Facts of the Case

The Petitioner, Toray Industries (India) Private Limited, had its refund claim under GST rejected by the Adjudicating Authority. The Petitioner challenged the rejection order before the High Court on three grounds: that no notice was issued and it was not heard before the order was passed; that the order was passed in violation of Circular No.159/15/2021-GST dated 20.09.2021; and that the Department's interpretation underlying the rejection was unconstitutional. The matter was heard on advance notice, with senior counsel appearing for the Revenue.

Issues Involved

  1. Whether the refund rejection order, passed without notice or hearing, could be sustained.
  2. Whether the order was consistent with Circular No.159/15/2021-GST.
  3. Whether the Department's interpretation, if read as the Petitioner contended, raised a question of constitutionality requiring adjudication.

Petitioner's Arguments

  • The refund rejection order was passed without any notice being given and without the Petitioner being heard.
  • The order was passed in violation of Circular No.159/15/2021-GST dated 20.09.2021, which governs the manner of processing such refund claims.
  • The interpretation adopted by the Department, if upheld, was unconstitutional.

Respondent's Arguments

  • Senior counsel for the Revenue fairly stated that, as regards the grounds of absence of notice and violation of the circular, the matter could be remanded to the Adjudicating Authority for a fresh decision in accordance with the circular.
  • If the circular were read in the manner the Petitioner urged, the question of constitutionality would not arise at all.

Court Order / Findings

  • The Court found favour with the Revenue's concession and set aside the impugned refund rejection order.
  • The matter was remanded to the Adjudicating Authority to decide the issue afresh, in accordance with law and Circular No.159/15/2021-GST, within a period of eight weeks.
  • Having found that a proper application of the circular would resolve the dispute, the Court did not go into the constitutional challenge, leaving that question open.
  • The petition, and any pending civil miscellaneous application, stood disposed of.

Important Clarification

  • A refund rejection order passed without notice or hearing is liable to be set aside on natural justice grounds alone, independent of the merits of the refund claim.
  • Where an adjudicating authority's order can be reconciled with the applicable circular on remand, courts will generally decline to rule on a broader constitutional challenge until that administrative remedy is exhausted.

Sections Involved

  • Circular No.159/15/2021-GST, dated 20.09.2021 — issued by the CBIC clarifying the procedure for sanction of refunds, non-adherence to which vitiated the impugned order.
  • Principles of natural justice under Article 226 of the Constitution — invoked to set aside an order passed without notice or hearing.

Decision – In Favour of

Disposed of with directions, in favour of the Assessee — the rejection order was set aside for want of notice and non-compliance with the governing circular, and the matter was remanded for fresh adjudication within eight weeks, with no finding recorded on the constitutional question.

Case Details

  • Court: High Court of Punjab and Haryana at Chandigarh
  • Case No.: CWP-3175-2022
  • Coram: Justice Ajay Tewari and Justice Pankaj Jain
  • Date of Decision: 21.02.2022
  • Parties: Toray Industries (India) Private Limited vs Union of India and Others

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