JANUARY 22, 2025

By Vijay Kumar

IT is easier to pass a camel through the eye of a needle than to get a refund from GST department. Yet many audacious taxpayers embark on this Herculean quest as the one in our story.

1. A taxpayer filed a refund claim.

2. The GST Department responded with not one, but two deficiency memos, which the taxpayer promptly addressed.

3. Since the refund was not released, the taxpayer submitted representations on 13 February 2020 and 27 February 2020.

4. Because of the continued inaction of the Department, the taxpayer approached the Delhi High Court which on 24 November 2020, directed that the claim be duly processed within a period of three weeks.

5. The Department, by an order dated 14 December 2020, rejected the refund on the grounds that:

a. The taxpayer was not in existence at the registered address during the course of physical verification.

b. The taxpayer was alleged to have claimed excessive consumption of brass in its production process in manufacturing of its product.

6. The taxpayer submitted the following to prove his existence at the registered address.

a. Electricity bill issued by BSES in name of Harjinder Singh, Proprietor having the same address mentioned in GSTIN.

b. Copy of VAT assessment orders bearing the same address.

c. Copies of three refund orders issued by VAT department.

d. Income Tax Return for the assessment year 2019-20 along with the copy of balance sheet.

On appeal, the Appellate Authority noted that the Adjudicating Authority had not provided the sources from which it was observed that the product which are manufactured requires very less to no brass as any of such source was not provided for cross verification in the SCN or at the time of adjudication.

The Appellate Authority found that the appeal merits acceptance and allowed the appeal on 03 January 2022.

Despite the order passed by the appellate authority, the dispute with respect to refund continued to fester. Since the Department failed to give effect to the Order-in-Appeal, the taxpayer was constrained to approach the High Court yet again (second time). While ruling on that petition, the High Court had in the order of 28 March 2023 observed: -

The principal question that falls for consideration by this Court is whether the benefit of Order-in-appeal dated 03.01.2022 can be denied to the petitioner and the refund amount be withheld solely on the ground that the respondent has decided to file an appeal against the said order.

Concededly, the respondent has not filed any appeal against the order-in-appeal dated 03.01.2022, and there is no order of any Court or Tribunal staying the said order. Indisputably, the order-in-appeal dated 03.01.2022 cannot be ignored by the respondents solely because according to the revenue, the said order is erroneous and is required to be set aside.

And the High Court allowed the petition and directed the Department to forthwith process the petitioner's claim for refund including interest clarifying that this would not preclude the department from availing any remedy against the Order-in-appeal dated 03.01.2022 passed by the Appellate Authority.

Despite the observations made by the High Court, no further appeal was made by the Department in respect of the appellate order of 03 January 2022.

The refund claims ultimately came to be sanctioned on 09 June 2023.

A little detour:

Though the Department finally acceded to the claim of refund, they refused to accord statutory interest. Aggrieved by the aforesaid and to that extent, the petitioner preferred yet another appeal on 12 February 2024. That denial of interest in terms of the order of 09 June 2023 came to be upheld in the appeal by the order of the appellate authority dated 12 February 2024.

That forms subject matter of a separate writ petition.

The Commissioner in the meanwhile reviewed the refund order dated 09 June 2023 and held:

The refund sanctioned without receipt of Annexure-B is contrary to the provision contained in rule 90(3) of CGST Rules, 2017 which states that in deficiency of any requisite documents, the proper officer shall communicate the deficiencies to the applicant in Form GST RFD-03 through common portal electronically requiring him to file a fresh refund application after rectification of such deficiencies. In the instant case, the proper officer did not issue any deficiency memo (Form GST RFD-03) and refund order was sanctioned.

The refund sanctioning authority failed to obtain and examine the Annexure-B while passing the refund order. The refund sanctioning authority, by not raising the above-mentioned requirement has erred in sanctioning the said refund order in the absence of the said Annexure-B.

Therefore, it appears that RFD-06 issued vide Order No. CGST/ DW/ Rajouri/ R-123/ Refund/ G.S.Industries/05/2022/86 dated 09.06.2023 passed by the adjudicating authority does not appear to be legal and proper and deserves to be set aside.

Based on the above review order, the appeal of the Department was allowed by the appellate authority by an order dated 24 May 2024 holding: -

I find force in the department's appeal alleging that the adjudicating authority failed to ask for Annexure-B from the respondent and sanctioned the refund without examining the same. Hence, I hold that the impugned order passed by the adjudicating authority is neither legal nor maintainable in law and therefore the same is liable to be set aside and the departmental appeal is liable to be allowed.

Accordingly, he passed the order:

The appeal filed by the Dy./Assistant Commissioner, CGST Rajouri Garden Division, CGST Delhi West against Order-In-Original dated 09.06.2023 is hereby allowed. The impugned order is set aside.

This order dated 24 May 2024 is now challenged before the High Court. (Third time).

The High Court quashed the above order observing, (2024-TIOL-2181-HC-DEL-GST)

Undisputedly, we had in terms of our order passed on 28 March 2023 in the earlier round of litigation in unequivocal terms held that since concededly the respondents had failed to assail the Order-in- Appeal dated 03 January 2022, the claim for refund could not have been denied. That is the position which remains unchanged even till date.

That leaves us only to consider whether it would have been permissible at all for the Commissioner to question the validity of the order dated 09 June 2023 in purported exercise of powers conferred under Section 107(2) of the Act. Undisputedly the order of 09 June 2023 had come to be framed in order to give effect to the Order-in-Appeal dated 03 January 2022.

The Commissioner, while seeking to review an order passed under the Act and in purported exercise of powers vested by Section 107(2), cannot possibly sit over and above an order passed by the appellate authority. Regard must be had to the fact that the power enshrined in Section 107(2) is concerned with the examination of the record of proceedings which may have been undertaken by an adjudicating authority. It clearly does not contemplate the Commissioner seeking to even attempt to review an order passed by the appellate authority. We are thus of the firm opinion that the impugned order cannot possibly sustain.

We, consequently, allow the instant writ petition and quash the order of 24 May 2024.

See the chronology of confusion:

1. An adjudicating authority passed an order rejecting refund claim on 14 December 2020.

2. The Appellate Authority quashed that order and allowed the refund by his order dated 03 January 2022.

3. Based on the above appellate order, the adjudicating authority passed a refund order on 09 June 2023.

4. There is no appeal by the Department against the appellate order.

So far, everything is perfect and legal, though the High Court had to intervene twice in the case so far.

Now, enter the Commissioner and reviews the second order of the adjudicating authority dated 09 June 2023 and an appeal is filed against that order which is promptly allowed by the appellate authority.

High Court is not impressed. As long as the appellate order stands, the consequential adjudication order cannot be touched and that seems to be the LAW, which is being missed.

Is this a department for litigation or for ease of collection of taxes? For a refund, the taxpayer has already approached the High Court thrice and yet another petition is pending.

In this otherwise perfect symphony, the only jarring note is the first order of the appellate authority who quashed the order of the adjudicating authority without following the general understanding that he was supposed to pass orders in favour of the department which is giving him a good salary and decent perks while in service and after. Had he simply upheld the order of the lower authority, this story would not have been generated.

The slip in the story is the Commissioner deciding to review the order of the adjudicating authority without appealing against the order of the appellate authority. Why did he do it? He could have appealed, but where? The Tribunal to which he should have appealed is yet to be born. So, he took the strange route deciding that his adjudicating authority was wrong in following the orders of his superior appellate authority who he is bound to follow more than his need to follow the orders of his Commissioner. See the strange situation:

1. The adjudicating authority had to pass a refund order as directed by the appellate authority, which he did.

2. If the Commissioner thought the appellate authority was wrong, he should have appealed against that order which he didn't.

3. Instead, he found the consequential order of the adjudicating authority wrong and appealed against that order.

4. This time the appellate authority holds that the adjudicating authority is wrong as held by the Commissioner.

5. And the High Court holds the above order wrong.

Can they ever simplify things?

Is there a Master's Degree in the fine art of avoiding straightforward refund procedures, leaving the taxpayer caught in a whirlwind of memos, appeals, and high courts.

And remember, when it comes to taxes- much like a lengthy road trip-it's all about enduring the bumps along the way until you finally reach your destination (or you get that refund)! Hope our brave taxpayer emerges victorious, celebrating the end of this bureaucratic Bermuda Triangle, and avoiding a sequel titled "The Commissioner Strikes Back!"

Until next week