Facts of the Case

The Petitioner, a GST‑registered exporter, filed applications for refund of IGST for export transactions in August, September, and October 2024, claiming refunds of ₹9,91,007.39, ₹19,87,614.73, and ₹9,94,739 respectively. These refund applications were rejected by the Respondent through RFD‑08 notices on the ground of alleged excess Input Tax Credit (ITC) as revealed by comparison of GSTR‑2A and GSTR‑3B returns for FY 2019‑20.

The Petitioner responded that:

  • The shipping bills were verified via ICEGATE and refunds related to 2024, not FY 2019‑20.
  • No Show Cause Notice under Section 73 or 74 of the Central Goods and Services Tax Act, 2017 (CGST Act) was issued for excess ITC.
  • A personal hearing was ineffective due to officer’s election duty.
  • Audit demands were raised for other years and paid, but not for 2019‑20.

The Respondent contended that the RFD‑08 rejections of refunds were justified due to alleged excess ITC without issuing statutory notices.

Issues Involved

  1. Whether the Department can reject refund claims on the basis of alleged excess ITC without issuing a Show Cause Notice under Section 73 or 74 of the CGST Act.
  2. Whether Rule 92(3) of the CGST Rules, 2017 can be used to withhold valid refunds when no statutory proceedings for excess ITC were initiated.

Petitioner’s Arguments

  • Refund rejection was unjustified since no statutory proceedings under Section 73 or 74 were initiated.
  • Excess ITC in an unrelated year (2019‑20) cannot justify withholding refunds for 2024.
  • Department’s audit and demands pertained to other years and did not cover FY 2019‑20.
  • No valid opportunity of hearing was provided.

Respondent’s Arguments

  • The rejection notice cited excess ITC based on GSTR‑2A vs GSTR‑3B comparison.
  • Therefore, refunds were rightly denied.

Court Order / Findings

After considering the legal framework, the Delhi High Court held that:

  1. Under the CGST Act, excess ITC can only be addressed through issuance of a Show Cause Notice under Section 73 or 74.
  2. A notice under Rule 92(3) of the CGST Rules cannot replace statutory show‑cause proceedings for denial of refunds.
  3. Without a proper show‑cause notice, there is no valid initiation of proceedings relating to ITC recovery.

Final Decision

  • The rejection orders were set aside.
  • The Respondent was directed to refund ₹39,73,360.73 (total IGST refund) to the Petitioner with applicable interest within two months.
  • Petition disposed with pending applications also disposed.
  • Compliance listing set for March 16, 2026. 

Important Legal Clarifications

Refund claims cannot be withheld merely on the ground of alleged mismatch in returns without statutory proceedings.
 Section 73 and Section 74 of the CGST Act are mandatory for determination of excess ITC.
 Rule 92(3) notice is not a substitute for a Show Cause Notice where recovery or penalty is contemplated.
 Natural justice and statutory safeguards must be followed in GST adjudication

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/PMS03122025CW53702025_103910.pdf 

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