Bombay HC Orders Denovo Adjudication on GST Refund Application by K Line India Pvt Passed Without Deficiency Memo or Hearing [Read Order]

The High Court of Bombay disposed of a batch of writ petitions filed by K Line India Pvt. Ltd., a shipping company, challenging the rejection of its Integrated Goods and Services Tax ( IGST ) refund claim. It was held that a refund application cannot be rejected without issuing a deficiency memo and provision of hearing opportunity.

The petitioner had sought a refund for tax paid on zero-rated supplies made to an SEZ unit in December 2017. The department rejected the refund application via an ex-parte order dated September 13, 2019. Later, the Appellate Authority dismissed the petitioner's appeal against this rejection on July 31, 2023, holding it to be time-barred by over 39 months.

The petitioner contended that the original rejection order was void ab initio and non-est because the Proper Officer had violated the mandatory procedure prescribed under Rule 92 of the CGST Rules, 2017. It was argued that the Officer failed to issue a deficiency memo or grant an opportunity of personal hearing before passing the rejection order. Furthermore, the petitioner pointed out that the original order was never uploaded on the GST portal.

The petitioner submitted that because the initial order was legally defective, it should not act as a bar to pursuing its claim. It was highlighted that the department itself entertained a subsequent refund application filed by the petitioner in February 2020 and even issued a deficiency memo regarding it, but failed to take the matter to its logical conclusion.

The respondents supported the Appellate Authority's order, arguing that the appeal was justifiably dismissed due to the gross delay in filing. However, the respondents' counsel could not dispute the lack of compliance with Rule 92 during the original adjudication.

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The court comprising Justice G. S. Kulkarni & Justice Aarti Sathe ruled in favour of the petitioner, holding that the ex-parte order rejecting the refund could not be sustained as it violated the principles of natural justice and the specific mandate of Rule 92. Relying on its decision in M/s. Knowledge Capital Services Pvt. Ltd. vs. Union of India, the Court noted that a refund application cannot be rejected without issuing a deficiency memo and providing a hearing.

The Court observed that the petitioner was not sleeping over its rights, as it had filed rectification applications and a fresh claim shortly after the rejection, coinciding with the onset of the Covid-19 pandemic. Consequently, the Court held that the subsequent refund application, on which a deficiency memo was issued, remained valid and required consideration.

The Court allowed the petitions, setting aside the orders of both the Adjudicating Authority and the Appellate Authority. It directed the Designated Officer to decide the petitioner's refund application dated February 12, 2020 (and subsequent applications) de novo in accordance with the law, specifically complying with Rules 90 and 92 of the CGST Rules, within a period of six weeks. All contentions of the parties were kept open.

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