The Rajasthan High Court in a significant case directed the Goods and Service Tax(GST) Department to allow the refund as the act of requiring the Requiring Solvent Security and Bank Guarantee are beyond the scope of Section 54(11) of Rajasthan GST Act, 2017.
M/s. Raj Kamal Cargo Movers, the petitioner filed the writ petition seeking direction to respondent No.1 to issue the refund due to it forthwith. The orders passed by the Assistant Commissioner, created a demand of Rs. 26,70,276/- and Rs.34,88,364/-, respectively.
The petitioner filed an appeal which came to be decided by order whereby, the orders dated 30/3/2021 & 28/5/2021 were set aside and the amount of demand recovered from the petitioner of Rs.34,88,354/- was ordered to be refunded as per law.
The petitioner applied online through the GST Common Portal for a refund of the amount. Respondent no.1 referred the matter to his higher authority for withholding the amount of refund under Section 54(11) of the Rajasthan Goods & Services Tax Act, 2017 (‘the Act, 2017’).
Respondent no.2 after hearing the parties, passed the order dated 7/12/2022 (Annex.3) and concluded that there exists no reasonable and strong ground for withholding the refund and directed the proper officer to process the application of refund as per the provisions of the Act/Rules provided the petitioner furnishes solvent security as per his satisfaction.
The petitioner submitted the requisite for complying with the directions of furnishing the solvent security and requested respondent no.1 to refund the amount with up-to-date interest. However, respondent no.1 ordered that in the interest of the State before allowing the refund, a bank guarantee in the form of solvent security needs to be taken and required the petitioner to furnish the bank guarantee. The petitioner contested the said requirement of furnishing the bank guarantee, however, the refund was not made.
It was argued that though the order passed by respondent no.2 requiring the petitioner to furnish solvent security is beyond the scope of Section 54 (11) of the Act, 2017 still the petitioner complied with the requirement of furnishing the solvent security, however, the respondent no.1 going beyond the directions given by respondent no.2 has demanded bank guarantee from the petitioner, which is not justified.
It was further submitted that action of the respondent No. 1 in demanding the bank guarantee only reflects the high-handedness of the said authority since the requirement of providing solvent security cannot be equated with furnishing a bank guarantee.
It was found that the order passed by the appellate authority while rejecting the prayer of the respondent on an application filed under Section 54 (11) of the Act, 2017 was very clear and specifically required the proper officer to process the application for refund as per the provisions of Act/Rules provided the petitioner furnishes the solvent security as per his satisfaction.
A division bench of Justice Arun Bhansali and Justice Ashutosh Kumar observed that the indication made that the bank guarantee needs to be taken from the petitioner by way of solvent security by itself is contradictory since the term ‘solvent security’ essentially means that the person who is providing the security should not have been declared bankrupt by the court and he has to produce documents to indicate that he owns some movable/immovable property, which is equivalent to the amount for which the said security is being provided.
It was observed that the action of respondent no.1 in seeking bank guarantee from the petitioner is ex-facie contrary to the directions of respondent no.2 and, therefore, the same cannot be sustained.
The Court allowed the writ petition filed by the petitioner and directed the respondent to comply with the directions of the appellate authority and that of the Chief Commissioner, State Taxes within two weeks.
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