Facts of the Case

The petitioner sought refund of tax accumulated in its Electronic Credit Ledger on account of the inverted duty structure, for the period July 2020 to May 2022. This refund application was rejected by the Proper Officer/Assistant Commissioner, State Tax, Kotdwar (Garhwal), by order dated 31.10.2022, without granting a personal hearing, prompting the petitioner to approach the Uttarakhand High Court.

Issues Involved

  1. Whether the proviso to Rule 92(3) of the CGST Rules, 2017 mandates a personal hearing before rejection of a refund application, including one based on the inverted duty structure.

Petitioner's Arguments

  • The petitioner was entitled to a personal hearing before rejection of the refund application, relying on the proviso to Rule 92(3) of the CGST Rules, which states that no application for refund shall be rejected without giving the applicant a reasonable opportunity of being heard.
  • Reliance was placed on the Punjab & Haryana High Court's decision in Fiscalnote India Pvt. Ltd. v. Commissioner of Central Tax, 2023 (3) TMI 1061, and the Bombay High Court's decision in M/s Knowledge Capital Services Private Limited v. Union of India, 2023 (4) TMI 752, both holding personal hearing to be mandatory before refund rejection.

Respondent's Arguments

  • The Brief Holder for the State of Uttarakhand appeared and was heard on the petition; the record does not disclose a substantive rebuttal of the personal-hearing requirement beyond defending the rejection order as passed.

Court Order / Findings

  • The Court held that since input tax credit had accumulated in the petitioner's Electronic Credit Ledger on account of the inverted duty structure, it was incumbent upon the Proper Officer to grant a personal hearing before rejecting the refund application, as the proviso to Rule 92(3) of the CGST Rules unequivocally provides for an opportunity of hearing.
  • Since the petitioner was not afforded a personal hearing, the impugned rejection order dated 31.10.2022 was quashed.
  • The writ petition was allowed, and the Proper Officer was directed to reconsider the petitioner's refund application after affording an opportunity of hearing.

Important Clarification

The proviso to Rule 92(3) of the CGST Rules makes a personal hearing mandatory before any refund application — including one for accumulated ITC under the inverted duty structure — can be rejected; a rejection order passed without such a hearing is liable to be quashed regardless of the underlying merits of the refund claim.

Sections Involved

  • Rule 92(3) of the Central Goods and Services Tax Rules, 2017 – governs orders sanctioning or rejecting refund claims; its proviso mandates a reasonable opportunity of hearing before rejection of any refund application.

Decision – In Favour of

The decision was in favour of the Assessee, with the rejection order quashed and the refund application remanded for reconsideration after a personal hearing.

Case Details

  • Court: High Court of Uttarakhand
  • Case Number: WPMS No.2302 of 2023
  • Coram: Hon'ble Manoj Kumar Tiwari, J.
  • Date of Order: 19 August 2023

Link to Download the Order

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