InW.P. (C) 9742/2023 -DEL HC- Delhi High Court rules refund applications cannot be arbitrarily rejected based on discrepancies;Taxpayers must be given opportunity to explain
Justice Vibhu Bakhru & Justice Amit Mahajan [25-07-2023]

Read Order: M/s Shivbhola Filaments Private Limited V. Assistant Commissioner CGST &Anr.

Chahat Varma

New Delhi, August8, 2023: The Delhi High Court has ruled in favour of M/s Shivbhola Filaments Private Limited (petitioner), highlighting that the refund applications cannot be arbitrarily rejected solely based on discrepancies without affording taxpayers the opportunity to provide explanations.

Brief background of the case was that the petitioner, involved in the production of Polypropylene Yarn and Polypropylene narrow woven fabric, which fall under GST rates of 12% and 5% respectively, faced an issue with the inverted tax structure. The petitioner contended that raw materials used in manufacturing (Granules, Master Batch, Spin Finish Oil) were taxed at 18%, leading to an inability to fully credit input tax payments against its output tax liability. The petitioner sought refunds for tax periods between August 2018 and March 2019. However, refund applications were rejected due to discrepancies in comparison with GSTR 2A returns. Aggrieved by the said rejection orders, the petitioner preferred appeals before the Appellate Authority under Section 107 of the Central Goods and Service Tax Act. Unfortunately, these appeals were met with a common dismissal through an Order-in-Appeal dated 18.11.2021.

The bench comprising of Justice Vibhu Bakhru and Justice Amit Mahajan observed that while the Appellate Authority had identified concerns leading to partial refund rejection, it had failed to assess the legitimate refund amount. The bench stressed that it was inappropriate for authorities to reject refunds without providing the taxpayer an opportunity to rectify discrepancies and offer explanations.

Consequently, the bench set aside the Order-in-Appeal dated 18.11.2021 and the order dated 31.12.2020 issued by the Adjudicating Authority. The bench restored the petitioner's refund applications and instructed the Adjudicating Authority to reassess the due refund amount, allowing the petitioner to provide explanations and reconcile discrepancies.