GST Refunds: Common Grounds for Denial and Legal Remedies

The Goods and Services Tax (GST) law in India provides a way for registered taxpayers to claim refunds for excess tax paid, unused input tax credit (ITC), or other eligible situations. These rules are mainly found under Section 54 of the CGST Act, 2017, and Rules 89 to 97A of the CGST Rules.

But, GST refund claims are often rejected due to mistakes in paperwork, delays, or legal issues. This article explains the common reasons refunds are denied and the legal options available to taxpayers.

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Common Reasons for GST Refund Rejections

1. Incomplete or Incorrect Documents: Refund claims are often rejected due to missing or inaccurate documents like invoices, shipping bills, or GSTR-2A. A “Deficiency Memo” is usually issued, requiring refiling.

2. Missing the Deadline: Refunds must be filed within two years of the relevant date. Delays typically lead to rejection unless courts grant relief in exceptional cases.

3. GSTR-2A and ITC Mismatch: If supplier invoices don’t appear in GSTR-2A, ITC-based refunds may be denied—even if the buyer has valid proof. Courts have questioned this approach, especially for genuine buyers.

4. Failing the Unjust Enrichment Test: Refunds (except exports and ITC) are denied if the claimant can't prove they bore the tax burden. For amounts over ₹2 lakh, a CA certificate is required.

5. Wrong Refund Category: Selecting the incorrect refund type in the application may lead to rejection. Courts have allowed reapplication if the claim is otherwise valid.

6. Export Non-Compliance: Missing LUTs, shipping proofs, or GST–customs data mismatches can result in denial. Courts have supported exporters facing technical issues.

7. Fraud or Non-Compliance Allegations: Suspected fake invoices or bogus claims lead to denial and possible penalties. Strong documentation is essential to counter such allegations.

8. No Hearing or Reason Given: Rejections without proper notice or opportunity to respond violate legal rights and can be set aside by courts.

9. Supplier’s Non-Payment of GST: Buyers may be denied ITC refunds if the supplier didn’t pay GST. Courts have ruled in favor of genuine buyers in such cases.

10. GST Portal Glitches: Technical issues preventing form filing or data uploads can cause rejection. Courts have granted relief when system errors were proven.

Legal Remedies for GST Refund Denials in India

1. Fixing Errors After a Deficiency Memo (Form GST RFD-03)

When the GST officer finds that your refund application is missing details or documents, they’ll issue a Deficiency Memo in Form GST RFD-03. This doesn’t mean your refund is rejected, but you must correct the mistakes and file a new application. The tax amount debited earlier is automatically re-credited.

It’s important to refile quickly because the date of your original application does not count toward the two-year time limit.

Tip: Double-check your documents before refiling to avoid repeating the same errors.

2. Responding to a Show Cause Notice (Form GST RFD-08/09)

Sometimes the officer may issue a notice (Form GST RFD-08) asking for clarification or explaining why your refund may be denied. You need to reply in Form GST RFD-09 within 15 days, explaining your position and attaching any necessary proof.

After this, the officer can either issue a provisional refund (up to 90%) or pass a final order allowing or rejecting the refund.

Tip: Get expert help to prepare a strong reply covering all points raised in the notice.

3. Appeal to the Appellate Authority (Section 107 of CGST Act)

If your refund claim is officially rejected (in Form GST RFD-06), you can appeal to the Appellate Authority within 3 months from the date of the order. If your appeal only challenges a penalty, you must deposit 10% of the disputed amount as per the 2024 amendment.

You can appeal based on legal misinterpretation, wrong facts, or violations like not getting a proper hearing.

Tip: Support your case with strong documentation and court rulings to improve your chances.

4. Appeal to the GST Appellate Tribunal (GSTAT)

If you’re unhappy with the Appellate Authority’s decision, you can go to the GST Appellate Tribunal (GSTAT) under Section 112 of the CGST Act. This must be done within 3 months. The Tribunal handles legal and factual disputes related to GST.

You can challenge things like incorrect law interpretation or denial of the refund due to technical errors.

Tip: A tax lawyer can guide you through the GSTAT process, which involves strict legal procedures.

5. Writ Petition to High Court

If you believe your refund denial violates your legal rights—for example, if you weren’t given a fair hearing—you can file a writ petition under Article 226 of the Constitution in the High Court.

High Courts across India have supported taxpayers in cases like:

• Kerala HC: Accepted manual refund filing when the portal didn’t work.
• Patna HC: Struck down a refund rejection that relied on outside material not mentioned in the notice.
• Sikkim HC: Allowed a refund despite company ownership changes.
• Bombay HC: Granted IGST refunds even when the GST and customs portals weren’t aligned.

Tip: Use writ petitions when the GST system has failed you or when quick relief is needed.

6. Appeal to the Supreme Court

If a High Court decision involves a serious legal question or constitutional issue, you can approach the Supreme Court under Article 136. The Supreme Court has clarified important GST issues, such as whether the buyer should suffer if the supplier fails to pay GST.

Tip: These appeals are time-consuming and expensive, so they’re best reserved for big legal questions.

7. Grievance Redressal Committee (GRC)

If your problem is more about delays or process issues, you can file a complaint with the Grievance Redressal Committee. These committees include GST officers and taxpayer representatives and work at the zonal and state level.

Their suggestions aren’t legally binding, but they can help move things faster.

Tip: Use the GRC for small issues before going for full-blown legal action.

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8. Alternative Dispute Resolution (ADR)

In some cases, you may choose to settle refund issues through mutual discussion, mediation, or arbitration instead of going to court.

Tip: Though not widely used for GST, ADR can save time and effort if both sides are willing to cooperate.

Key Judicial Precedents Supporting GST Refund Remedies

The Madras High Court, in Lenovo (India) (P) Ltd., held that the two-year time limit for refund claims under Section 54 of the CGST Act is not always mandatory. It allowed refunds beyond this period in genuine cases and ruled that ITC should not be denied merely because the supplier failed to deposit tax, provided the buyer can prove the authenticity of the transaction.

The Kerala High Court in Diya Agencies and the State Tax Officer rejected refund denials based solely on the non-reflection of invoices in GSTR-2A. It emphasized that if the taxpayer can prove genuine purchases, refunds should not be blocked due to supplier-side defaults. Similarly, the Delhi High Court in Syschem India Limited and Union of India is examining the constitutional validity of Section 16(2)(c), with interim observations supporting innocent buyers who acted in good faith.

In Reva Giant Implex LLP v. Union of India, the Delhi court set aside an order rejecting a GST appeal due to technical glitches on the GST portal, noting that the petitioner had submitted the required digital data online.

Several decisions from CESTAT also support taxpayers. The Delhi Bench ruled that a refund cannot be denied just because it is recorded as an expense, especially if the excess tax wasn’t passed on to customers. In another case, the Delhi Bench allowed refund claims despite the delayed reversal of CENVAT credit during the GST transition, treating it as a procedural lapse rather than a substantial error.

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