Facts of the Case

M/s. Paradeep Phosphates Ltd. filed a writ petition before the High Court of Orissa raising four prayers concerning refund under the GST regime. During the proceedings, the petitioner acknowledged that prayer nos. (i) and (ii) did not survive in view of the judgment of the Supreme Court in Union of India vs VKC Footsteps India Pvt. Ltd., 2021 (52) G.S.T.L. 513 (S.C.).

The petitioner also did not press prayer no. (iii), which sought a direction to the concerned authority not to deny the refund sanctioned to the petitioner in respect of GST paid on input services for the period from July 2017 to January 2018 as a consequence of the retrospective amendment to Rule 89(5) of the CGST Rules.

The petitioner, however, continued to press prayer no. (iv), challenging the show cause notice dated 3 July 2019 seeking recovery of the refund already sanctioned for the period from July 2017 to January 2018. The petitioner also challenged the consequential order dated 8 November 2019 passed by the Assistant Commissioner, CGST & Central Excise, Cuttack-II Division, requiring return of the refund amount along with interest.

Issues Involved

The principal issues before the High Court were:

  1. Whether the show cause notice dated 3 July 2019 seeking recovery of the GST refund sanctioned to the petitioner could be interfered with after the retrospective amendment to Rule 89(5) of the CGST Rules, 2017.
  2. Whether the consequential order dated 8 November 2019 directing the petitioner to return the refund amount with interest was liable to be set aside.
  3. Whether the petitioner’s inability to file a reply to the show cause notice could affect the legality or ultimate result of the recovery proceedings.
  4. Whether recovery of the refund already granted became an automatic consequence once the retrospective amendment to Rule 89(5) was upheld by the Supreme Court.

Petitioner’s Arguments

The petitioner challenged the show cause notice dated 3 July 2019, which sought recovery of the refund sanctioned for the period from July 2017 to January 2018.

The petitioner further challenged the consequential order dated 8 November 2019 passed by the Assistant Commissioner, CGST & Central Excise, Cuttack-II Division, requiring repayment of the refund amount along with interest.

It was specifically submitted that the petitioner had been unable to file a reply to the show cause notice and that the consequential adverse order was thereafter passed by the Assistant Commissioner. The petitioner therefore continued to press prayer no. (iv) against the recovery proceedings and consequential order.

Respondent’s Arguments

The order records representation for the Union of India and the other opposite parties through the Senior Standing Counsel for the Income Tax Department. Although the short order does not separately reproduce detailed respondent submissions, the legal position accepted by the Court was that the refund had become returnable because of the retrospective amendment to Rule 89(5) of the CGST Rules, 2017, and that the amendment had been upheld by the Supreme Court.

Accordingly, recovery of the refunded amount followed as a consequence of the binding legal position.

Court Order / Findings

The High Court held that the refund had become returnable by the petitioner as a result of the retrospective amendment to Rule 89(5) of the CGST Rules, 2017.

The Court specifically observed that the said amendment had been upheld by the Supreme Court. Therefore, recovery of the refunded amount was “but an automatic consequence.”

The High Court further held that the mere fact that the petitioner had not filed a reply to the show cause notice would make no difference to the ultimate result.

Consequently:

  • prayer no. (iv) was rejected;
  • the challenge to the recovery of the refunded amount failed; and
  • the writ petition was dismissed.

These findings appear in paragraph 4 and the dismissal order in paragraph 5 on page 2 of the judgment.

Important Clarification

The decision is significant because the High Court treated recovery of the refunded amount as an automatic consequence of the retrospective amendment to Rule 89(5), once the relevant legal position stood upheld by the Supreme Court.

The Court also clarified, in the specific facts and legal context of the case, that non-filing of a reply to the show cause notice did not alter the outcome. Since the refund had become returnable due to the retrospective amendment and the amendment had been upheld by the Supreme Court, the procedural fact of non-submission of a reply made no difference to the result.

This ruling should therefore be read in its precise context: the Court’s conclusion regarding non-filing of reply was linked to its finding that, because of the retrospective amendment upheld by the Supreme Court, recovery of the refunded amount followed as an automatic consequence.

Sections / Provisions Involved

Rule 89(5) of the CGST Rules, 2017 – Relevant to computation and refund of unutilised input tax credit in cases covered by the rule, including the controversy concerning refund under the inverted duty structure.

Retrospective Amendment to Rule 89(5) of the CGST Rules, 2017 – Central to the dispute because the High Court held that the refund became returnable as a result of the retrospective amendment.

The judgment itself specifically records the retrospective amendment to Rule 89(5) and the consequence flowing from its having been upheld by the Supreme Court.

Link to download the order –https://www.mytaxexpert.co.in/uploads/1783326467_1265compressed.pdf

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