Facts of the Case

The respondent, M/s Bushrah Export House Two Star, Lucknow, filed a refund application under the GST law seeking refund of accumulated Input Tax Credit (ITC) relating to goods exported outside India. A provisional refund was sanctioned after preliminary verification. Subsequently, during scrutiny, the department alleged that certain suppliers had issued invoices without valid e-way bills and that the suppliers' GST registrations had later been cancelled.

Based on these allegations, a show cause notice was issued proposing rejection of the refund claim, recovery of the sanctioned refund, recovery of ITC along with interest, and imposition of penalties. The adjudicating authority accepted the allegations and passed an order rejecting part of the refund while directing recovery of refund, ITC, interest, and penalties.

The respondent preferred an appeal before the Additional Commissioner (Appeals), who held that the goods had been supplied within Surat, Gujarat, where, under the applicable State notification, generation of an e-way bill was not mandatory for intra-city movement. Consequently, the appellate authority allowed the appeal and directed release of the remaining refund.

The department challenged the appellate order before the Allahabad High Court.

Issues Involved

  1. Whether GST refund could be denied solely on the allegation that suppliers had not generated e-way bills.
  2. Whether the department could rely upon grounds not specifically mentioned in the show cause notice while defending the rejection of refund.
  3. Whether the appellate authority rightly granted refund by relying upon the Gujarat notification exempting intra-city movement from e-way bill requirements.
  4. Whether recovery of ITC, refund, interest, and penalties under the CGST Act was legally sustainable.

Petitioner's Arguments

The department contended that:

  • The respondent had wrongly claimed Input Tax Credit based on supplies received from certain suppliers whose registrations were subsequently cancelled.
  • No valid e-way bills had been generated for the movement of goods.
  • Since the goods were allegedly transported from Surat to Kanpur for export without e-way bills, the refund was rightly denied.
  • The appellate authority committed an error by setting aside the adjudication order and directing release of the refund.

Respondent's Arguments

The respondent submitted that:

  • The goods supplied by the vendors were transported within Surat, Gujarat.
  • Under the Gujarat Government Notification dated 19.09.2018, no e-way bill was required for intra-city movement of goods irrespective of value.
  • The invoices and supporting documents established genuine receipt of goods.
  • The show cause notice only alleged non-generation of e-way bills by suppliers during intra-city movement and did not allege violation regarding transportation of export goods from Surat to Kanpur.
  • Therefore, the department could not introduce entirely new allegations while defending the adjudication order.

Court Order / Findings

The Allahabad High Court dismissed the writ petition filed by the department and upheld the appellate authority's order.

The Court observed that:

  • A show cause notice must clearly specify every allegation against the taxpayer.
  • The adjudicating authority as well as the department cannot travel beyond the allegations contained in the show cause notice.
  • The original show cause notice only questioned the absence of e-way bills relating to supplies received from vendors.
  • The department's later argument regarding transportation of finished goods from Surat to Kanpur without e-way bills was not part of the original show cause notice and therefore could not be relied upon.
  • The appellate authority correctly examined the invoices and found that the supplies were intra-city movements within Surat.
  • Since the Gujarat Notification dated 19.09.2018 exempted such movement from e-way bill requirements, denial of refund was unjustified.
  • The appellate findings were neither arbitrary nor perverse and therefore required no interference.

Accordingly, the High Court dismissed the writ petition and upheld the refund in favour of the exporter.

Important Clarification

This judgment reiterates several important principles under GST law:

  • A taxpayer can only be proceeded against on the allegations specifically mentioned in the show cause notice.
  • Authorities cannot introduce fresh grounds during adjudication or judicial proceedings.
  • GST refund cannot be denied merely because suppliers' registrations were subsequently cancelled unless statutory conditions are actually violated.
  • Where State notifications exempt intra-city movement from e-way bill requirements, refund cannot be rejected on the ground of absence of e-way bills.
  • Judicial review will generally not interfere with well-reasoned appellate findings based on evidence.

Sections Involved

  • Section 16 – Eligibility and conditions for Input Tax Credit
  • Section 50 – Interest on delayed payment of tax
  • Section 54 – Refund of tax
  • Section 74 – Determination of tax involving fraud, wilful misstatement or suppression of facts
  • Section 122(1)(viii) – Penalty relating to fraudulent refund
  • Section 122(1)(xiv) – Penalty for transportation of goods without prescribed documents
  • CGST Rules, 2017 – E-Way Bill Rules (Chapter XVI)
  • Gujarat Notification dated 19.09.2018 relating to intra-city movement of goods

Link to Download the Order

https://www.mytaxexpert.co.in/uploads/1785395352_2335compressed.pdf

 

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