IGST Refund on Exports cannot be denied on Ground of Alleged Excess ITC of Prior FY Without SCN: Delhi HC [Read Order]
The Delhi High Court ruled that IGST refunds on exports cannot be withheld for alleged excess ITC of a prior financial year without issuance of a show cause notice under the CGST Act.
In a recent ruling, the Delhi High Court held that refund of IGST on exports cannot be withheld merely on the ground of alleged excess availment of input tax credit of a prior financial year, in the absence of issuance of a show cause notice under Sections 73 or 74 of the Central Goods and Services Tax Act, 2017.
Stanlee (India) Enterprises Pvt. Ltd., the petitioner, filed a writ petition challenging the refund rejection order dated 3 February 2025 passed by the Commissioner of CGST, Delhi North. The petitioner had applied for refund of IGST paid on exports for the months of August, September, and October 2024, amounting to a total sum of Rs. 39,73,360.73 along with applicable interest.
The refund applications were filed on the basis of shipping bills uploaded and verified on the ICEGATE portal. However, the department issued a notice in Form GST RFD-08 proposing rejection of the refund claims on the ground that, upon comparison of GSTR-2A and GSTR-3B for the financial year 2019-20, excess input tax credit had been availed by the petitioner.
The petitioner replied to the notice and argued that the refund claims related to exports made in 2024, whereas the alleged excess ITC pertained to a completely different financial year, namely 2019–20. The petitioner’s counsel further argued that no show-cause notice under Section 73 or Section 74 of the CGST Act had ever been issued for the alleged excess ITC, and that refund proceedings could not be used to recover or adjust disputed credits of a prior period.
The petitioner's counsel also stated that although a personal hearing was scheduled, no effective hearing took place as the concerned officer was on election duty.
The counsel further argued that if the department believed that excess ITC had been availed for the financial year 2019-20, it was free to initiate proceedings in accordance with law, but it could not withhold IGST refunds for later years without following the prescribed statutory procedure. They also pointed out that a GST audit had already been conducted for the period from 1 April 2018 to 31 March 2024, demands for other years had been raised and paid, and no demand had been raised for the financial year 2019-20.
The department, on the other hand, argued that although no show cause notice under Sections 73 or 74 had been issued, the refund rejection order contained reasons relating to excess availment of ITC, and on that basis, the rejection was justified.
The Division Bench comprising Justice Prathiba M. Singh and Justice Renu Bhatnaga observed that under the CGST Act, recovery of tax or wrongly availed ITC can be initiated only by issuance of a show cause notice under Sections 73 or 74. The court observed that Rule 92(3) of the CGST Rules, which governs refund rejection, cannot be used as a mechanism to indirectly recover alleged excess ITC when no proceedings for recovery have been initiated in accordance with law.
The court explained that in the present case, there was no dispute regarding the exports or the refund claims for the months in question. The alleged excess ITC related to a prior financial year, and admittedly, no show cause notice had been issued for that period. The court also observed that the audit report covering the period up to 31 March 2024 did not record any irregularity relating to ITC for the financial year 2019–20.
Relying on the statutory scheme and the decision of the Supreme Court in Armour Security (India) Ltd. v. Commissioner (CGST), the High Court pointed out that issuance of a show cause notice is the foundation of any recovery proceedings under the GST law, and without such notice, the department cannot proceed against an assessee, directly or indirectly.
In view of these findings, the court held that there was no valid justification for withholding the petitioner’s IGST refunds. The impugned refund rejection order was set aside, and the department was directed to release the total refund amount of Rs. 39,73,360.73 along with applicable statutory interest within a period of two months. The writ petition was disposed of accordingly, and the matter was listed for compliance.
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