Facts of the Case

The Petitioner, M/s Balaji Exim, filed refund applications dated 11.09.2020 and 12.09.2020 seeking refund of unutilized Input Tax Credit (ITC) amounting to ₹72,03,961 and ₹12,40,270 respectively, relating to export of goods.

The refund claims were initially processed, but subsequently questioned on the ground that the Petitioner’s supplier (M/s Shruti Exports) was allegedly involved in issuing fake invoices.

A show cause notice dated 04.06.2021 was issued proposing rejection of refund claims. Despite submission of documents and personal hearing, the refund applications were rejected by Order-in-Original dated 02.07.2021, and later dismissed in appeal by Order-in-Appeal dated 31.03.2022.

The rejection was primarily based on suspicion that transactions formed part of a “fake ITC supply chain.” 

Issues Involved

  1. Whether refund of ITC can be denied merely on suspicion of fake invoices issued by the supplier.
  2. Whether the purchasing dealer is required to verify the genuineness of the supplier’s transactions.
  3. Whether compliance with Section 16(2) of the CGST Act, 2017 requires proof beyond possession of invoices, payment, and export of goods.

Petitioner’s Arguments

  • The purchases were genuine and supported by valid tax invoices.
  • Goods were actually exported and consideration including IGST and Cess was paid.
  • The Petitioner cannot be held responsible for alleged irregularities of the supplier.
  • Reliance was placed on the decision in Vijander Kumar Goel v. Assistant Commissioner, CGST, where ITC was unblocked.

Respondent’s Arguments

  • The supplier (M/s Shruti Exports) was under investigation for issuing fake invoices.
  • It was alleged that the transactions were part of a fraudulent ITC chain.
  • The condition under Section 16(2) CGST Act (receipt of goods) was allegedly not satisfied. 

Court Findings / Order

The Delhi High Court held:

  • Refund rejection was based merely on apprehension and suspicion without cogent evidence.
  • There was no dispute that:
    • Goods were exported
    • Invoices were issued by a registered dealer
    • Taxes were paid by the Petitioner
  • The Court emphasized that:
    • A purchasing dealer is not required to investigate the supplier’s affairs.
    • Allegations against the supplier cannot automatically deny ITC to a bona fide purchaser.

Order:

  • The petitions were allowed.
  • Respondents were directed to process and grant refund of ITC including Cess.

Important Clarification by Court

  • If later material establishes non-supply of goods or fraud, authorities are free to initiate action in accordance with law.

Sections Involved

  • Section 16(2), Central Goods and Services Tax Act, 2017
  • Provisions relating to Input Tax Credit and Refund under GST Law

 Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/VIB10032023CW104072022_194641.pdf

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