Facts of the Case

The petitioner, M/s Shivbhola Filaments Private Limited, is engaged in manufacturing polypropylene yarn and narrow woven fabric, taxable at lower GST rates (5% and 12%), while inputs attract GST at 18%, resulting in an inverted duty structure.

Due to this structure, the petitioner filed refund applications for accumulated Input Tax Credit (ITC) for the period August 2018 to March 2019.

However, the department issued show cause notices dated 18.12.2020, proposing rejection of refund claims on the ground of mismatch between ITC claimed and GSTR-2A returns.

Despite submission of reconciliation statements by the petitioner, the refund applications were rejected through orders dated 31.12.2020, which were later upheld by the Appellate Authority vide Order-in-Appeal dated 18.11.2021.

Issues Involved

  1. Whether refund of accumulated ITC can be rejected solely due to mismatch with GSTR-2A.
  2. Whether rejection of refund without granting an opportunity of hearing violates principles of natural justice.
  3. Whether authorities are required to determine the admissible refund instead of outright rejection.
  4. Applicability of reconciliation statements submitted by the taxpayer in refund adjudication.

Petitioner’s Arguments

  • The petitioner contended that no opportunity of personal hearing was granted before rejecting the refund claims.
  • It was argued that reconciliation statements were duly submitted, and refund claims were even reduced to reflect correct figures.
  • The rejection merely on GSTR-2A mismatch was arbitrary and unjustified.
  • Authorities failed to properly examine the documents and determine the actual eligible refund.

Respondent’s Arguments

  • The department argued that there were significant discrepancies in ITC, turnover, and tax payable.
  • It relied on Circular No. 135/05/2020-GST dated 31.03.2020, stating that ITC refund is restricted to invoices reflected in GSTR-2A.
  • It was contended that the petitioner failed to reconcile mismatches satisfactorily.

Court’s Findings

  • The Hon’ble Delhi High Court observed that:
    • Authorities cannot reject refund claims solely on mismatch without giving an opportunity to reconcile.
    • The petitioner had submitted reconciliation statements, which were not properly considered.
    • No exercise was undertaken to determine the admissible portion of refund.
    • Principles of natural justice were violated as no proper hearing was granted.

Court Order / Decision

  • The Court set aside:
    • Order-in-Appeal dated 18.11.2021
    • Original rejection orders dated 31.12.2020
  • The matter was remanded back to the Adjudicating Authority with directions to:
    • Provide an opportunity of hearing to the petitioner
    • Consider reconciliation statements and explanations
    • Pass a reasoned (speaking) order determining admissible refund

Important Clarification

  • Refund claims under GST cannot be rejected mechanically due to GSTR-2A mismatch.
  • Authorities must:
    • Allow reconciliation
    • Examine documents
    • Determine eligible refund instead of outright rejection
  • Reinforces natural justice in GST adjudication.

Sections Involved

  • Section 54, CGST Act, 2017 – Refund of Tax
  • Section 107, CGST Act, 2017 – Appeals to Appellate Authority

Link to download the order - https://delhihighcourt.nic.in/app/showFileJudgment/VIB25072023CW97422023_180631.pdf

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