Facts of the Case

The petitioner, M/s Balaji Exim, filed refund applications seeking refund of unutilized ITC on exports, including IGST and Cess. The refund claims were rejected by the department on the ground that the supplier (M/s Shruti Exports) was allegedly involved in issuing fake invoices.

Despite:

  • Submission of all required documents,
  • Acknowledgment of applications, and
  • Proof of export of goods,

the authorities rejected the refund applications and upheld the rejection in appeal, alleging that the transactions formed part of a “fake ITC supply chain.”

Issues Involved

  1. Whether ITC refund 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 fulfillment of conditions under Section 16(2) CGST Act was established.

Petitioner’s Arguments

  • The purchases were genuine and supported by valid tax invoices.
  • Goods were actually exported and payments including tax were made.
  • No involvement in any alleged fraud by the supplier.
  • Reliance placed on judicial precedent where bona fide purchasers cannot be penalized for supplier’s default.
  • The supplier’s ITC was already unblocked by another High Court order.

Respondent’s Arguments

  • The supplier was under investigation for issuing fake invoices.
  • The transactions appeared to be part of a fraudulent ITC chain.
  • Condition under Section 16(2) CGST Act (receipt of goods) was not satisfied.
  • Refund was rightly denied due to suspicion of “goodless supply.”

Court’s Findings / Order

The Delhi High Court held:

  • Refund cannot be denied merely on suspicion without cogent evidence.
  • There was no dispute regarding:
    • Export of goods,
    • Payment of invoices including tax,
    • Validity of invoices issued by a registered dealer.
  • The petitioner had fulfilled all essential conditions for claiming ITC.
  • The department failed to establish that goods were not supplied.

Final Order

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

Important Clarification by Court

  • A purchasing dealer is not required to investigate the affairs of its supplier.
  • ITC cannot be denied unless it is proven that:
    • Goods were not received, or
    • Payment was not made.
  • However, authorities are free to take action if concrete evidence emerges later regarding non-supply of goods.

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

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