refund application rejected by the Adjudicating Authority and held that the assessee would not be left unheard.

Citation :
W.P.(C) 9742/2023 dated July 25, 2023

The Hon'ble Delhi High Court in M/s Shivbhola Filaments Private Limited. v. Assistant Commissioner of CGST [W.P.(C) 9742/2023 dated July 25, 2023] restored the refund application rejected by the Adjudicating Authority and held that the assessee would not be left unheard.

Facts

M/S Shivbhola Filaments Private Limited ("the Petitioner") is engaged in the manufacturing of Polypropylene Yarn and Polypropylene narrow woven fabric, which are subject to GST @ 12% @ 5%, respectively.
The Petitioner claimed that raw materials used for manufacturing the product (Granules, Master Batch, Spin Finish Oil) are chargeable to GST @18% due to the inverted tax structure, the Petitioner was unable to avail the entire input tax credit paid by it on inputs.

In the aforesaid circumstance, the Petitioner filed refund applications for various tax periods from August, 2018 to March 2019. However, the Petitioner received the notice of rejection of application for refund ("the SCN") in respect of each refund application filed by him.

The SCN rejected the refund on the ground of mismatch between the GSTR-3B and GSTR-2A.

In response, the Petitioner submitted reconciliation and for each tax period. However, the Revenue Department rejected the refund application and challenged the same before the Appellate Authority under Section 107 of the Central Goods and Service Tax Act, 2017 ("the CGST Act"). The said appeals have been rejected by a common Order-in-Appeal dated November 18,2021 ("the Impugned Order") without offering opportunity of being heard.

The Petitioner filed write before the Hon'ble Delhi High Court challenging the Impugned Order.

Issue

Whether rejection of the refund applications solely on the basis of mismatch between GSTR-3B and GSTR-2A was justified?

Held

The Hon'ble Delhi High Court in W.P.(C) 9742/2023 held as under:

Observed that, the rejection of the Petitioner's refund applications based on mismatches without providing them with an opportunity to reconcile and the discrepancies is deemed inappropriate and unfair.
Restored the Petitioner's refund applications instructed the Adjudicating Authority to reconsider and reassess case.
Further stated that the Petitioner will be granted the opportunity to present their case.
Directed the Adjudicating Authority to review the Petitioner's submissions, explanation, and reconciliation statement and to issue a comprehensive and well-reasoned decision regarding the refund applications.

FAQ :

The main issue was whether rejecting refund applications solely based on a mismatch between GSTR-3B and GSTR-2A, without providing an opportunity for the applicant to be heard, was justified.

The Delhi High Court decided that rejecting refund applications without granting an opportunity of hearing violates the principle of natural justice and restored the refund applications.

The refund applications were initially rejected by the Revenue Department on the grounds of a mismatch between the GSTR-3B and GSTR-2A filings.

The court instructed the Adjudicating Authority to reconsider and reassess the case, review the petitioner's submissions and reconciliation statements, and issue a well-reasoned decision on the refund applications.

The principle of natural justice refers to fundamental rules of fairness, including the right to be heard before a decision is made that affects one's rights or interests.