Calcutta HC Sets Aside GST Order Rejecting Refund Without Hearing

Gaurav Agarwal Vs Assistant Commissioner (Calcutta High Court)

Calcutta High Court has set aside an order by the Goods and Services Tax (GST) Appellate Authority that rejected a refund appeal filed by Gaurav Agarwal. The High Court’s decision, which highlighted a series of procedural irregularities and a lack of opportunity for hearing, has remanded the matter for a fresh adjudication on its merits. The ruling underscores the judiciary’s commitment to ensuring that tax authorities adhere to fundamental principles of natural justice and fair play.

The case revolved around Gaurav Agarwal’s claim for a refund of Input Tax Credit (ITC) amounting to ₹97,45,520, related to the export of goods and services without payment of integrated tax for the period of January to March 2020.

Chronology of Events and Procedural Breaches

The sequence of events leading to the High Court’s intervention revealed several points of contention:

1. Initial Refund Application: Gaurav Agarwal filed a refund application in Form GST RFD-01 under Section 54 of the Central Goods and Services Tax Act, 2017 (CGST Act) on August 17, 2021.

2. Registration Cancellation: Before the refund application could be processed, the petitioner’s GST registration was cancelled by the Assistant Commissioner on October 4, 2021. This cancellation was made with retrospective effect from October 25, 2019, based on a finding that the petitioner was “non-existent at the declared place of business.”

3. Refund Rejection (Without Hearing): Critically, on October 5, 2021—the very next day after the registration cancellation—the petitioner’s refund application was rejected via an order in Form GST RFD-06. The sole stated reason for rejection was the cancellation of the petitioner’s registration. According to the petitioner, no opportunity of hearing was provided, nor was a show cause notice (Form GST RFD-08, as required under Rule 92(3) of the CGST Rules, 2017) issued prior to this rejection.

4. Appeal Against Cancellation & Restoration of Registration: The petitioner appealed the cancellation of registration on October 20, 2021. This appeal was successful, and the petitioner’s GST registration was restored with retrospective effect from October 25, 2019, by an order of the Senior Joint Commissioner, State Tax, Kolkata South Circle, on March 28, 2022.

5. Post-Restoration Pursuit of Refund: Immediately after the restoration of registration, Gaurav Agarwal approached the Assistant Commissioner for the refund. He claimed he was instructed to file an application in Form GST PMT-03, which he did on June 15, 2022. This form, as highlighted by the Appellate Authority, contained an undertaking that the petitioner would not file an appeal regarding the refund determination.

6. Continued Non-Crediting of Refund: Despite the restored registration and the PMT-03 application, the ₹97,45,520 was not credited to the petitioner’s electronic credit ledger. The petitioner’s grievances lodged with public grievance officers also yielded no results.

7. Appeal Rejection (Delay & Undertaking): Unable to file a fresh refund application for the same period, the petitioner filed an appeal against the original refund rejection order (dated October 5, 2021), albeit with a delay of four and a half months. The Appellate Authority rejected this appeal on December 11, 2023, primarily on two grounds: the delay in filing the appeal and the declaration given in Form GST PMT-03 not to file an appeal.

High Court’s Critical Observations and Directives

The Calcutta High Court, after hearing both sides, expressed strong disapproval of the tax authorities’ conduct. The Court termed the Appellate Authority’s handling of the matter as “reckless” and the concerned respondent’s conduct “deplorable.”

The High Court’s key observations were:

• Violation of Natural Justice in Refund Rejection: The Court noted that the initial rejection of the refund application (Form GST RFD-06) was done “even without a show-cause” and without providing an opportunity of hearing. Rule 92(3) of the CGST Rules, 2017, explicitly mandates the issuance of a notice in Form GST RFD-08 and an opportunity of hearing before rejecting a refund application. Several High Courts, including the Bombay High Court in Credit Agricole CIB Services Private Limited vs. Union of India & Ors. (2024) and other similar rulings, have consistently held that rejection of refund claims without a show cause notice and hearing violates natural justice principles.
• Automatic Restoration of Refund (Implied): The Court highlighted that once the petitioner’s registration was retrospectively restored with effect from October 25, 2019, the only stated ground for refund rejection (cancellation of registration) ceased to exist. Therefore, “ordinarily the petitioner’s refund application ought to have been restored as well.” This suggests an implied consequence of registration restoration on related claims, particularly where the sole ground for rejection was the cancelled status. While specific judicial precedents mandating automatic restoration of refund on restoration of registration might vary, the principle of logical consequence and avoiding absurd outcomes would apply.
• Invalidity of Undertaking: The Appellate Authority’s reliance on the undertaking given in Form GST PMT-03 was implicitly rejected. The Court found it illogical that the petitioner was made to “suffer for no fault of his own” and had to “run from pillar to post” despite his registration being restored. The fact that the refund was not credited even after the PMT-03 application indicated that the undertaking was given under circumstances where the petitioner had no other recourse, and the department failed to fulfill its part. Courts generally view undertakings given under duress or where the other party fails to act in good faith with skepticism.

Judicial Precedents on Natural Justice:

The consistent stance of High Courts has been that any adverse order passed without providing a proper show cause notice and an effective opportunity of hearing is a violation of the principles of natural justice, specifically audi alteram partem (hear the other side). The Supreme Court in M/s. Gorkha Security Services vs. Government (NCT of Delhi) and Others [(2014) 9 SCC 105] and numerous other cases, has emphasized the imperative of a proper and clear show cause notice as the foundation for any adverse administrative action.

Remand for Fresh Adjudication

In light of these findings, the Calcutta High Court set aside the Appellate Authority’s order dated December 11, 2023. The matter was remanded back to the Appellate Authority for a fresh hearing on merits. The Court specifically directed that:

• A different officer from the one who previously handled the matter should deal with it.
• The appeal should be heard and disposed of as expeditiously as possible, preferably within three weeks.
• A reasoned order must be passed after providing a full opportunity of hearing to the petitioner.
• If the petitioner is found entitled to the refund, it shall carry appropriate statutory interest and be credited to the petitioner’s credit ledger forthwith.

This judgment serves as a strong reminder to tax authorities about the importance of procedural fairness, the necessity of proper show cause notices before passing adverse orders, and the logical implications of restoring a taxpayer’s registration. It offers considerable relief to businesses facing similar challenges in the GST regime.

FULL TEXT OF THE JUDGMENT/ORDER OF CALCUTTA HIGH COURT

1. Challenging the order dated 11^thDecember, 2023 rejecting the appeal under Section 107 of the Central/West Bengal Goods and Services Tax Act, 2017 (hereinafter referred to as the “said Act”) whereby the Appellate Authority refused to entertain the same, inter alia, on the ground that the petitioner had given a declaration that the petitioner shall not file appeal from the refund application in Form GST RFD 01 dated 17t^h August, 2021 while making the claim in form GSTPMT-

2. Delay in preferring the appeal was also one of the grounds for rejection of the appeal.

3. Records would reveal that the petitioner had filed an application in Form GST RFD 01 under Section 54 of the said Act on 17^th August, 2021, seeking refund of Input Tax Credit on export of goods and services without payment of integrated tax amounting to Rs.97,45,520/- for the tax period from January, 2020 to March, 2020. Unfortunately, before the refund application could be disposed of, the registration of the petitioner was cancelled by the respondent no.1 on 4th October, 2021 with effect from 25^th October, 2019 on the basis of a finding that the petitioner was non-existent at the declared place of business. Records would reveal that on the very next date, the petitioner’s refund application was rejected by a refund rejection order in Form GST RFD 06 dated 5t^h October, 2021 under Section 54 of the said Act on the ground that the petitioner’s registration was cancelled. According to the petitioner, while rejecting the petitioner’s refund application no opportunity of hearing was provided, no show cause notice as is required to be issued in RFD 08 in terms of Rule 92(3) of the CGST Rules, 2017 (hereinafter referred to as the “said Rules”) prior to rejection of refund application was issued. The petitioner had thereafter filed an appeal challenging the order of cancellation of registration on 20t^h October, 2021. As would appear from the statement made in the writ petition that the registration of the petitioner under the said Act was restored with effect from 25th October, 2019 in terms of the order passed by the Senior Joint Commissioner, State Tax, Kolkata South Circle on 28t^h March, 2022. Immediately upon restoration of the petitioner’s registration, the petitioner approached the respondent no.1 for refund whereupon the petitioner claims that he had been instructed to file an application in Form PMT 03 and accordingly on 15t^h June, 2022, the petitioner had filed such application. Unfortunately, despite the above, the amount of Rs.97,45,520/- was not credited to the petitioner’s credit ledger. The petitioner appears to have lodged a grievance with the public grievance officer and the grievance cell, unfortunately, no steps were taken by the respondents. The petitioner also could not file a fresh application for refund in GST RFD 01 for the selfsame tax period January, 2020 to March, 2020 and in such circumstances had filed an appeal, but in the process as aforesaid, there was a delay of four and a half months. The said appeal filed by the petitioner had been rejected on 11^th December, 2023 by inter alia, proceeding on the premise that since the petitioner had allegedly filed a declaration that he would not file any appeal with respect to the refund being Application No. ARN: AA190821030503H dated 17t^h August, 2021 while submitting Form GSTPMT-03, his appeal stood rejected.

4. Heard the learned advocates for the respective parties. It appears that the appellate authority had also rejected the appeal on the ground of delay. It is unfortunate, that the petitioner has been made to suffer for no fault of his own. At the first instance the respondents appears to have cancelled the petitioner’s registration and immediately thereafter had proceeded to cancel the petitioner’s refund application amounting to Rs.97,45,520/- even without a show-cause. Subsequently, at the instance of the petitioner when the petitioner’s registration under the said Act was restored by an order dated 28t^hMarch, 2022 with effect from 25t^hOctober, 2019, ordinarily the petitioner’s refund application ought to have been restored as well since, the only ground for rejection of such application was cancellation of the petitioner’s registration. The matter did not stop there. The petitioner had to run from pillar to post. Despite the above the petitioner did not succeed, even after filing of an application in Form GST PMT 03 by providing an undertaking that the petitioner shall not file an appeal from the order to be passed thereon. When the respondents did not take any steps in the matter and did not credit the aforesaid amount, the petitioner approached the appellate authority from the original order of rejection. The appellate authority appears to have dealt with the matter in a reckless manner and appears to have rejected the appeal on the ground that the petitioner had given an undertaking while filing Form PMT 03 that he shall not prefer an appeal from the determination to be made. The conduct of the concerned respondent is deplorable to say the least.

5. At this stage, Mr. Chakraborty, learned advocate appears on behalf of the respondents and would submit that the matter may be remanded back to the appellate authority.

6. Having regard thereto and considering the facts of this case, I set aside the order dated 11t^hDecember, 2023 passed by the appellate authority and remand the matter back to the appellate authority for a fresh hearing on merits. The matter shall not be dealt with the officer concerned who had dealt the matter previously. The appellate authority shall hear out and dispose of the appeal as expeditiously as possible, preferably within a period of three weeks from the date of communication of this order by passing a reasoned order and upon giving an opportunity of hearing to the petitioner.

7. Needless to note, if the appellate authority is of the view that the petitioner is entitled to the benefit of refund, such refund shall carry an appropriate statutory interest and consequent thereupon the entire amount of refund along with interest shall be credited to the petitioner’s credit ledger forthwith.

8. With the above observations and directions the writ petition is disposed of.

9. There shall be no order as to costs.

Urgent Photostat certified copy of this order, if applied for, be made available to the parties upon compliance of requisite formalities.